Islamic banking is taking a new shape in the Nigeria’s banking industry. Nigeria’s central bank has said it is setting up two financial instruments to provide liquidity support to its non-interest paying lenders. This is a way to further expand the banking system in Nigeria.
This is a way for the Nigerian government to assist the non interest bank to further move the sector forward. Nigeria is a home to the largest Muslim population in sub-Saharan Africa and also planning to establish itself as the African hub for Islamic finance.
In addition, the central bank has been working to set regulatory ground rules for such things as Islamic bonds (sukuk) and insurance (takaful) to try to emulate the success of the industry in Malaysia. Nigeria’s banking industry is dominated by lenders offering conventional products.
Some banks in Nigeria operate the islamic banking. Islamic banking is currently offered by the Islamic window of Sterling Bank, Stanbic IBTC, a unit of South Africa’s Standard Bank, and Jaiz Bank, a full-fledged Islamic lender which has operated since 2012. Many Muslims in the country have benefitted from this system which is in line with their religious beliefs.
Central bank of Nigeria has disclosed in a circular stating that it is ready to improve the islamic banking of the country:
“In a bid to aid liquidity management and deepen the financial system, the central bank hereby introduces two new financial instruments … for access by non-interest financial institutions.”
Reports confirmed that Nigeria is gradually opening up to Islamic finance to bring non-interest banking to over 80mn Muslims and develop one of Africa’s growing consumer and corporate banking sectors. This development brought smiles to the faces of Muslims as it is an encouragement to further develop the Islamic banking sector.
Further more, in October, the regulator granted liquidity status at its discount window for banks’ investment in Islamic bonds issued by national governments, and for banks’ liquidity ratios. This is a part of the investments made to further strengthen the Islamic banking sector.
In the circular, among other conditions, it said non-interest lenders must have a liquidity problem to be able to access the new window – which will offer liquidity at zero interest, although lenders will be required to post collateral. If a lender is unable to repay the funds, the central bank will discount the collateral at maturity.
To further strengthen this sector, Nigeria launched a 100billion naira ($318mn) debut sovereign sukuk in the local market in June to help develop alternative funding sources for government and to establish a benchmark curve for corporates to follow.
Muslims in Nigeria are excited with the government’s support to enhance the Islamic banking sector. The non interest style of banking has helped the sector to provide equality services to its customers. It is expected that the government will continue to support the non interest lenders for better growth and development.
