Islamic banking has the same purpose as conventional banking except it operates principally on sharing of profit and loss, and the prohibition. Cbn oversees the operations of financial institutions and banks in nigeria, helping ensure high. Islamic banking is very common in arab countries and in the northern states of nigeria. Use this section for a more detailed understanding of the industrys core products from one of its leading scholars. The main features of islamic banking include interest free loans, low consumer lending and profit and loss sharing. Interest free banking in nigeria welcome islamic banking. An excellent introduction for someone new to islamic finance. Rather, general guidelines should be issued, to accommodate interest free banking according to the precepts of any of the religions in nigeria. The recent development of insolvency of many conventional banks in nigeria made the central bank of nigeria central bank of nigeria to initiate the acquisition of some banks while others were ordered to merge. Law of banking, negotiable instruments and insurance. It is true that the central bank of nigeria cbn had emphasized on its readiness to establish or give licence to banks wishing to operate interestfree banking system which is popularly known by many as islamic banking because of its tandem with islamic jurisdictions and beliefs that prevent dealings in interest riba or usury. However, an important question that agitates the minds of those who think on islamic banking, whether proponents or critics, is the feasibility of it in nigeria which operates on interest free basis. Haram, takaful, jihad, sukuk and mudaraba introduction islamic banking.
Pdf the prospects and challenges of operating an islamic. Dec 25, 2016 islamic banking products and challenges in nigeria in january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interest free bank in northern. Play the day 1 video by clicking play video now or the play button below. Some of the modes of islamic bankingfinance include mudarabah profitsharing and lossbearing, wadiah safekeeping, musharaka joint. Pdf the recent development of insolvency of many conventional banks in nigeria. Islamic finance in nigeria for islamic banking and sukuk. Interest free banking as an idea3 this stage began in the early 1900s and was marked by the writings of abul aala maudud 1937, hasan al. As a result, a lot of discussion and tension arose. Islamic banks operate in over 75 countries, not only muslim ones but also those where muslim minority live, such as theuk,theusaorfrance. Islamic scholars active in researching islamic banking and finance, on the other hand, typically have a normative approach, i. The system is developing with the passage of time as the demand of interestfree products is. Islamic banking is based on the principles of profit and loss sharing. Islamic banking is suitable for funding entrepreneurship and economic development in the real sector of the nigerian economy as it provides easy access to cheap source of funds. The law gave banks a window of three years for their operations to become compliant with islamic principles.
January 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. In june, 2011, the central bank of nigeria cbn issued a new framework for the regulation and supervision of non. Keywords banking, islam, interest, nigeria paper type research paper introduction the interest free banking system is one which operates according to the tenetsteachings of the islamic faith. The impact of internet banking system on nigeria banking environment pdf. Former professor, center for research in islamic economics, king abdulaziz university, jeddah. Keywords secularism, islamic banking, interest, bank deposits. They simply questioned how the bank would survive without interest the heart of islamic banking. Islamic banking industry growing amid challenges islamic banking and finance growth has generated considerable interest in the financial world in recent years. Legal framework for islamic banking and finance in nigeria. It is true that the central bank of nigeria cbn had emphasized on its readiness to establish or give licence to banks wishing to operate interest free banking system which is popularly known by many as islamic banking because of its tandem with islamic jurisdictions and beliefs that prevent dealings in interest riba or usury. Nigeria, which has one islamic bank, plans to do the same. Prospects of islamic banking in nigeria semantic scholar.
In some countries, it has become systemically important and, in many others, it is too big to be ignored. Islamic banking products and challenges in nigeria. The interest free banking principle in islam allows only one kind of loan and that is guardel literally good loan whereby the lender the. It also help government in policy making with regards to interest free banking in nigeria and regulatory bodies which include, cbn, nigeria.
The paper begin with a short background of islamic banking in nigeria and follows with the basis for the introduction of central bank of nigeria and non interest financial institutions, central bank of nigeria model, different between islamic. Comparing ribafree banking and conventionalribabased banking 191 the rf banking brand. Banks in nigeria overview and guide to top banks in nigeria. In 2009 the first islamic bank jaiz bank plc started a full operation of interestfree banking in nigeria due to the minimum required number of costumers. The most important feature of this banking system is that it is interest free. It observed that nigeria is a secular state and issues bordering on.
It is the first noninterest bank established in nigeria and is headquartered in abuja, the capital city of the country. This type of banking differs from the western form of banking. Alhuda cibe islamic microfinance in nigeria free download as powerpoint presentation. Pdf islamic banking is consistent with the principles of sharia which prohibits acceptance of interest on loans. In nigeria, an interestfree banking window was initiated by some commercial banks in nigeria. A very few of them are knowledgeable about banking or the needs of the customers. Nigerias first licenced islamic bank, jaiz bank plc, has commenced full operation of noninterest commercial banking in nigeria from three branches in abuja, kaduna and kano. New trends include merchant banks, sectorspecific lending vehicles, and from policymakers, increased focus on financial inclusion. Sign up to our free daily newsletter, the economist today. The islamic development bank is about political islam and the funding of projects is the bait to draw in poor nations looking for cheap money. Introduction to islamic banking and finance is supported by a detailed, easy to use instructor manual, powerful test bank generator and dynamic powerpoint slides. Islamic banking in an attempt to curb these evils, promotes trading, investments on business and agriculture and giving out loans on interest free basis to enable.
The most important feature of this banking system is that it is interestfree. In view of this ugly development, a new dawn for banking operation in nigeria came to limelight when the central bank of nigeria cbn recently enacted new provisions for the proper establishment and operation of islamic banking through what it conceptualized as. Islamic rulings and its practical application through the development of islamic economies. Without a doubt, the history of islamic banking is quite interesting.
In view of this ugly development, a new dawn for banking operation in nigeria came to limelight when the central bank of nigeria cbn recently enacted new provisions for the proper establishment and operation of islamic banking through what it. Islamic banking products and challenges in nigeria in january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern. The central bank of nigeria cbn approval of a noninterest islamic banking in nigeria has generated a lot of controversy along religious divide and this motivated the study. Jan 06, 2011 the islamic financial service board ifsb expects the global islamic finance assets to reach usd 1. The impact of internet banking system on nigeria banking environment chapter one 1. This implies that modern islamic banks have undergone three phases of development. Islamic bankers resource centre discussions on islamic. Islamic banking is not synonymous with interest free banking. Islamic banking in nigeria got approval from the central bank in 2011, after several years of attempts by different groups and organisations. Sudans efforts to align its entire banking system with shariah principles began in 1984. Nigerias banking sector is a diversified one, in which the largest banks follow the universal banking model and a range of specialised actors tap specific niches.
The issuance of license to jaiz bank plc as the first fullflesh islamic bank in nigeria to carry on noninterest banking has generated heated. On the other hand, islamic banks can enhance term transformation if there is an interestfree bond market or. Islamic banking, also known as noninterest banking, is a banking system that is based on the principles of islamic or sharia law and guided by islamic economics. The islamic financial service board ifsb expects the global islamic finance assets to reach usd 1. Nigerias central bank has issued guidelines for an advisory body that will oversee islamic banking in the country, becoming the latest regulator to opt for a centralised approach to the industry. Interestfree banking and islamic banking in nigeria. The earliest references to the reorganisation of banking on the basis of profit sharing rather.
Contemporary challenges and way forward elesin abdulwahab muhammad jamiu phd1 abstract central bank of nigeria cbn, the nigerias apex bank recently approved introduction of interestfree banking islamic banking in the country. Islamic banks, without having an interestfree islamic money and capital market, have no adequate instruments to meet this precondition for effective maturity transformation. The operational challenges of islamic banks and its. A frame work released in the same year spell out guidelines for the establishment, operations, shariah. Apr 24, 2019 islamic banking, also known as noninterest banking, is a banking system that is based on the principles of islamic or sharia law and guided by islamic economics. It is not an historical account of the evolution of islamic banking and finance in theory and practice. Islamic banking products and challenges in nigeria sahara. Sep 27, 2018 regarding financial inclusion, the european investment bank estimates that in 2017, as many as 350 million africans did not have formal bank accounts. Islamic finance is rapidly growing across the globe, with presence in europe, the middle east, asia, north america and africa. Interest free banking seems to be of very recent origin. The paper f9 syllabus now contains a section on islamic finance section e3. Nigerias quest for a virile banking reform had led to the adoption of several strategies that would truly give the nations economy an edge towards growing sustainability.
Although the concept of islamic finance can be traced back about 1,400 years, its recent history can be dated to the 1970s when islamic banks in saudi arabia and. Pdf islamic banking is consistent with the principles of sharia which prohibits. The study concludes that the interest free banking idea is actually a noble idea but adequate sensitization on its intricacies and applicability is required so as to. This paper examined the prospects and challenges of operating an islamic noninterest banking system in nigeria. Problems and prospects of islamic banking in nigeria. The central bank of nigeria cbn serves as the countrys central monetary authority. The financial infrastructure, including standards setting and regulatory institutions, has also. It was descriptive study that relied on secondary sources of data and adopted content analysis method. Islamic banking and finance to take stock of the situation and plan for the future. However islamic banking is of related purpose to other forms of banking except that it operates using sharia rules known as figh al. Subsequently, the nasir social bank in egypt was declared as an interestfree commercial bank in 1971, although its charter made no reference to islam or. In nigeria, an interest free banking window was initiated by some commercial banks in nigeria.
A distinctive feature of islamic banks is the obligation to conduct operations in accordance with principles of sharia, which is the religious law of muslims. Interestfree banking seems to be of very recent origin. Nigeria innovative products for financial inclusion hajara adeola, ceo of lotus capital discusses the islamic finance market in nigeria covering the size of the market, financial inclusion as well as performance of the nse lotus islamic index, which has outperformed the broader all share index over the last 12 months. Habib bank ltd now keystone bank ltd, united bank for africa uba and stanbic ibtc. Evolution and trends in islamic banking vanguard news. Originalityvalue the paper offers some useful suggestions that may lead to effective interestfree banking operations in nigeria. Jul 09, 2011 evolution and trends in islamic banking. List of islamic banks in nigeria global banking and finance.
As a result of that, jaiz bank became the first and the only fullfledged islamic banking in nigeria. This work examines the legal framework of islamic finance system in nigeria. At this time though, these transactions used the same financial principles as the europeans. These include microfinance, mobile tools, and the establishment of a network of mobile money. Established under a 1958 act of parliament, the nigerian central bank commenced operations in 1959. Islamic banking has the same purpose as conventional banking except that it is operating in accordance with the rules of sharia, known as figh almuamalat islamic rule son transactions the basic principles of islamic banking is the sharing of profit and loss and the prohibition of riba interest. Islamic banking in africa africa is islamic bankings new. Keywords banking, islam, interest, nigeria paper type research paper introduction the interestfree banking system is one which operates according to the tenetsteachings of the islamic faith. History, development, and stages of growth 191 an overview of rf banking 196 misnomers in rf banking 197 what is rf islamic banking. Islamic banking has been described as a system of banking that is consistent. The announcement by the central bank of nigeria cbn that cbn is in talks.
Dec 27, 2016 january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interest free bank in northern nigeria. An introduction to islamic finance by mufti muhammad taqi usmani. Islam prohibits interest, so the islamic banking system involves the products which do not include riba interest and which are according to shariah principles, therefore it is also called the interestfree banking. Some school of thought are also of the opinion that it should be called interestfree bank rather than islamic bank. Interestfree banking as an idea3 this stage began in the early 1900s and was marked by the writings of abul aala maudud 1937, hasan al. List of islamic banks in nigeria global banking and. According to fasih 2012 islamic banking is an interestfree banking system founded on real assets and the risks are shared between the lender and borrower under the mechanisms of partnership, joint ownership, lease, and sale. Comparing riba free banking and conventionalribabased banking 191 the rf banking brand. Awareness and use of islamic banking in nigeria by. Formate ijhss historical background of islamic banking. Islamic banking in africa africa is islamic bankings new frontier. It is estimated that the size of the islamic banking industry at the. Issues and prospects by nuruddeen abba abdullahi bayero business school, bayero university, kano nigeria abstract the nigerian banking reform precipitated the adoption of islamic banking and finance in 2009 as additional door to banking mechanism in the country.
Jaiz bank plc, is a bank in nigeria operating under islamic banking principles and is a noninterest bank. It operates on islamic code of ethics which is based on the quran. Religious challenges of islamic banking in nigeria muzammilu yunusa and nadhira bint nordin faculty of islamic and contemporary studies universiti sultan zainal abidin kampus gong bodak 20 kuala terengganu, malaysia. Opportunities, challenges, and policy options prepared by alfred kammer, mohamed norat, marco pinon, ananthakrishnan prasad, christopher towe, zeine zeidane, and an imf staff team12 authorized for distribution by jose vinals and masood ahmed april 2015. The concept of islamic banking has received encouraging response from different corners of the globe as one discovers its ideological dimensions and practical significance. Financial performance refers to the act of performing financial activity. However islamic banking is of related purpose to other forms of banking except that it operates using sharia rules known as figh almuamalat rules for islamic transactions. Islamic finance is one of the fastest growing segments of the global financial industry. Nigeria does not need islamic development banks loans, interestfree or not, and its other greek gifts. The launching of islamic banking system in nigeria has generated a lot of issues from some eminent nigerians, asking the governor of central bank of nigeria to come and explain the reasons while such policy should be brought into nigeria where there are different religions. The nigerian banking reform precipitated the adoption of islamic banking and finance in 2009 as additional door to banking mechanism in the country.