CBN Adjusts Guidelines on Islamic Banking

22 Jun 2011

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Sanusi Lamido, CBN Governor

Following the disquiet that has trailed the structure of Islamic banking since the granting of an approval in principle to the first Islamic bank in the country, the Central Bank of Nigeria (CBN) Tuesday amended the regulation and supervision of institutions offering non-interest financial services in the country. 

A circular by the apex bank titled: “Re: Framework for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria,” signed by the Acting Director, Financial Policy and Regulation Department, Mr. Chris O. Chukwu, explained that Islamic banking is not the only form of non-interest banking product in the country. 

The new guidelines also clarified the contextual definition of non-interest banking which it said is not restricted to Islamic banking, but also include other forms of non-interest banking not based on Islamic principle. 

It specifically categorised non-interest banking models into non-interest financial products and services based on principles of Islamic commercial jurisprudence and others which are based on any other established rules and principles. 

But it warned that discrimination on any grounds in the participation by individuals or promoters, depositors or other relevant parties in any transaction regarding a non-interest financial institution, whether based on Islamic or other model, is strictly prohibited. 

Islamic banking is a non-interest banking product. It serves the same purpose of providing financial services and operates in accordance with principles and rules of Islamic commercial jurisprudence that generally recognise profit and loss sharing and the prohibition of interest as a model. 

The circular on the revised guidelines was apparently a reaction to the agitation by some groups and professional bodies in the industry following the earlier guidelines rolled out by the CBN. One of such groups was the Concerned Citizens of Nigeria, which asked the apex bank to elucidate its definition of non-interest banking. 

 The CBN Governor, Mallam Sanusi Lamido Sanusi, had only on Monday said the banking watchdog had granted approval-in-principle to Jaiz Bank International Plc, the country’s first Islamic bank. 

Another significant review of the guideline was the removal of any reference to “Sharia Council” which it changed to “Advisory Council of Experts”. 

The circular with reference FPR/DIR/GEN/01/017 read thus: “The CBN wishes to clarify that Islamic banking is not the only type of non-interest banking contemplated under the new banking model which categorized non-interest banks as part of specialized institutions. The CBN recognizes that Islamic banking is a form of non-interest banking and that there are other forms of non-interest banking than Islamic banking.” 

The CBN also argued that section 23 (1) and section 66 of the Banks and Other Financial Institutions Act (BOFIA) 1991 (as amended) explicitly provides for the licensing of Non-Interest Banks (NIBs).  

It explained that it would later issue guidelines governing the provision of non-interest financial services based on established principles other than Islamic finance.  

“The CBN remains committed to reviewing and evaluating applications for banking licenses for non-interest financial institutions based on other principles. In line with CBN’s objective of promoting financial inclusion in Nigeria, individuals and groups wishing to practice non-interest banking based on established rules and principles other than Islamic may apply for a license to operate such institutions and the CBN will accordingly issue guidelines pertinent to that type of banking,” it said.

A statement from CBN signed by its Head of Corporate Communications, Mr. Mohammed M. Abdullahi, assured stakeholders that the apex bank was “open to receiving and evaluating applications for licensing of non-interest banking institutions based on other principles rather than the Islamic variant and will soon issue separate guidelines for non-interest banking under other principles”.

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