The Central Bank of Nigeria in keeping with its mandate under the Central Bank of Nigeria Act, is also charged with regulating Non-Interest Financial Service providers in Nigeria, with the focus of this article being the provisions of its regulatory framework governing Islamic Banking.
The core focus topics of this article are:-
– The components of the regulatory framework governing Islamic Banking in Nigeria.
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– The objectives of the Islamic Banking regulatory framework.
– The licensing requirements for Islamic Financial Service providers in Nigeria.
What is the main component of the regulatory framework governing Islamic Banking in Nigeria?
The main regulatory instruments for Islamic Banking in Nigeria are The Central Bank of Nigeria Guidelines For the Regulation & Supervision of Institutions Offering Non-Interest Financial Services in Nigeria (or “The Guidelines”).
What are the objectives of these guidelines?
The objectives of these guidelines are the provision of minimum standards for the operation of IIFS(Institutions Offering Islamic Financial Services) in Nigeria.
What is the applicability scope of the guidelines?
The guidelines are applicable to IIFS operating under the principles of Islamic Commercial Jurisprudence only and are not applicable to other non-islamic non-interest financial institutions .
What are the pre-licensing operational requirements for Islamic Banks in Nigeria?
The requirements for licensing as an Islamic Financial Institution are :-
– A written application to the CBN .
– Evidence of a technical agreement executed by the promoters of the proposed institution with an established and reputable Islamic Bank or Institution.
– A license to undertake Islamic Banking may be issued by the CBN upon such terms, conditions which authorize the operation of a Non-Interest Financial Institution (NIFI) on a regional or national basis for banks or any other banks for Financial Institutions.
– An IIFS with Regional Banking authorization shall be entitled to carry on operations within a minimum of 6 and a maximum of 12 contiguous states of the Federation lying within not more than 2 geopolitical zones of the country as well as within the Federal Capital Territory.
– An IIFS with national banking authorization shall be entitled to carry on banking business operations within every state of the federation including the Federal Capital Territory.
To find out the full length of licensing requirements for an IIFS, consult your lawyer.
Can IIFS operate digitally under the CBN Guidelines?
Yes they can, subject to CBN Guidelines on digital banking.
Can conventional banks /financial institutions set up Islamic Banking subsidiaries or branches?
Yes, they can. However, such Islamic banking subsidiaries or branches of conventional banks or OFIs shall be established in line with the licensing requirements for the establishment of a full-fledged NIFI.
Do AML/CFT(Anti-Money-laundering/Combating the Financing of Terrorism) laws and regulations currently in force in Nigeria also apply to IIFS?
Yes, they do.