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. Islamic finance in nigeria for islamic banking and sukuk. Some of the modes of islamic bankingfinance include mudarabah profitsharing and loss. The stock market collapsed by 70% in 20082009 and many. 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. Nigeria, which has one islamic bank, plans to do the same. This is especially true in economic relationships, such as banking and finance in the. Pdf the recent development of insolvency of many conventional banks in nigeria made the central bank of nigeria central bank of nigeria to initiate. The inability of islamic banking to start operation then could be traced to lack of trained personnel.
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. Islamic banking specific standards have been developed by specialized standardsetting bodies, but regulatory and supervisory frameworks in many jurisdictions do not yet cater to the unique risks of the industry. Some of the modes of islamic bankingfinance include mudarabah profitsharing and lossbearing, wadiah safekeeping, musharaka joint. Legal framework for islamic banking and finance in nigeria.
Prospects of islamic banking in nigeria semantic scholar. Noninterest banking is a profitable growing global phenomenon practiced in nearly 70 countries across the world including the united kingdom, canada, the united states of america. Nigerias quest for a virile banking reform had led to the adoption of several strategies that. Nigerias first islamic bank begins business in three branches. Islamic banking was introduced in nigeria as an alternative to financial intermediation with its mode of operation strictly in line with the principles of shariah. However, the advocacy for the islamic banking system as alternative to conventional banking system has. Nov 22, 2018 the laws regulating islamic banking in nigeria. 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 interestfree bank in northern. This was a strong signal to seek for alternative banking system. 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. After almost four decades of the revival of islamic banking globally, and over twenty one years of promulgating banks and other financial institutions decree bofid, a law that prepared legal ground for the operation of islamic banking in nigeria, the current three major laws that regulate banking activities and companys taxation in nigeriathe banks and other financial institutions act. The operational challenges of islamic banks and its.
Legal framework for islamic banking and finance in nigeria by dauda momodu 163 iii. Challenges and solutions to islamic banking system in a. In 1992, the central bank granted license for habib nigeria bank limited former bank phb and now keystone bank. However, there is the need for increased publicity for islamic banking and finance to encourage increase usage and. Islamic banking in africa africa is islamic bankings new. Challenges facing the acceptability of islamic banking in. 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.
The banking decree preventing banks from using direct islamic names as bank names has also diminished the increase of islamic banks in nigeria as banks that want erupt using an islamic name will find it difficult. As a result, jaiz bank became the first and the only fullfledged islamic bank in the country. This section provide an explanation of islamic banking by differentiating it from islamic banking window, it explains the concept of riba interest, basic principles features of islamic banking, modes of operation, and justifications of islamic banking system in nigeria. Sep 07, 2011 home to some 70 million muslims, nigeria is stepping up efforts to capitalize on the islamic banking sector. Islamic banking products and challenges in nigeria. 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. As a result of that, jaiz bank became the first and the only fullfledged islamic banking in nigeria. Islamic banking is a system of banking that prohibits the giving and receiving of interest in all transactions. The country, for instance, has an estimated population of over 170 million people, a strong banking industry and a highly receptive and agile capital market in the continent, its dream is about to become a reality. Islamic banking has been described as a system of banking that is consistent. Cbn is not expected to be enmeshed in religious dichotomy. Most islamic banks in nigeria operate without using an islamic name.
It is an alternative source of funds to muslims and nonmuslims who engaged in economic activities bahari, 2009. Interestfree banking and islamic banking in nigeria. Challenges and prospects of noninterest islamic banking. Today islamic banking has gain greater grounds in many countries of the world. However, its operations have been constrained partly by, both the judicial and financial institutions in the country. This paper aims to highlight on the challenges of islamic banking and finance products in nigeria, particularly jigawa state, using the content analysis method. Ibrahim, malami and abdullahi 2012 confirm that, the. As it stands today with nigerias conventional banks increasing minimum cash balance in savings deposit accounts to n25,000.
However, despite its potentials and prospects, islamic banking is plagued with both institutional and operational challenges that retard its smooth functioning. The study focused on the retail clienteles of conventional banks during the period from july. Islamic banking theories, practices and insights for nigeria. Islamic banking is based on the principles of profit and loss sharing. The banking system in nigeria is generally regulated by banks and other financial institution act bofia, cap b3 laws of the federation 2004. Challenges for islamic banking in jigawa state, nigeria. It also examined the legal basis for the introducing of the product into the nigerian banking system. Islamic finance, islamic banking, monetary policy, financial stability, sukuk authors email address. The principle goals and functions of the islamic banking system include economic wellbeing with full employment and maximum rate of economic growth, equal distributions of income and wealth and as a result socioeconomic justice, and the generation. Hence, obiyo 2008 noted that nigeria needs to reframe her banking laws before ibs can be successfully implemented in the.
Ascertain the degree of awareness of respondents about islamic banking products and services in nigeria. Partly as a consequence, the practice of islamic banking ib has, in some. Challenges facing the acceptability of islamic banking in nigeria. Conceptual analysis of islamic banking contribution. Interest free banking in nigeria welcome islamic banking. 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. 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. There is more likelihood of the banking public buying the services and product of islamic bank since it serve as a substitute to the traditional banks. They are therefore a veritable social mechanism for enhancing christianmuslim partnership. Pdf the nigerian banking reform precipitated the adoption of islamic banking and finance in 2009 as additional door to banking mechanism. Islamic banking is consistent with the principles of sharia which prohibits acceptance of interest on loans.
Islamic banking is one of the many components of islamic finance that plays very unique role in economic growth and development. The country, for instance, has an estimated population of over 170. The presiding justice held that the central bank cbn has no power to designate islamic bank as specialized bank and that the guidelines on islamic banking. A lot of economic proposals to better the economy of nigeria have recommended islamic banking methods as a tool for promoting nigerian economy while interest. Determine attitude and behaviour of potential customers nonmuslim and muslim towards islamic banking products and services in nigeria. The history of islamic banking in nigeria began in january 2012, when the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. The rise of islamic banking in nigeria rooted in 1991 with the promulgation of banks and other financial institutions acts bofia, which replaced the banking acts of 1969. Islamic banking in nigeria islamic banking can be defined as shariahcompliant banking that provides and uses. It is seen as a better alternative for nigerian citizens, particularly those who intentionally tend to avoid themselves from dealing with conventional banking activities. Taxation of islamic banking products under the nigerian. Islamic banking is available in 15 african countries and dominates the african market for islamic finance, capturing 64% of islamic finance providers.
This study will examine the extent to which islamic banking products can promote entrepreneurship development in north eastern nigeria. With increasing wave of popularity and successes of islamic finance across the world, nigeria aspires to be the hub of islamic finance of africa. A critical appraisal of its effect on the nigerian economy. In nigeria, islamic banking according to abikan 2011 was first licensed in 1963 in the southwest zone.
Legal framework for islamic banking and finance in nigeria, electronic journal of islamic and middle easter law. Nigeria is one of the countries with a growing interest in islamic banking especially as it is gradually becoming obvious that islamic banking is a banking idea that can be of immense benefit to players irrespective of their religious persuasions. Islamic banking products and challenges in nigeria sahara. He argued that legal reforms are seriously necessary and needed for the purpose of facilitating the smooth running and operation of islamic banking system. The announcement by the central bank of nigeria cbn that cbn is in talks. Islamic finance in nigeria finance and banking nigeria. Conceptual analysis of islamic banking contribution towards.
The introduction of islamic banking is part of a drive by the central bank of nigeria, cbn, to propel nigerias economy and promote financial inclusion by introducing alternative products. Meanwhile, the emergence of islamic banking in various. Hence, the central bank of nigeria cbn is no exception to this unique characteristics and functions. Challenges and prospects, international journal of management sciences, research academy of social sciences, vol. January 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. Islamic finance has increasingly become a significant source of finance in the western. Pioneering islamic banking in nigeria introduction to. An exploratory study of the economic viability of and opportunities for islamic banking in nigeria. In nigeria, the economy faltered and the banking system experienced a crisis in 2009, triggered by global events. Ijhss historical background of islamic banking in 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. The nigerian banking reform precipitated the adoption of islamic banking and finance in 2009 as additional door to banking mechanism in the country.
Infrastructure financing through islamic finance in the. This paper aims at examining the adoption of islamic noninterest banking in nigeria through the introduction of new banking model by the central bank of nigeria cbn in 2011. The success of the latter led to the establishment of a series of similar banks, including faisal islamic bank. Aliyu1 abstract with increasing wave of popularity and successes of islamic finance across the world, nigeria aspires to be the hub of islamic finance of africa. More specifically, the study intends to find out if there is any contribution between islamic banking and products and. Haram, takaful, jihad, sukuk and mudaraba introduction islamic banking. Following from this, the cbn under the governorship of mallam lamido sanusi, announced in june 2011, set of regulations on noninterest banking, which includes islamic banking reiterating that the introduction of islamic banking is part of its drive to propel nigerias economy and. The nigerian central bank of nigeria however has a standing policy prior to this. 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. Absence of regulatory clarity nigeria is one of the countries with a growing interest in islamic banking especially as it is gradually becoming obvious that islamic banking is a banking idea that can be of immense. This paper aims to highlight the potential of islamic banking in nigeria as against the claims by its critiques.
Problems and prospects of islamic banking in nigeria. Islamic banking in africa africa is islamic bankings. The license was later withdrawn by the authorities of the then western region. Gods laws, as contained in the scriptures, form the nucleus of society. 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. Nevertheless, the outcome of the study shows that, the introducing of the noninterest islamic banking product into the nigeria banking system is lawful and its benefits to the country abounds. Thus, the hypothesis the acceptability of islamic banking in nigeria is not facing any significant challenge was developed to accomplish the objectives of the study. Or that perhaps it is an islamic agenda being pushed by a muslim fundamentalist.
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