Regulatory Alerts2009-03-06 | TED-FEM-FPC-GEN-01-031-09Draft Framework for The Regulation and Supervision of Non-Interest Banking in Nigeria
Here is a concise summary of the Nigerian non-interest banking framework as described in the provided text. The Central Bank of Nigeria (CBN) has introduced regulations for non-interest banks to operate within the country's financial system. The main goal of these regulations is to ensure that these institutions adhere to Islamic principles and provide ethical banking services while maintaining financial stability. Key aspects of these guidelines include: 1. Definition: A non-interest bank is a bank that conducts its business activities in compliance with the principles of Islamic finance, which prohibits payment or receipt of interest. 2. Licensing and Operation: The CBN will grant licenses to institutions wishing to operate as non-interest banks. They must adhere to all regulatory requirements and guidelines established by the CBN. 3. Financial Services: Non-interest banks are allowed to offer a range of financial services, including deposit taking, financing, fund management (investment accounts), and payment and settlement services. However, these services must be structured according to Sharia principles. 4. Prudential Guidelines: Non-interest banks are required to maintain a minimum Capital Adequacy Ratio (CAR) of 10%, and they must hold a portion of their liquid assets in the form of Sharia-compliant instruments. These may include commodity murabaha certificates, Islamic treasury bills, or any other eligible instrument developed by the CBN. 5. Risk Management: Non-interest banks are required to establish appropriate risk management policies and procedures that recognize unique risks faced by Islamic banks, such as displaced commercial risk, fiduciary risk, transparency risk, Sharia risk, reputational risk, etc. 6. Anti-Money Laundering (AML): Non-interest banks must adhere to the CBN's AML/CFT Regulatory Framework. They are also required to have effective systems and controls in place against financial crimes. In summary, non-interest banking in Nigeria is a new financial service that aims to offer ethical banking services within the country's financial system. The Central Bank of Nigeria has established comprehensive guidelines for the licensing, operation, and regulation of these institutions. These banks can operate as standalone entities or as part of conventional financial institutions with dedicated window operations. Their financial services must adhere to Sharia principles, and they are subject to strict prudential, risk management, and anti-money laundering regulations.