11 March 2009

Nigeria: Guidelines On Islamic Banking Out

In apparent determination to ensure compliance to the Sharia by banks interested in Islamic banking, the Central Bank of Nigeria (CBN), has released a draft framework for the regulation and supervision of the Shariah banking system.

According to information gathered from economic intelligence on line yesterday, "The apex bank said all licensed banks offering Shariah-compliant financial products or services shall have a Shariah compliance review mechanism and a Bank Shariah Advisory Committee (SAC), as part of their governance structure."

The CBN guidelines stated "In line with the provisions of Section 39 (1) of BOFIA 1991 (as amended), banks offering non-interest banking products and services shall not include the word "Islamic" as part of their registered or licensed name."

CBN added that: "they shall, however, be recognised by a uniform logo to be designed and approved by the CBN. The CBN shall require all the banks' signages and promotional materials to carry the logo to facilitate recognition by consumers."

According to economic intelligence, the guidelines stated that non-interest banks shall be licensed in accordance with the requirements for new banking licence issued by CBN from time to time. This include non-refundable application fee of N500, 000 and deposit of minimum capital of N25 billion with the CBN.

According to the guidelines, six months after the grant of approval-in-principle (AIP), the promoters of a proposed bank must also submit application for the grant of a final banking license with a non-refundable licensing fee of N5 million payable to CBN.

All licensed banks or promoters wishing to offer non-interest banking products and services, according to the apex bank, may operate using models such as full-fledged non-interest bank or subsidiary which shall be licensed in accordance with the current guidelines for licensing of banks issued by the CBN.

Other models include a non-interest banking branch of a conventional bank which shall be established in line with extant CBN regulation on bank branch expansion.

The guideline read: "A financial institution carrying on non-interest banking business may charge such commissions or fees as may be necessary and shall be guided by the Guide to Bank Charges issued by the Bankers' Committee.

"The funds received as commissions and fees shall constitute the bank's income and shall not be divided among the depositors."

Under the guidelines, non-interest banks should not perform transactions that involve interest,uncertainty or ambiguity relating to the subject matter, terms or conditions, gambling, speculation, unjust enrichment or exploitation/unfair trade practices.

The guidelines also stated that a non-interest bank must ensure that its Memorandum and Articles of Association state that its business operations will be conducted in accordance with the principles and practices applicable to non-interest banking.

The guidelines further read: "In view of the ethical character of their business, all non-interest banks are required to screen their promoters, shareholders, customers, counterparties, transactions, products and activities against the proceeds of crime, corruption, terrorist financing and other illicit activities using legal and moral filters.

"All non-interest banks are required to have effective anti-money laundering ('AML') policies and procedures, in addition to measures for combating the financing of terrorism ('CFT').

"All non-interest banks are required to comply with all relevant laws and guidelines for combating money laundering and the financing of terrorism issued by the CBN and other relevant regulatory agencies."

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