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Regulation and Supervision of Non-Interest Banks in Nigeria A Presentation of the Financial Policy and Regulation Department of the Central Bank of Nigeria.

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Presentation on theme: "Regulation and Supervision of Non-Interest Banks in Nigeria A Presentation of the Financial Policy and Regulation Department of the Central Bank of Nigeria."— Presentation transcript:

1 Regulation and Supervision of Non-Interest Banks in Nigeria A Presentation of the Financial Policy and Regulation Department of the Central Bank of Nigeria at the Two-Day NDIC FICAN Workshop 2011 Held Dutse, Jigawa, November 28, 29, 2011

2 Regulation and Supervision of Banking Business Definition: Control over the creation, operation and liquidation of banks Objective: Protect the interests of depositors given their higher leverage Ensure effective functioning of the banking industry units Prevent systemic collapse Part of the mandate of the CBN: Ensure Monetary and Price stability Promote a sound financial system

3 Approaches to the Regulation of Islamic Banking 100% Islamic Banking Sudan Iran Dual Banking System with distinct regulations for Islamic banking Majority countries Eg Malaysia, Pakistan, Brunei, Mauritius, Phillipines Maldives, Gambia etc Dual Banking System with distinct regulations for Islamic banking products UK, Singapore, Kenya

4 Infrastructure of Effective Regulation of Islamic Banking Components of Effective Supervisory Review Sound Legal Framework Consistence with Islamic Principles Provision of a level playing field Meet Internationa l Prudential Requiremen ts

5 Approaches to the Legal Framework No Specific Provision in the Banking Act but regarded as covered by the General Banking Regulation with regulations for Shariah Compliant products UK, SingaporeKenya Specific Provision allowing Islamic Banking within the Banking Act Nigeria, Indonesia, PhilippinesPakistan, Jordan, Kuwait, Turkey Enactment of Islamic Banking Act Iran, Sudan Malaysia, Pakistan, Maldives, UAE, Gambia, Brunei, Syria, Yemen

6 The CBN Guidelines for the Regulation and Supervision of Non- Interest Banking – A Walk-through Title: Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria. Introduction: – Regards non-interest banks as specialised banks, which under BOFIA 1991 (as amended) are the third component of the three banking structures of our banking system. The other 2 are: commercial banks and merchant banks. – Guidelines recognise Non-Interest Financial Institutions based on two principles: Islamic Commercial Jurisprudence Any established non-interest banking principle. These Guidelines are for Non-Interest Financial Institutions operating under the principles of Islamic Commercial Jurisprudence.

7 The Guidelines – A Walk-through CBN New Banking Model Specialized Banks Non-Interest Financial Institutions Microfinance Banks, Development Banks, Primary Mortgage Institutions, etc Commercial BanksMerchant Banks

8 The Guidelines – A Walk-through (cont’d) Principles upon which transactions are regarded as permissible under the model Non-Interest Financial Institutions (NIFIs) are broadly categorised into 7: i. Full-fledged Islamic bank or full-fledged Islamic banking subsidiary of a conventional bank; ii. Full-fledged Islamic merchant or full-fledged Islamic banking subsidiary of a conventional merchant bank; iii. Full-fledged Islamic microfinance bank; iv. Islamic branch or window of a conventional bank; v. Islamic subsidiary, branch or window of a non-bank financial institution; vi. A development bank regulated by the CBN offering Islamic financial services; vii. A primary mortgage institution licensed by the CBN to offer Islamic financial services either full-fledged or as a subsidiary; and viii. A finance company licensed by the CBN to provide financial services, either full-fledged or as a subsidiary.

9 The Guidelines – A Walk-through (Cont’d) Objectives and Legal basis Corporate Powers and statement in MEMART Technical Agreement with a reputable non-interest bank or financial institution for a period of not less than 3 years from the period of operation Licence shall be for a national or regional bank in case of money-deposit non- interest banks Conventional banks/financial institutions may offer non-interest services through subsidiaries, branches or windows, which may operate using existing branch networks or facilities of the parent institution. In addition to CBN guidelines on Corporate Governance, NIFIs shall have as part of their governance structure internal compliance review mechanism to ensure compliance with the principles of the model and an Advisory Committee of Experts. CBN Advisory Council of Experts - to advise on and approve issues of compliance to the principles of the model. A uniform logo to be developed to identify these institutions. It shall not include the word “Islamic”. New products and services shall require the approval of each institution’s Committee of Experts and final approval from the CBN. Adequate disclosures to Profit Sharing Investment Account (PSIA) holders.

10 The Guidelines – A Walk-through (Cont’d) Auditing, Accounting and Disclosure Requirements: – Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI) – Islamic Financial Services Board (IFSB) – National Accounting Standards Board (NASB) Prudential requirements: – CAR – Liquidity Requirement - Section 15 of BOFIA, – Investment of funds in non-interest-bearing securities. Risk Management: – Relevant CBN guidelines and – IFSB Guidelines Anti-Money Laundering and Combating of Terrorism Policies and Procedures. Non-Discrimination Clause

11 Conclusion Thank You


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