ISLAMIC FINANCE IN NIGERIA: ISSUES AND CHALLENGES

A PAPER PRESENTED BY DR. BASHIR ALIYU UMAR,

SPECIAL ADVISER TO THE CENTRAL BANK OF NIGERIA GOVERNOR ON NON-INTEREST BANKING

AT A TWO-DAY WORKSHOP FOR BUSINESS EDITORS AND MEMBERS OF FINANCE CORRESPONDENTS ASSOCIATION OF NIGERIA (FICAN)

ORGANISED BY

THE NIGERIA DEPOSIT INSURANCE CORPORATION (NDIC)

HELD AT

ZARANDA HOTEL, BAUCHI (9 DECEMBER 2010 TO 11 DECEMBER 2010)

In the Name of God the Beneficent, the Merciful Peace and blessings of God upon all the Prophets of Allah. Distinguished ladies and gentlemen. I am very pleased to be here among you in this workshop whose theme is: the Role of Deposit Insurance Scheme in Promoting Financial Inclusion in Nigeria. I am also delighted and honoured to be invited to present a paper in this workshop, and I wish to thank the Management of the NDIC for giving me this opportunity. The topic of my paper is Islamic Finance in Nigeria: Issues and Challenges. This topic is very apt and relevant especially at this point in our nation's history. So much interest has been generated in Islamic Finance on a global scale because of its phenomenal growth within a relatively short span of time, and more especially as an aftermath of the recent financial crisis. On a regional and sub-regional plane several countries are struggling to become the hub of Islamic Finance in the African Continent or in the West African Sub-region or at least to become pioneers in the field. On the national scale market operators including banks, insurance companies and asset management entities are busy exploring this alternative financial model and its potentialities, and most recently regulators are gearing up to the role that they have to play in regulating and supervising this innovative financial service industry whose entry into the Nigerian economic arena is only a matter of time. These and many other considerations make the topic of my presentation to such a forum of financial correspondents and editors quite relevant to this workshop, not only for the benefit of closing the information and knowledge gap, but also to complement financial regulators' efforts in creating a much needed public awareness and promotion of a nascent global financial industry that is rapidly asserting itself as a virile and vibrant alternative to conventional finance . The paper is structured into eight sections. The foregoing is the introduction. Section 2 introduces the concept of Islamic Finance, followed by Section 3 which addresses the main differences between Islamic Finance and Conventional finance. Section 4 explores the contemporary global trends in Islamic Finance, and Section 5 presents the efforts at institutionalizing Islamic Finance in Nigeria. In Section 6 and 7 the potential impact of Islamic finance on the Nigerian economy and the challenges are discussed respectively, while Section 8 concludes the paper.

Section 2: Concept of Islamic Finance Islamic Finance is a financial system that is based on adherence to the Shariah or Islamic law. It offers services, products and instruments based on compliance to this Divine Law. Central to the precepts of the Shariah regarding all commercial and financial transactions is the prohibition of the following actions: 1. Prohibition of Riba, which is usury or interest. The Shariah, just like the teachings of the Old Testament, and the early position of the Christian Church as contained in the First Ecumenical Council of Nicea in 325 AD and the Second and Third Lateran Councils (1139 and 1179 respectively), all prohibit the use of and association with interest. The rationale for the prohibition of interest and a critique of interest is beyond the scope of this paper. Former President Obasanjo speaking in 2000 about Nigeria's mounting debt to international creditors said: ''All that we have borrowed up to 1985 was around US$ 5 billion, and we have paid about US$ 16 billion. Yet we are still being told that we owe about US$ 28 billion. That US$28 billion came about because of the injustice in the foreign creditor's interest rates. If you ask me what the worst thing in the world is, I will say it is compound interest''. Well it is both simple and compound interest that is evil. 2. Gharar is the next most important prohibition in Islamic transactions and contracts. Gharar means lack of certainty. Its prohibition stems from informational asymmetry and refers to any uncertainty created by the lack of information or control in a contract or its conditionalities. This includes want of knowledge over the subject of the contract, or the nature of the contract, or the price to be paid its nature, amount, or period of payment. It also includes cases where the subject of the contract is something over which neither party has control. Classic examples include transactions involving the sale of birds in flight or fish not yet caught or an unborn calf in the mother's womb, or a runaway animal. More modern examples include transactions where the subject is not in the possession of one of the parties and there is uncertainty even about its future possession, as is the case with speculative contracts. This prohibition of Gharar is considered to be the prohibition of risk or the prohibition of derivative instruments in today's financial markets, which are designed to transfer risks from one party to the other. (Zamir Iqbal, Abbas Mirakhor: 2007). 3. Prohibition against gambling (maysir). Gambling represents an unproductive exchange of property, and in every transaction involving gambling one side wins and the other side loses. It is a clear case of squandering people's wealth unjustly, and its prohibition is unequivocal in the Qur'an and Sunnah (sayings, actions and approvals of the Prophet of Islam, peace be on him), which are the two main sources of the Shariah. 4. Prohibition against the sale or purchase of unlawful goods and services. Examples include pork, alcohol, pornography, tobacco, narcotics and any item that is deemed harmful and unlawful according to the Shariah. This therefore imposes the need to screen all transactions and activities through moral and legal filters based on the Shariah, which is largely equivalent to the western concept of socially responsible or ethical investing These prohibitions combined together form the bed rock of Islamic finance. 3

As the alternative to interest-based lending, Islamic Finance adopts asset-backed financing. This type of financing uses a number of instruments of finance. Among them are the following: a. Musharakah which involves partners providing funds for a venture, with profits shared according to their invested capital, and the loss is borne by them in the same way. b. Mudarabah financing is when one partner gives money and the other party provides his entrepreneurship to invest and manage the project. When a financier contributes money on the basis of these two instruments, the money is converted into assets having intrinsic utility. Profits are generated through the sale of these real assets, and all parties share in the risk and reward, as opposed to what is obtained in interest-based financing, where the financier does not bear any risk of the venture or project, but gets his reward come what may. c. Salam is another mode of financing in Islamic Finance. It is a sale where the seller undertakes to supply some specific goods to the buyer at a future date that is specified in exchange of an advanced price fully paid at spot. This mode of financing is used to finance the agricultural sector. d. Istisna' is another mode of financing where the commodity involved is manufactured to the specifications of the purchaser. This is widely used in the housing finance sector, where the client seeks finance for the construction of a house. The financier may undertake to construct the house on a specified land either belonging to the client or purchased by the financier, on the basis of Istisna', with payment fixed in whatever manner the parties may wish. e. Murabaha, though originally a particular type of sale and not a mode of financing, it is nevertheless used for financing subject to conditions. Murabaha is kind of sale where the seller expressly mentions the cost incurred by him of the commodity offered for sale, and sells it to another purchaser by adding some profit or mark-up thereon. The payment can be on the spot or deferred or instalmental. Murabaha as a mode of finance is used to finance raw materials, inventory, equipment, asset financing, import and export financing, consumer goods financing, even working capital financing. Furthermore all services that can be sold in the form of a package, like education, medical, tour etc can be financed through Murabaha. f. Ijarah is the hiring of the services of person, or the transfer of the usufruct of a property in exchange for a rent. The second type of Ijarah is the one that is used as a mode of finance, though originally not being a mode of finance. It has many features similar to a financial lease. It has also been used as a basis for securitization helping to create a secondary market for financiers. All these modes of finance involve the transfer of assets and are not based on making money from money alone as is the case with interest-based transactions.

From the prohibition of dealing in unlawful goods and services and from the other prohibitions, we can see that Islamic finance is an ethical finance and investments and activities are socially responsible. Furthermore, Islamic Finance is a socially inclusive financial system, which is another point that makes this topic on Islamic Finance very relevant to the theme of this workshop, which is about financial inclusion. A primary determinant of the soundness of a financial system and its stability is the public trust and confidence in its institutions and markets. Within a large segment of the Muslim community, compliance of financial services with Shariah rules and principles is a primary concern for the users of these services. As such efforts to enhance the access of Muslim communities and societies to these services will depend, among other factors, on the extent of the compatibility of these services to their religious beliefs. ''In other words successful, financial sector development in countries with such communities requires the promotion of Islamic financial services within appropriate regulatory frameworks. Such strategies will enable a much larger proportion of the population all over the world to participate actively and effectively in the process of economic development. While catering to such specific needs of society, Shariah-compliant financial services could appeal to other segments of the population so long as the quality of these services is at least comparable with other alternatives''. This concept of financial inclusion is what informed the UK Government decision to support the development of Islamic Finance in the UK (Mohammed Amin, British Government Policy on Islamic Finance, 6th World Islamic Economic Forum, May 2010), and it also informed the decision of the FSS 20:2020 of Nigeria vision to include the development of Islamic Finance as one of its initiatives as will be mentioned later.

Section 3: Differences between Islamic Finance and Conventional Finance. The following table identifies the main differences. Characteristics Islamic Finance Conventional Finance Business Operating modes based on the Operating modes and business Framework Shariah activities based on purely secular principles and not All business activities are to based on any religious laws or comply to the Shariah guidelines. Prohibition of Financing is not interest-based but Interest-based financing with a Riba in is asset-backed and based on fixed or floating rate of Financing making a profit from a sale of an interest charged for the use of asset or its usufruct. money. Prohibition of Deposits are not interest-based Deposits are interest-based Riba in but based on profit and loss and the investor is promised a Deposits sharing or as interest-free loans predetermined rate of interest with a guarantee of principal Banks get a share of the profit payment. from the business venture to Interest paid to depositors by which it is a party, and in case of loss without any negligence on the banks is less than the interest part of the bank, the investor they charge on loans, the forgoes the reward for the activity difference being the margin during that period that the bank makes. Equity Offers equity financing for a Not generally offered but Financing with business or venture. available through venture Risk Sharing capital companies and Losses are shared based on the investment banks. equity participation, while profit is shared based on a pre-agreed Normally they participate in profit sharing ratio. management as well. Restrictions Not allowed to deal in unlawful There are no such restrictions goods and services Zakah (Alms) Companies pay the annual Not subject to that prescribed alms when it become obligatory Penalty on No provision to charge any extra Normally charge additional Default money from the defaulters money (compound interest) in case of late payment and defaulters Prohibition of Transactions with elements of Trading in any kind of Gharar gambling and speculation are derivative/futures involving strictly forbidden. speculation is allowed. Derivative trading is prohibited Conventional insurance is due to its speculative nature. allowed. Conventional insurance is prohibited to the element of uncertainty embedded in that contract 6

Characteristics Islamic Finance Shariah Within the banking and mutual Supervisory funds sectors each institution Board should have a Shariah Supervisory Board to ensure that all business activities are in line with Shariah requirements. There is Shariah audit in addition to financial audit Customer The status of a Shariah-based Relations company in relation to its clients is that of partner/investor and entrepreneur.

Conventional Finance There is no such requirement. Only financial audit

The status of a non-Shariahbased company to its clients is that of a creditor and debtor.

Section 4: Global Trends in Islamic Finance The Islamic Financial Services Industry (IFSI) is passing through its 40th anniversary. During those years it has gone a long way in spreading geographically, and offering a wide range of financial services in various segments including banking and non-banking services, insurance and capital markets. The composition of this industry is as follows: i. Islamic banks that is, deposit-taking and financing institutions, including fullfledged Islamic banks, Islamic subsidiaries and windows of conventional banks such as onshore and offshore commercial and investment banks; Islamic non-bank financial institutions, including Islamic leasing and factoring companies, finance companies, ijarah and mudarabah companies, Islamic housing cooperatives, Islamic microfinance institutions, credit sale subsidiaries of trading companies and other similar institutions, and private equity/venture capital, as well as institutions managing haj funds, awqaf, zakah and sadaqah; Islamic insurance and re-insurance or takaful and re-takaful, operators; Islamic capital markets and their players, such as brokerage houses, investment banks, etc., as well as fund management institutions including Islamic asset management companies (such as mutual funds/unit trusts, hedge funds, etc.); and Islamic financial architecture and infrastructure, including: a. payment-settlement systems and infrastructures; b. financial markets and products, including market microstructures (Shariah screening and product identification systems), trading and clearance systems, and e-business infrastructure; c. support facility providers, legal institutions and framework, safety net, liquidity support providers; d. regulators and supervisors, including licensing authorities; e. governance infrastructure, including Shariah governance institutions; 7

ii.

iii. iv.

v.

f. standard setters for financial supervision and infrastructure, including financial reporting, accounting and auditing, capital adequacy and solvency, risk management, transparency and disclosure, and corporate governance; g. rating and external credit assessment institutions; h. financial statistics and information providers; (Source: Islamic Financial Services Industry Ten-Year Framework ) The Islamic banking sector worldwide has grown at a strong rate of 15%-20% annually over the past decade, from about USD 150 billion in the mid-1990's to an estimated USD 780 billion in 2009. In 2010, the Islamic Banking sector assets are expected to grow by more than 20% to USD 950 billion. The Islamic Financial Services Board (IFSB) expects the global Islamic Finance assets to reach USD 1.6 trillion by 2012, with Islamic banking expected to remain the major contributor at more than 80% share. The chart below shows the trend: Global Islamic Finance Assets Growth Trend
1800 1600 1400 1200 1000 800 600 400 200 0 1990s 2008 2009 2010F 2012F USD bn

Source: Global Islamic Finance Forum, Country and Business Guide 2010. The geographical distribution of Shariah-compliant assets as a percentage of the the country's total assets in 2009 is given below:

or Region

Gulf Co-operation Council (GCC) 42.9% of global aggregate of Islamic Finance Middle East and North Africa (MENA)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34.

Country Saudi Arabia UAE Kuwait Bahrain Qatar Iran Egypt Jordan Yemen Tunisia Algeria Lebanon Palestine Territories Malaysia UK Turkey Bangladesh Sudan Pakistan Iraq Indonesia Switzerland Mauritius Singapore Thailand South Africa Canada Bosnia-Herzegovina US Australia Gambia India Senegal Sri Lanka

Percentage of Assets 36.2 23.8 19.1 13.0 7.8 93 2 1.5 0.4 0.2 0.2 0.1 0.1 56.2 12.6 11.6 4.8 4.6 3.3 2.5 2.2 0.7 0.6 0.4 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Non-MENA

Source: The Banker, November 2009.

In terms of the number of Islamic banking institutions the following table shows the statistics for the years 2007, 2008 and 2009: Number of Shariah Compliant Institutions 2007 362 2008 420 2009 435 Source: The Banker, November 2009. Year Number of Convention Banks with Shariah windows 163 194 191

This information shows that Islamic Finance is rapidly growing across the globe, with presence in Europe, the Middle East, Asia, North America and Africa. There is also a manifest upward momentum of its assets and revenue growth, which indicates as the Banker magazine says: ''that Islamic finance is not simply weathering the financial storm; it is moving forward to a new level of industry maturity that will test the long-term viability of the industry and the sustainability of the institutions engaged in Shariah-compliant finance''.

Section 5: The Institutionalization of Islamic Finance in Nigeria The following table identifies the major milestones in the journey towards the institutionalization of Islamic Finance (referred to as non-interest finance) in Nigeria. Period 1991 Event The enactment of the Banks and Other Financial Institutions Decree of 1991 (Amended). This Decree recognizes banks based on profit and loss sharing, and empowers the Governor of the Central Bank to exempt such banks together with Community banks from the provision of the Decree (sec 52). The Decree also recognizes 'specialized' banks and includes in the definition such other banks as may be designated from time to time (sec 61). It however, restricts the incorporation or registration of any bank with a name which includes the words: "Islamic", "Christian", "Qur'anic", "Biblical" etc. Habib Bank Plc opened a non-interest banking window offering a limited number of Shariah-compliant products. However, since there was no framework for non-interest banking in the country, the attempt did not register a significant success nor growth. Nigeria under President Olusegun Obansanjo joined the Islamic Development Bank as a full-member. An Approval-in-Principle (AIP) was granted to the proposed Jaiz Bank Pls to operate a full-fledged Islamic bank on meeting the mandatory capital requirement of N 25 billion. The Financial System Strategy (FSS) 20: 2020 was launched. This blueprint aims to engineer Nigeria's evolution into Africa's major 10

1996

2003 2004

2005

Period

2008

January, 2009

March, 2009

October, 2009

January 2010

Event International Financial Centre (IFC) and enable Nigeria's transformation into one of the 20 largest economies in the world by 2020. Among its initiatives regarding the Money Market is a. to create institutions to attract the huge un-banked informal sector b. create non-interest banking instruments to capture huge unbanked segments of the society. The Islamic Development Bank offered the Central Bank of Nigeria a Technical Aid grant for training Central Bank examiners for the development of a framework for the regulation and supervision of Islamic finance in Nigeria, and for the organisation of an International Conference on Islamic Finance in Nigeria. The Islamic Finance Working Group was formed. Supported by EFInA (Enhancing Financial Innovation and Access), this group brought together the main stakeholders, which include the NDIC, NAICOM, PENCOM, DMO, market operators interested in offering Islamic finance products and the a representative of the Central Bank as an observer. EFInA was conceived and funded by the UK Department for International Development (DFID), the Ford Foundation and the Bill and Melinda Gates Foundation to promote financial development in Nigeria. The Central Bank of Nigeria under Governor Prof. Charles Soludo joined the International Financial Services Board (IFSB) as full member. The IFSB is an international standard-setting organisation for the Islamic Financial Services Industry and is based in Malaysia. It comprises of central banks of several countries and other regulatory and supervisory bodies and multilateral organisations like the Islamic Development Bank, the IMF and World Bank (the last two are associate members). The Banking Supervision Department of the CBN released the exposure draft of the Framework for the Regulation and Supervision of Non-Interest Banks in Nigeria for comments, suggestions or inputs by stakeholders. University of Ilorin held an International Conference on Islamic Finance jointly organised by the Department of Islamic Law of the University, and the Islamic Research and Training Institute (IRTI) of the IsDB, Jeddah, Saudi Arabia The CBN under Governor Sunusi Lamido Sunusi set up a non-interest banking unit in the Financial Policy and Regulation Department of the Apex Bank. Conventional banks are requesting for regulatory approval to introduce Islamic financial products into their market offerings. Some banks have even gone ahead to appoint Shariah Advisory Committees in accordance with international governance standards for Islamic Financial Institutions. 11

Period July 2010 August 2010

September 2010

October 2010

Event CBN is represented in the Technical Committee of the IFSB. The CBN released the new banking model which designated noninterest banks among the specialized banks. The non-interest banks are to be categorised into two, namely: a. National non-interest bank, which shall have a capital base of N10 billion and will operate in every state of the Federation including the Federal Capital Territory (FCT). b. Regional non-interest bank, which shall have a capital base of N5 billion, and will operate in a minimum of six states and a maximum of 12 contiguous states of the Federation, lying within not more than two geo-political zones as well as the within the Federal Capital Territory. The Nigeria Deposit Insurance Scheme (NDIC) released its draft framework for a Non-Interest (Islamic) Deposit Insurance Scheme for stakeholder comments and inputs. The Security and Exchange Commission posted on its website regulations guiding funds and securities, which included Islamic fund management. The Debt Management Office (DMO) set a tentative timetable for the development of the first Sukuk (Islamic bonds). The CBN under Governor Sunusi Lamido Sunusi joined 11 other Central Banks and 2 multilateral organisations to form the International Islamic Liquidity Management Corporation (IILM), to be based in Malaysia. The central banks are Malaysia, Kuwait, Luxembourg, Saudi Arabia, Iran, Mauritius, Nigeria, Qatar, Sudan, Turkey, UAE, Indonesia; and the multilateral organisations are: the Islamic Development Bank (IsDB) and the Islamic Corporation for the Development of the Private Sector. The aim of the IILM is provide treasury instruments that are Shariah compliant to address the liquidity management issue of Islamic banks and serve as instruments for open market operations involving Islamic financial institutions.

With these landmarks all we are awaiting for is the release by the Central Bank of the final framework for the regulation and supervision of non-interest financial institutions in Nigeria and other guidelines for the sound and efficient operations of this nascent sector. Section 6: The Potential Impact of Islamic Finance on the Nigerian Economy Given its transaction dynamics and unique features, there is no gainsaying the fact that non interest banking would have significant impact on the Nigerian banking system and the economy as a whole. The following areas of potential impact are clearly discernible:

a. Market Deepening 12

The introduction of non interest banking in Nigeria would herald the entry of new market and institutional players such as the Islamic Money Market, Islamic asset management companies, Takaful (Islamic Insurance) companies etc, thus deepening the financial market. b. Financial Inclusion The introduction of Islamic financial services in Nigeria will enable a larger proportion of the Nigerian population to participate actively and effectively in economic development. Nigeria has a very large Muslim population (estimated at over 80 million) majority of whom are either under-banked or totally unbanked, and have steered away from conventional banking services due to their aversion to interest-based products and services offered by these banks1. The financial inclusion of such a sizeable number into the economy, and winning their trust and confidence in the financial institutions based on their religious belief will go a long way in strengthening the resilience and stability of the financial system. Furthermore, such an inclusive financial sector development strategy can be expected to replace informal markets with formal and regulated ones. c. Monetary Policy Implementation and Effectiveness The non interest banks cannot hold conventional treasury bills or other interest bearing securities and thus cannot participate in conventional Open Market Operations. This has implication for monetary policy and in the development of appropriate liquidity management products. d. Enhanced Product Offering Islamic banks offer an array of products and services that cater to the financing needs of the banking public, as highlighted in the section on the concept of Islamic finance. e. New Competition The entry of non interest banks is expected to engender a wave of healthy competition in the banking industry with a possible concomitant reduction of interest rates, which would have a salutary impact on the economy. Non-Muslims

According to Enhancing Financial Innovation and Access's survey on Access to Finance in 2008, 68 million Nigerians are unbanked and this number represents 79% of the population ( accessed from www.efina.org.ng/non_interest_islamic_banking.html).

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are expected to patronize the system, as they have done in other economies, either based on the ethical and social responsiveness of its investment strategy, or based on their desire to explore an alternative to conventional finance. Islamic finance though based on a religious law, is not just a religious activity that adherents are the only expected people who engage in it. It is a business activity open to all segments of the society. f. Enhanced Oversight and Regulation The Shariah Supervisory Board model that is an integral part of the corporate governance structure of Islamic financial institutions, means that there is additional oversight and regulation over the activities of the institutions, which goes a long way in instilling market discipline and mitigating risks. Already the SSB model is being primed for export beyond Islamic finance (Opalesque Islamic Finance Intelligence, vol 12, October 2010, editor's note by Bernado Vizcaino). g. Enhanced Investment in the Critical Sectors of the Economy Through financing instruments such as Sukuk, non interest banks can provide much needed finance for the development of critical infrastructure, thus supporting the developmental agenda of government. h. Development of the real sector of the economy Because of its asset-backed financing nature non-interest financial services will have the effect of availing funds only to the production and real investment activities, and based on its practical record of success in microfinance banking in countries like Indonesia, Bangladesh and Pakistan, it is expected to contribute positively to the development of the real sector of the economy. Other areas of potential impact are enhanced inflow of foreign direct investment and possible strategic linkages with international financial institutions as well as potential increase in the banking sectors contribution to GDP. Section 7: The Challenges The key challenges include: Dearth of knowledge, skills and technical capacity to regulate, supervise, or operate non interest banks. Higher quality personnel with experience in project management and Islamic jurisprudence are required for financing and marketing activities. 14

Lack of adequate legal, regulatory, and supervisory framework, which is restraining potential foreign investors.

The absence of accountants and auditors knowledgeable in accounting and auditing standards pertinent to non interest banks Dearth of Sharia scholars knowledgeable in the operation of conventional markets, and in the field of economics, law, accounting, banking and finance Lack of Sharia-compatible investment outlets or short term money market instruments to invest excess liquidity of Islamic banks. Non interest banks cannot hold conventional treasury bills or other interest bearing securities. This has implication for liquidity management.

In the discharge of their traditional role of lender of last resort, Central Banks provide loans to banks at times of liquidity crunch. Non interest banks cannot benefit from such a facility because such funds are usually provided on the basis of interest. There is therefore, the challenge of devising and implementing an interest-free framework for such assistance.

Absence of Islamic insurance and capital market institutions to protect investments of non interest banks against unforeseen hazards and facilitate the growth of the industry respectively.

There are taxation issues that need to be addressed when dealing with the products and services offered by non-interest banks, in order to avoid double-stamp duty. The ethno-religious diversity of Nigeria, which makes it imperative to create mass awareness and acceptance. This is in view of the fact that religion has been a volatile issue over the years. Mis-interpretation of the concept might jeopardise its success.

The need for inter-agency cooperation and coordination especially among the various regulatory bodies to facilitate the growth of Islamic finance in Nigeria.

Section 8: Conclusion It is evident that from the resilient nature of Islamic finance that enormous opportunities abound and positive and far-reaching impact is highly expected, for the Nigerian economy. However, the challenges of operating this system are not to be overlooked. The positive indicators are that regulators are bracing up to address. We can identify the following strategies: 15

Extensive capacity building through collaboration amongst the various stakeholders to develop cognate expertise in non-interest banking.

Development of an adequate regulatory and supervisory framework for the effective operation of non-interest banking in Nigeria. The CBN is about to release its final regulatory framework. The NDIC has released an exposure draft for public comments. NAICOM is expected to follow suit with a takaful and re-takaful framework.

Promotion of greater cooperation and coordination among relevant regulators and other stakeholders such as the Securities & Exchange Commission (SEC), Nigerian Stock Exchange (NSE), National Insurance Commission (NAICOM), Nigeria Accounting Standards Board (NASB), the Economic and Financial Crimes Commission (EFCC), Federal Inland Revenue Service (FIRS), the Debt Management Office (DMO), the Federal Ministry of Finance, the National Assembly etc that may have important roles to play in the successful implementation of Islamic financial services in Nigeria.

Sensitizing the general public through conferences, seminars, workshops etc on the benefits to be gained from non-interest banking.

Looking ahead, therefore, it is envisaged that non interest banking will form a significant part of the Nigerian financial landscape. Thank you.

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