This paper examines islamic financial markets with focus on islamic banking in nigeria. However, despite its potentials and prospects, islamic banking is plagued with both institutional and operational challenges that retard its smooth functioning. With increasing wave of popularity and successes of islamic finance across the world, nigeria aspires to be the hub of islamic finance of africa. Islamic development bank opens nigeria office premium. The movement is unique in that it combines a sectarian, radical islamic agenda with violence. Most islamic banks in nigeria operate without using an islamic name. Islamic banking, also known as noninterest banking, is a banking system that is based on the principles of islamic or sharia law and guided by islamic economics. This study examines the financial performance of jaiz bank plc, the only islamic bank licensed to operate in nigeria, over a period of two years 20 2014. Sections 9, 23 and 52 provided for the establishment of islamic banking in nigeria. This general dearth of academic work on islamic finance stands in contrast with the increasing importance that islamic banking has in many muslim countries in asia and in africa. 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. Interest free banking in nigeria the unfinished business edwin m egboro, phd department of economics, western delta university, oghara delta state, nigeria. Hence, the central bank of nigeria cbn is no exception to this unique characteristics and functions. The dubai islamic bank has the distinction of being the worlds first fullfledged islamic bank formed in 1975.
The launching of islamic banking system in nigeria has generated a lot of issues from some eminent nigerians, asking the governor of central bank of nigeria to come and explain the reasons while such policy should be brought into nigeria where there are different religions. Jul 09, 2011 evolution and trends in islamic banking. The islamic development bank group idbg on monday formally opened its nigeria country gateway office in abuja with a mission to focus its services on health, agriculture, infrastructure, small. The islamic development bank isdb is a multilateral development financing institution with 57 member countries mcs.
Thirdly, all documents and instruments used in the banking transactions must be. Gods laws, as contained in the scriptures, form the nucleus of society. 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. Many countries around the world have seen a great demand for islamic banking services, which has created great job potentials in the field. Prospects of islamic banking in nigeria semantic scholar. Impact of credit risk management and capital adequacy on the financial performance of commercial banks in nigeria ogboi, charles. Meanwhile, the agitations for ibs in nigeria dates back to the 1990s when the idea was first mooted. Jaiz bank plc, is a bank in nigeria operating under islamic banking principles and is a noninterest bank. The bank began operating in 1977, and since then it has played a pivotal role in the development of the islamic banking and finance industries.
Nigeria s quest for a virile banking reform had led to the adoption of several strategies that would truly give the nations economy an edge towards growing sustainability. Islamic development sustainability bond guidelines. Legal framework for islamic banking and finance in nigeria. It examines the financial performance of the bank in terms of profitability, liquidity. 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. Partly as a consequence, the practice of islamic banking ib has, in some. The research has been conducted at a jaiz bank in sokoto nigeria.
January 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. Meanwhile, the emergence of islamic banking in various. 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. Bank is the single sharia compliant bank in nigeria with 26 branches. Islamic banking products and challenges in nigeria. The efforts gained a better momentum with the promulgation of the banks and other financial institutions decrees bofid 24 and 25 of 1991, which replaced the banking act of 1969. Evolution and trends in islamic banking vanguard news. Mar 20, 2019 islamic banking is the largest sector in the islamic finance industry, contributing to 71%, or usd 1. Journal of islamic banking and finance julyl sept 2016 1. It is crucial for islamic bank jaiz bank to fast track their plans to open more branches with their national banking license to operate anywhere in nigeria. This is especially true in economic relationships, such as banking and finance in the. This work examines the legal framework of islamic finance system in nigeria.
The recent development of insolvency of many conventional banks in nigeria made the central bank of nigeria central bank of 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. Islamic banking is very common in arab countries and in the northern states of nigeria. As a result of that, jaiz bank became the first and the only fullfledged islamic banking in nigeria. Nigerias first licenced islamic bank, jaiz bank plc, has commenced full operation of noninterest commercial banking in nigeria from three branches in abuja, kaduna and kano. Share of islamic finance market microfinance gateway. The approval to start banking was given by the central bank of nigeria cbn in 2003. A frame work released in the same year spell out guidelines for the establishment, operations, shariah. This is a pdf file of an unedited manuscript that has been accepted for publication. This paper discusses the dynamics of islamic financial system ifs and the need to have.
As it stands, it is fair to say that interestfree banking system and islamic banking system refers to the same policy as they operates in line to the provisions and jurisdictions of the islamic shariah system. Headquartered in jeddah, saudi arabia, isdb also operates major offices in turkey, morocco, indonesia, kazakhstan, nigeria, bangladesh and senegal. List of islamic banks in malaysia global banking and. 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. It is also home to one of africas fastest growing consumer and corporate banking sectors.
In nigeria, islamic banking according to abikan 2011 was first licensed in 1963 in the southwest zone. Muslims were seeking to satisfy requirements for an islamic state for nigeria. The operational challenges of islamic banks and its. The recent declaration of an abujafederal capital territory federal high court that the operation of islamic banking in nigeria is unlawful and inconsistent with the provisions of the central. Development of the islamic banking system ahmad alharbi1 abstract this paper will illustrate the historical development of islamic banking industry. The idb was considered to be the first international islamic bank that was established, albeit in part, by members of the oic. Jaiz bank plc is a national bank and a quoted public company owned by over 26,000 shareholders spread over the six geopolitical zones of nigeria.
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. Introduction to islamic banking and finance is supported by a detailed, easy to use instructor manual, powerful test bank generator and dynamic powerpoint slides. However islamic banking is of related purpose to other forms of banking except that it operates using sharia rules known as figh almuamalat rules for islamic transactions. Impact of credit risk management and capital adequacy on the.
This introductory text provides students with a conceptual framework. It seeks to ascertain whether nigerian financial market space is suitable for financial products and services tailored after the principles of islam by focusing on the request for islamic. Islamic banking is encouraged as a tool of economic returns in some countries islamic banking maintained resilient growth in 2016, islamic banking still drives the biggest share of islamic finance industry growth, as it holds by far the largest share of total islamic finance assets. It observed that nigeria is a secular state and issues bordering on. Perception of its relative advantage by consumer segments in anambra state. Islamic finance is rapidly growing across the globe, with presence in europe, the middle east, asia, north america and africa. The paper advocates the integration of islamic banking principles into the nigerian banking system.
In 2010, the islamic banking sector assets are expected to grow by more than 20per cent to usd 950 billion. 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 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. The central bank of nigeria cbn approval of a noninterest islamic banking in.
Interestfree banking and islamic banking in nigeria. Pdf the prospects and challenges of operating an islamic. Thus, islamic banking system is still on the path of its evolution in nigeria. Islamic banking is based on the principles of profit and loss sharing. It provides an overview of islamic finance, discusses key macroeconomic implications from its expansion across the globe, and gives a broad perspective on key elements of islamic finance and banking. 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. This was a strong signal to seek for alternative banking system. The sharing of risk reflects the view of islamic banking proponents that under islam, the user of capital labor and management should not bear all the risk of failure. Islamic banking is generally seen as conventional banking minus the word interest, with a new contract that does not include the word interest and that is structured in a convoluted. Moin 2001 documents that it dates back to the life of the holy prophet. It currently presents an interesting investment case for the islamic investor. It is the first noninterest bank established in nigeria and is headquartered in abuja, the capital city of the country.
Islamic rulings and its practical application through the development of islamic economies. Muhammad zubair mughal, chief executive officer alhuda. In addition, it will provide information about the islamic banking development in many countries around the world. Islamic banking is one of the fastest growing sectors in financial market. List of islamic banks in canada global banking and finance. The noninterest regime offers veritable incentives and attractive options for investors. The license was later withdrawn by the authorities of the then western region. Two hundred copies of questionnaire were distributed to prospective customers of islamic banking and noncustomers of islamic banking residing in four geopolitical zones in nigeria. 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.
Pdf the recent development of insolvency of many conventional banks in nigeria made the central bank of nigeria central bank of nigeria to initiate. Today islamic banking has gain greater grounds in many countries of the world. However, there is the need for increased publicity for islamic banking and finance to encourage increase usage and. Journal of islamic banking and finance julyl sept 2016 7 editors note in pakistan, the islamic banking industry has shown significant progress particularly over the last one and half decade. This paper provokes a revisit of the decision, by the central bank of nigeria cbn, to establish interestfree islamic banking in nigeria, against the backdrop of the. The concept of islamic financial system is as old as islam itself. Jan 06, 2011 the islamic financial service board ifsb expects the global islamic finance assets to reach usd 1. Sharing of risk, according to proponents, results in a balanced distribution of income, and prevents financiers from dominating the economy. Islamic banking has the same purpose as conventional banking except that it operates in accordance with the rules of sharia, known as fiqh almuamalat islamic rules on transactions. This paper therefore examines the origin of islamic banking, islamic financial system in perspective, operations of islamic financial system as well as the challenges and prospects for the. The remaining 17 banks held 38% of the marketshare in total.
Islamic banking in nigeria got approval from the central bank in 2011, after several years of attempts by different groups and organisations. Microeconomic model of an islamic bank, exchange rate stability. The burgeoning trends of islamic banking in the world, particularly in countries with largely muslim population like malaysia, pakistan, indonesia, bangladesh, bahrain, saudi arabia, egypt, sudan, qatar, kuwait, and iran indicate the potentials of the islamic banking in nigeria. Against this background, the study seeks to empirically assess the perceptions of the nigerian muslim youths in malaysia who are considered among the vanguards and advocates for the establishment and operation of islamic banking in nigeria, especially in view of their level of education, exposure and islamic commitment. An alternative to conventional market is emerging in form of islamic banking and noninterest banking. Pdf impact of islamic banking on socioeconomic development. Prospects of islamic banking in nigeria has been so over flogged. 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. It was descriptive study that relied on secondary sources of data and adopted content analysis method. The success of the latter led to the establishment of a series of similar banks, including faisal islamic bank sudan and kuwait finance house kuwaitboth in 1977. The islamic financial service board ifsb expects the global islamic finance assets to reach usd 1. Pdf the nigerian banking reform precipitated the adoption of islamic banking and finance in 2009 as additional door to banking mechanism. Advanced diploma in islamic finance, students can now specialise in areas of their choice which provides a more relevant and focused learning and development.
Islamic finance in nigeria for islamic banking and sukuk. Org introduction islamic banking refers to a system of banking or banking. Share on facebook share on twitter share on linkedin. Nigeria is home to a concentrated banking sector, with the 5 largest banks accounting for 62% of total commercial bank s assets in 2016. Profit from nigeria s world class sharia listed companies nigeria is africas biggest economy and second only to saudi arabia in terms of organisation of islamic cooperation oic members gdp ranking. 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. At present, the islamic banking industry has acquired above 11. This paper will also briefly introduce how islamic banking works.
The bank s balance sheet has grown from n12 billion in 2012 to about n62 billion, with asset financing of over n30 billion. Usersdralaodesktop22272centralbankofnigeriaissuesnew. Islamic banking products and challenges in nigeria sahara. This type of banking differs from the western form of banking. Journal of emerging issues in economics, finance and banking jeiefb an online international monthly journal issn. The central bank of nigeria cbn approval of a noninterest islamic banking in nigeria has generated a lot of controversy along religious divide and this motivated the study. They are therefore a veritable social mechanism for enhancing christianmuslim partnership. 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. In january 2012, the central bank of nigeria granted jaiz bank an approval in principle to operate as a regional interestfree bank in northern nigeria. He further documents that interestfree bank enhances individual enterprise and also.
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