The finest possibilities for attaining real sector development in Nigeria are Islamic Finance and its products. Mr. Ahmad Barau, Deputy Director, Banking Supervision at the Central Bank of Nigeria (CBN), made this statement during a recent discussion on trends in Nigeria’s Non-Interest Finance market.
Islamic Finance, according to Barau, who also oversees non-interest banks at the CBN, delivers enormous benefits to individuals and has the potential to boost Nigeria’s economic sustainability efforts.
He went on to say that the Sukuk bond is one of the segments that drives infrastructure funding, particularly in a frontier market country like Nigeria. Unlike conventional banking, he claims, Islamic banking is backed by real assets.
Financial market rules and policies that encourage products and initiatives such as liquidity management instruments and treasury Sukuk, he believes, are critical for the industry’s success.
“Investors may be hesitant to join until they witness a successful story from participants in the non-interest finance sector. If they see more investments, their returns will improve, their risk will decrease, and the institutions will perform better “he stated
When it comes to the economy, the Deputy Director believes that the best way forward is to strengthen the non-interest banks supervisory structure in line with international best practises.
Barau pointed out that the CBN might still pass loanable funds to borrowers through non-interest lenders, which is why the CBN launched the 11 schemes intervention programme, which is targeted at the non-interest sector.
“There is a need to be aware that there are some specific ethical considerations when it comes to non-interest lending institutions. When it came to the guidelines, various changes were made to account for non-interest-based institutions. They reduced their liquidity ratio from 30% to 10% at one point because they realised that non-interest financial institutions face significant liquidity management issues “instrumentation”.
“The idea of liquidity ratio is that banks are expected to keep 30 percent of their deposit with the CBN, but when it comes to non-interest banks due to the non-interest bearing nature of their operations they cannot set aside a hefty 30 percent of deposits” he continued.
According to him, the non-interest banking business has been underserved, with only a few active institutions and products, but a new eleven-product programme will likely increase client access and broaden service delivery experience.
