In Nigeria, Islamic finance is officially called non-interest finance: a set of banks, windows, sukuk, funds and takaful operators supervised by the Central Bank of Nigeria, the SEC and NAICOM, in a country shared between Muslim and Christian populations.
Why "non-interest banking" rather than Islamic banking?
The authorities chose neutral wording: the framework covers any finance without interest, whether based on Sharia or on other ethical principles. This choice responded to a sensitive debate in a country whose North is mainly Muslim and whose South is largely Christian.
The CBN supervisory framework published in 2011
In 2011 the central bank published a framework regulating institutions that offer non-interest financial services. It allows fully dedicated banks, subsidiaries and windows inside conventional banks, each with segregated funds and its own Sharia governance.
FRACE, the expert council advising the central bank
The Financial Regulation Advisory Council of Experts advises the CBN on the compliance of products and of the instruments it issues. Each institution must also have its own Sharia advisory committee, which approves contracts, documentation and profit sharing with depositors.
AAOIFI and IFSB standards as the prudential reference
The Nigerian framework refers to AAOIFI standards for accounting and Sharia compliance, and to IFSB standards for risk management and capital adequacy. Institutions therefore adapt international standards instead of relying on purely local rules.
Four full-fledged non-interest banks
Jaiz Bank, the first institution licensed in 2011, has been joined by TAJBank, Lotus Bank and The Alternative Bank. All offer current accounts, Mudaraba savings and Murabaha, Ijara or Musharaka financing for individuals, companies and public bodies.
From a regional to a national licence
The regime distinguishes non-interest banks licensed for one region from those authorised nationwide, with different minimum capital. Jaiz Bank first operated under a regional licence focused on the North before obtaining a national licence in 2016.
Windows that became stand-alone banks
Commercial banks opened non-interest windows whose deposits and financing stay separate from the conventional balance sheet. The Alternative Bank grew out of Sterling Bank's non-interest business, turned into a separate institution after the group was reorganised.
Recapitalisation required from 2024
The recapitalisation drive launched by the CBN in 2024 also raises capital thresholds for non-interest banks, with different amounts for national and regional licences. The four dedicated institutions had to call on shareholders and investors to comply.
Sovereign sukuk that pay for roads
After a first sukuk issued by Osun State in 2013, the federal government launched in 2017 a seven-year Ijara sukuk of 100 billion naira backed by road projects. Further issues followed for roads and bridges across the six geopolitical zones.
Who buys these federal certificates?
The Debt Management Office runs the issues, which are then listed on local markets, and opens subscriptions to individuals and institutions alike. For non-interest banks these sukuk are a compliant asset recognised as liquid, filling a gap in compatible treasury tools.
Takaful and pensions: long-term savings without interest
NAICOM licenses takaful operators, including Jaiz Takaful and Noor Takaful, which manage a pooled fund fed by tabarru-type contributions. The pensions regulator also lets employees direct their retirement account to a non-interest fund invested in sukuk and screened shares.
A deposit return that is not fixed in advance
An investment deposit with a non-interest bank earns a share of actual profit, according to a ratio announced at opening, not a guaranteed rate. With high inflation, the gap between this variable return and Treasury bill yields regularly fuels public debate.
Specialist external source
The Central Bank of Nigeria website publishes the regulatory framework for non-interest finance, circulars on dedicated liquidity instruments and the list of licensed institutions.