Writer: ABHULIMHEN THERESA (Techeconomy intern)
Islamic banking’s influence has grown globally and taken root in Nigeria, particularly after the Central Bank of Nigeria sanctioned the operation of Jaiz Bank in the country.
This unique banking system diverges from conventional practices due to its alignment with Islamic Sharia principles that prohibit interest-based lending.
Here, you will find 10 facts on Islamic banking in Nigeria:
1. Landmark Achievement
Islamic banking made its debut in Nigeria in 2012 when the Central Bank authorized Jaiz Bank, the nation’s pioneer Islamic bank.
2. Exclusive Providers
As of now, Jaiz Bank, TAJ Bank, and Lotus Bank stand as the sources of Islamic banking in Nigeria.
3. Unconventional Operating Strategy
Islamic banks operate on the principle of equity participation. Rather than collecting interest on loans, they accumulate funds through depositor accounts, channeling them to entrepreneurial ventures.
Borrowers share profits instead of paying interest, adhering to the equity participation system share risks and rewards with entrepreneurs borrowing funds.
4. Diverse Financing Modes
Islamic financing in Nigeria encompasses two main modes:
- Profit and Loss Sharing (PLS) modes such as Musharakah and Mudarabah
- Fixed Return Modes including Murabaha and Leasing (ijarah).
5. Nigeria’s Islamic Banking Landscape
The introduction of Islamic banking has significantly impacted Nigeria’s economic landscape. With the Central Bank’s approval in 2012, Jaiz Bank pioneered this transformative approach, adhering to Sharia principles.
This Economic framework caters to both Muslims and non-Muslims, offering interest-free and ethical solutions. Jaiz Bank’s establishment signaled a departure from conventional banking practices, promoting responsible financial behavior and encouraging ethical investments.
This innovative sector has opened avenues for diverse businesses, stimulating economic growth and providing an alternative financial framework aligned with societal values.
6. Sharia-Compliant Principles
As previously mentioned, the Sharia-compliant tenets of Islamic banking in Nigeria form an integral foundation. These principles, guided by Islamic ethics, strictly forbid predetermined interest rates and prioritize profit-and-loss sharing (PLS) mechanisms.
Embracing these ethical principles, Islamic banking institutions in Nigeria create a financial environment that resonates with the values of the Muslim populace.
By adhering to these Sharia-compliant principles, Islamic banks establish a unique framework that nurtures financial inclusion, ethical practices, and shared prosperity, shaping a progressive financial landscape aligned with both Islamic teachings and societal well-being.
7. Ethical Banking Focus
Islamic banking in Nigeria emphasizes ethical financial practices, catering to the values of the Muslim population.
8. Economic Impact
With over 80 million Muslims in Nigeria, the growth of Islamic banking is projected to stimulate the nation’s economy and possibly reduce loan interest rates.
9. Two Modes of Financing
Islamic banks in Nigeria operate through two modes: the core mode, centered on profit and loss sharing (PLS), and the marginal mode, which doesn’t adhere to PLS principles.
10. Shared Prosperity
This lies at the core of Islamic banking in Nigeria, distinguishing it from conventional financial systems.
The approach encourages equitable distribution and cooperative growth among entrepreneurs, depositors, and the bank. Through adherence to Sharia principles, it promotes ethical financial practices while catering to the values of both Muslim and non-Muslim individuals.
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