Islamic banking, also known as Shariah-compliant banking, is a unique and rapidly growing financial system that adheres to the principles and values of Islam. However, Islamic banking in Nigeria has its origins deeply rooted in faith.

Islamic banking has gained significant traction in Nigeria, a country of Muslims more than half of the population.

However, In this article, we will delve into the principles and practices of Islamic banking in Nigeria, exploring its history, concepts, operations, types, and impact on the country’s economy.

As a practicing Muslim and a finance enthusiast, I have a personal connection to Islamic banking and its principles, which makes this topic close to my heart.

Historical Background of Islamic Banking in Nigeria

Islamic banking in Nigeria has its roots in the late 1970s when the Islamic Development Bank (IDB) initiated efforts to establish a financial system that aligns with Islamic principles.

Afterward, the Nigerian government established the Jaiz Bank, which became the first Islamic bank in the country.

Over the years, more Islamic banks have been established, including Stanbic IBTC Bank, Taj Bank, and Jaiz Takaful Insurance, among others, making Nigeria one of the leading countries in Africa with a significant presence of Islamic banking institutions.

Principles of Islamic Banking

At the heart of Islamic banking are the principles of Shariah, which is the Islamic law based on the Quran and the Hadith (sayings and actions of Prophet Muhammad).

In addition, these principles guide the operations and transactions of Islamic banks and provide a framework for conducting business in a manner that is consistent with Islamic teachings.

Some of the key principles of Islamic banking include:

1. Prohibition of Interest (Riba):

Islamic banking prohibits charging or paying interest on loans or deposits, as it is considered usury and exploitative.

Instead, Islamic banks engage in profit-sharing arrangements, where returns are generated from legitimate business activities and shared between the bank and its customers based on pre-agreed ratios.

This promotes risk-sharing and encourages productive economic activities.

2. Ethical and Socially Responsible Investing:

Secondly, Islamic banking promotes ethical and socially responsible investing by adhering to the concept of Halal (permissible) and Haram (prohibited) in business activities.

Investments in sectors such as alcohol, gambling, tobacco, and pornography are strictly avoided, while investments in socially responsible sectors such as healthcare, education, and renewable energy are encouraged.

3. Asset-Backed Financing:

Thirdly, Islamic banking emphasizes asset-backed financing, where transactions are backed by tangible assets such as real estate, commodities, or equipment.

Actually, this promotes transparency, accountability, and risk-sharing, as the bank and the customer both have an ownership stake in the underlying assets.

4. Prohibition of Speculation and Uncertainty (Gharar):

Also, Islamic banking discourages speculation and uncertainty in business transactions. Currency Futures Trading in Forex is a typical example.

Contracts that involve excessive uncertainty, ambiguity, or speculation are not allowed. Instead, contracts are required to be clear, transparent, and based on mutual consent.

5. Prohibition of Financing Harmful Activities:

Islamic banking prohibits financing activities that are harmful to society or the environment, such as those that involve pollution, destruction of natural resources, or exploitation of labor.

So. this promotes sustainable and responsible business practices.

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Practices of Islamic Banking

Islamic banks in Nigeria offer a wide range of financial products and services that are designed to be Shariah-compliant. Some of the common practices of Islamic banking in Nigeria include:

1. Murabaha:
Murabaha is a cost-plus-profit arrangement, where the bank purchases an asset on behalf of the customer and sells it to the customer at a marked-up price.

The customer pays the price in installments, making it a popular mode of financing for asset purchases such as homes, cars, machinery, etcetera.

2. Mudarabah

Mudarabah is a profit-sharing arrangement, where the bank provides the capital and the customer provides the labor and expertise. Profits generated from the business venture are shared between the bank and the customer based on pre-agreed ratios.

Mudarabah is commonly used for financing small and medium-sized enterprises (SMEs) and investment projects.

3. Musharakah

Musharakah is a partnership arrangement, where two or more parties contribute capital to a business venture and share profits and losses based on pre-agreed ratios.

Musharakah promotes shared ownership and risk-sharing and it is commonly used for financing large-scale projects and joint ventures.

4. Ijarah

Ijarah is a leasing arrangement, where the bank leases an asset to the customer for a specified period of time and for an agreed-upon rent.

Furthermore, at the end of the lease period, the customer has the option to purchase the asset at an agreed-upon price. Ijarah is commonly used for financing equipment, vehicles, and real estate.

5. Wakalah

Wakalah is an agency agreement, where the bank acts as an agent on behalf of the customer to invest funds in Shariah-compliant investment opportunities.

The bank charges a fee for its services, and the customer bears the investment risk. However, Wakalah is commonly used for investment accounts and wealth management services.

List of Islamic and Non-Interest Banks in Nigeria

1. Jaiz Bank

Jaiz Bank is the first Islamic bank in Nigeria, and it was established in 2012. Jaiz Bank PLC is a national bank and a quoted public company owned by over 26,000 shareholders spread over the six geo-political zones of Nigeria.

Presently, the Bank is publicly quoted on the Nigerian Stock Exchange (NSE) with a balance sheet size of N233 billion (as of December 31st, 2020) from N12 billion in 2012.

Financing and Investment assets also grew from over N30 billion in 2012 to N166 billion (as of December 31st, 2020).

Other critical parameters such as customer deposits, branch network, and profitability have all been growing year on year since inception.

Since its debut, the Nation’s premier Non-Interest Bank has maintained its leadership role by deepening this alternative model of financing, thus providing the foundation for its expansion, and providing the needed ethical funding for infrastructural development in the country.

Briefly, the Bank maintains the record of being the first Islamic Bank in the world to break even within the first three years of operations even when there were no Islamic banking and finance instruments to invest in in the country.

2. Lotus Bank

Lotus Bank is a Non-Interest Nigerian Bank deeply rooted in ethical banking, committed to ethical investing and ethical prosperity.

Also, they are committed to deepening financial inclusion and broadening the array of non-interest products available to the banked, unbanked, and under-banked population.

Their values are bold and ethical, and birth new ideas. They are a testament to their desire to deliver a differentiated customer experience that supports Nigerian businesses and delivers shareholder value.

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3. Stanbic IBTC Bank

Stanbic IBTC Bank is a subsidiary of Standard Bank Group and offers Islamic banking products and services in Nigeria.

The Bank caters to both individuals and businesses through carefully designed retail and business banking products. Also, offer self-service channels powered by sophisticated technology to bring convenient banking to customers.

They offer current, savings, and domiciliary accounts; personal loans, vehicle, and asset finance; MasterCard debit cards, Visa credit cards; home loans; internet banking; small and medium scale enterprise (SME) loans etcetera.

In addition, their clients can also get custodial services through Stanbic IBTC Nominees Nigeria Limited, their custody arm, and non-pension asset custodian, acting in a nominee capacity for clients’ transactions in securities and other investments.

No doubt they are a key player in financial inclusion and are poised to take banking to the doorsteps of its customers; taking care of the banking needs of different categories of persons and businesses.

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Islamic banking in a circular country

They are using it to generate funds to sponsor terrorism nothing more...

CondenseMilk:
Islamic banking in a circular country

It doesn't matter. Islamic Bank is also in every developed countries.

What you just did is one of the challenges facing the system and that is wrong orientation on what Islamic Bank is...

Ever8090:
They are using it to generate funds to sponsor terrorism nothing more...

This is a bad orientation you have had and you must bury it. Every developed nations encouraged it so why should only Nigerians think otherwise

OomaJ19:


It doesn't matter. Islamic Bank is also in every developed countries.

What you just did is one of the challenges facing the system and that is wrong orientation on what Islamic Bank is...

Continue deceiving the gullible

CondenseMilk:
Islamic banking in a circular country

It doesn't matter. Every developed countries have an Islamic bank including the Almighty USA. Please make your research and change your orientation.

OomaJ19:


It doesn't matter. Every developed countries have an Islamic bank including the Almighty USA. Please make your research and change your orientation.

All the developed nations in the world today do not exist on multiculturalism or multiregionalsm.

USA, Britain and EU all have their foundation on Christianity but they created a means by which others can thrive. With that in place, you can establish whatever you want with regard to your faith but all must be under a Christan constitution.

Nigeria is different because it is multireligous and Islamic banking is a dent on its constitution

CondenseMilk:




All the developed nations in the world today do not exist on multiculturalism or multiregionalsm.

USA, Britain and EU all have their foundation on Christianity but they created a means by which others can thrive. With that in place, you can establish whatever you want with regard to your faith but all must be under a Christan constitution.

Nigeria is different because it is multireligous and Islamic banking is a dent on its constitution

I am sure you only have a problem with ISLAM. If it was called another name, I know you won't criticize it. It doesn't make any sense to you. The world is beautiful and everyone should learn to live with themselves peacefully...