Friday, October 23, 2020 / 1:00 PM / Bukola Akinyele for WebTV / Header Image Credit: WebTVNG
Islamic Finance and its products are the best options for achieving real sector development in Nigeria. The Deputy Director, Banking Supervision in the Central Bank of Nigeria (CBN), Mr. Ahmad Barau, made this point at a recent discourse on developments in the Non-Interest Finance market in Nigeria.
Barau who also supervises non-interest banks at the CBN said Islamic Finance provides immense benefits to individuals, and has the potential to support Nigeria's economic sustainability efforts.
Speaking further he cited the Sukuk bond as an example of a segment that drives infrastructure financing, especially in a frontier market economy like Nigeria. According to him Islamic banking is backed by real assets unlike conventional banking.
He expressed the opinion that financial market regulations and policies that encourages products and initiatives like the liquidity management instruments and treasury Sukuk are vital for the growth of the industry.
"Investors might not come until they see a successful story of the players in the non-interest segment of the finance industry. If they see more investments the returns will be better, their risk will substantially reduce and the institutions will perform healthier" he said.
Reviewing the economy, the Deputy Director said the way forward was to strengthen non-interest banking supervisory framework in line with international best practices.
Barau noted that it is quite possible for CBN to still pass through loanable funds to borrowers, through non-interest lenders which is the reason for the 11 schemes intervention programme released by the CBN especially for the non-interest market.
"There is a need to know that there are some particular ethics when it comes to lending institutions that are non-interest based . When looking at the guidelines some adjustment were made in order to take care of non-interest based institutions. At a point in time they lower their liquidity ratio from 30% to 10% due to the fact that they realize that non- interest financial Institutions have serious challenges with liquidity management instruments".
He added "The idea of liquidity ratio is that banks are expected to keep 30% 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% of deposits".
He said, the non-interest banking industry has been shallow with a small number of active institutions and products, but a new eleven-product programme would likely improve customer access and broaden service delivery experience.