Generally, a bank is a financial institution licensed to receive deposits and make loans. There are several types of banks including retail, commercial, and investment banks. While, a Non-Interest Bank means a bank which transacts banking business, engages in trading, investment and commercial activities as well as the provision of financial products and services without the conventional interest charges. The Central Bank of Nigeria (CBN) serves as the country’s central monetary authority.
Established under a 1958 Act of Parliament, the Nigerian central bank commenced operations in 1959. CBN oversees the operations of financial institutions and banks in Nigeria, helping ensure high banking standards and financial stability in the industry, as well as promoting an efficient payment system.
The banking sector of this country consists of 21 commercial banks, 860 microfinance banks, 5 discount houses, 64 finance companies, and 5 development finance banks.
The primary legislation for the regulation of banks in Nigeria is the Banks and Other Financial Institutions Act (BOFIA) which, with the Central Bank of Nigeria (Establishment) Act 2007 (CBN Act), gives the Central Bank of Nigeria (CBN) powers to supervise and regulate banks and other financial institutions in Nigeria. The main difference between other financial institutions and banks is that other financial institutions cannot accept deposits into savings and demand deposit accounts, while the same is the core business for banks.
The Central Bank of Nigeria supervises the following categories of financial institutions: Bureaux-de-Change (BDCs), Commercial Banks, Development Finance Institutions (DFI’s), Discount Houses, Finance Companies (FCs), Holding Company (HCs), Merchant Banks, Micro-finance Banks (MFBs), Non-Interest Banks, Primary Mortgage Banks (PMBs) and Payment Service Banks (PSBs).
Nigeria’s Potential for Non-Interest Banks
Non-Interest Banking is a profitable growing global phenomenon practiced in many countries across the world including the United Kingdom, Canada, the United States of America, the United Arab Emirate, Malaysia, China, Singapore, South Africa, Kenya etc. Global Banks like HSBC, Citibank, Barclays Bank etc. are also offering non-interest banking products and service. It is an alternative financial service offering which is open to all irrespective of race or religion. It is based on the ethical principles of fairness, transparency and objectivity. Non-Interest Banking offers almost all the services of conventional banks. The difference is that non-interest Islamic Banks do not give or receive interest, nor finance anything that is harmful to society like alcohol, tobacco, gambling etc. They also seek to avoid gharar- speculation, uncertainty deception and more.
Currently, about 50% of Nigeria’s total population of 200 million are craving for such Non-Interest banking services. These people are desirous of ethical banking services which provide for socially responsible investment outlets. In a nutshell, Non-Interest Banking is real-economy oriented and profit and loss sharing arrangement where the mode of financing is mostly on mark-up, leasing and partnership basis.
The business potential for a Non-Interest Bank in Nigeria is enormous as such an institution has long been awaited by a population of over 93 million Nigerians representing 50% of the country’s population of about 186 million.
The establishment of Non-Interest Banks has necessitated the extension of Deposit Insurance coverage to the depositors of such banks in order to provide a level playing field for all deposit-taking financial institutions and ensure that holders of Non-Interest Banking products are adequately protected.
Operationally, there are about four (4) Islamic or non-interest banks that operate in Nigeria. Namely Jaiz Bank PLC., TAJBank Limited, Lotus Bank and Alternative Bank Ltd. However, Nigeria Deposit Insurance Corporation (NDIC) listed only three which are Jaiz Bank PLC., TAJBank Limited and Lotus Bank.
The NDIC is an independent agency of the Federal Government of Nigeria. The purpose of the deposit insurance system is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay their deposits, thereby helping to maintain financial system stability. Therefore, NDIC protects deposit of Non-Interest Banks and Deposit Money Banks, provides incentives for promoting sound risk management principles and contributes to the stability of the Financial System in Nigeria.
There is also the umbrella body of all corporate organisations offering non-interest financial and related services in Nigeria called Non-Interest Financial Institutions Association of Nigeria (NIFIAN). Parts of the objectives of NIFIAN is to promote common interest of member-organisations towards developing the non-interest financial services industry in Nigeria, creating an enabling regulatory environment through advocacy as well as deepening financial inclusion through market engagements and financial literacy.
In addition, the Association aims to improve market resilience by fostering collaboration across the industry, promoting policies and programmes on Financial Inclusion, and sensitization of the populace for the economic development of the country through non-interest financial services offering.
Islamic Banks in Nigeria
The following are the top four (4) Islamic or non-interest banks that operate in Nigeria;
Jaiz Bank is the pioneer Islamic and non-interest banking in Nigeria. The bank’s products and services in regards deposits and investments comply strictly with Shaira law. Jaiz Bank Plc upgraded its regional banking licence to a National operating license in 2016. The upgrade has enabled it to operate in all 36 States of the Federation including the Federal Capital Territory.
The Bank’s strategic business focus is mainly on retail banking, having due regard to a report published by KPMG in 2006 which estimated the market for retail banking in Nigeria at US$30 Billion. The Bank nevertheless offers corporate and commercial banking services in addition to its retail product offering. The Bank’s retail focus will enable it to service the majority of Nigerians who wish to do away with Riba (Usury) in their daily activities. The Bank is being positioned to be a major player in Non-Interest Banking in Africa.
Jaiz Bank PLC continued its remarkable growth trend organically, and has quickly been recognised as the most improved Islamic Bank by GIFA making the bank the leading Non-interest financial institution with a reputation for ethical banking, sturdy compliance, risk management and trade finance.
The Bank has witnessed remarkable and steady growth over the last 5years and this has given the Bank a strong outing with appreciable progress being made in the advancement of our mission of creating value for customers, while at the same time delivering significant returns to Shareholders – a visible proof of the added value of our continuous strive towards making the Bank the preferred institution for all our stakeholders. This was supported by the outcome of the Bank’s maiden external credit rating conducted by the International Islamic Rating Agency. An investment-grade rating of A+ (short term) was assigned to the Bank which is a resounding corroboration of the Bank’s sound financial health.
Jaiz Bank vowed to become the most successful Islamic African Bank and embarked upon a new five-year strategy focused on financial inclusion, women and youth as well as global trade finance, treasury and payments for the corporate sector. Jaiz Bank’s head office is located at Kano House, No 73 Ralph Shodeinde Street, Central Business District, Abuja
Lotus Bank started operation in July 2021, is a non-interest bank. The Bank is deeply rooted in ethical banking, committed to ethical investing and ethical prosperity. Lotus Bank is committed to deepening financial inclusion and broadening the array of non-interest products available to the banked, unbanked, and under-banked population.
A critical component of its mission is the provision of innovative solutions that drive ethical prosperity for all stakeholders. Lotus Bank prides itself on digital solutions that provide its customers with the convenience of unlimited access to its services and products.
The banks products and services include non-interest business financing, deposit products (current, savings and investment accounts), and personal financing. Lotus Bank is headquartered at 30A Adetokumbo Ademola Street, Victoria Island, Lagos.
Alternative Bank Ltd is a subsidiary of Sterling Bank PLC. Sterling Alternative Finance is the non-interest arm of Sterling Bank Plc that allows customers to bank and transact at 0 zero per cent interest.
Sterling Alternative Finance commenced operation in January 2014 following the granting of Sterling Bank’s license to offer non-interest banking (NIB) services as a window by The Central Bank of Nigeria.
Before receiving CBN’s approval to operate a stand alone non-interest banking, Sterling has been offering Islamic or non-interest banking services such as Mudaraba, partnership etc under Sterling alternative Bank. With the approval, it operate as a full fledge bank.
Sterling Bank Plc is a full service national commercial bank licensed by the Central Bank of Nigeria. The bank provides services to individuals, small businesses (SMEs) and large corporations. As of December 2016, the bank’s branch network numbered 187, distributed throughout the country. The main office of Alternative Bank Ltd. is located at 20 Marina Street in Lagos Island.
TAJBank Limited, is a bank in Nigeria operating under Islamic banking principles and is a non-interest bank. It is the second non-interest bank established in Nigeria and is headquartered in Abuja, the capital city of the country. TAJBank was founded in 2019.
Hamid Joda is the Founder/Chief Operating Officer of TAJBank. Joda is a banker with over 20 years banking experience covering Treasury, Business Development, Consumer/Retail Banking, Branch Banking and the Public Sector.
The mission of TAJBank is to “to build a sustainable ethical brand through exceptional service, innovation and professionalism whilst enhancing stakeholders’ value.” Based on a Vision: “to be the leading African financial institution with a reputation for excellent customer experience and innovative solutions.” While highlighting fundamental such as: Trust and Justice, Customer centric, Excellence, Determination and
Innovation.
The bank recorded Profit Before Tax (PBT) of N1.6 billion in Financial Year 2021. The growth represented 433 per cent improvement on the bank’s profit for 2020. Similarly, TAJBank also recorded 117 per cent growth in gross revenue, from N3.3 billion to N7.2 billion. Recently, the bank secured approval for nationwide banking operations from the Central Bank of Nigeria (CBN). The headquarters of TAJBank Limited are located at Plot 72 Ahmadu Bello Wat, Abuja’s Central Business District.
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