Jaiz Bank, Nigeria: A Case Study on Non-Interest Bank

7/23/2019 Jaiz Bank, Nigeria: A Case Study on Non-Interest Bank

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Jaiz Bank, Nigeria: A Case Study on Non-Interest Bank

Introduction:

Financial inclusion has assumed increasing recognition across the globe among policy makers. Nigeria’s

46.7% population is still excluded from formal financial services. !ne of the reasons of exclusion stems

from "slamic belief of half of the muslim population #ho #ant to do a#ay #ith Riba (Usury2 ) in their

daily activities. $n alternative to conventional market is emerging in form of "slamic anking and Non&

"nterest anking. 'his case study is about (ai) ank *lc+ Nigeria’s first full&fledged non&interest bank. $s

part of government financial inclusion policy, (ai) ank is founded to tap the existing banking

opportunity. (ai) ank is being positioned to be a national bank offering its services regardless of

religious beliefs. 'he bank is an un-uoted public company o#ned by over 6,/// shareholders spread

over the six geographical )ones of Nigeria housing its head -uarter in Federal 0apital $bu1a.

"slamic finance helps promote financial sector development and broadens financial inclusion. yexpanding the range and reach of financial products, "slamic finance could help improve financial access

and foster the inclusion of those deprived of financial services. "slamic finance emphasi)es partnership&

style financing, could foster entrepreneurship, reduce poverty. "t could help improve agricultural finance,

contributing to improved food security. 'he "slamic finance can help meet the needs of those #ho don’t

currently use conventional finance because of religious reasons. !f the .6 billion 2uslims in the #orld,

only 4% use banks3. "t can help reduce the overall gap in access to finance, since non&2uslims aren’t

prohibited from using "slamic financial services.

(ai) ank commenced operations #ith three branches in $bu1a, aduna and ano states in /, after it

received license from the 0entral ank of Nigeria 50N on the November / to operate as a non&

interest bank. 0urrently the bank operates in six states #ith eighteen branches. 'he *aid up 0apital4

as on3st ecember /4 #as ,89,7//,///. 'he bank plans to operate in all 36 states by upgrading and₦

availing national operating license and increasing the share capital base to N: billion 5;< =78 million.

'he 0entral ank of Nigeria has granted a national license and a #aiver on the reduction of its li-uidity

ratio from 3/% to /%. 'he bank have massive expansion plan and intends to open // branches in first

five years.

1 http://www.cenbank.org/devfn/fninc.asp 46% excluded in 2010 !"% in 2012

2 'he literal meaning of the $rabic #ord riba is increase, addition, gro#th, though it is usually translated

as >usury>, the prohibition on the charging of interest

! http://www.worldbank.org/en/topic/fnancialsector/brie#/isla$icfnance

4 is symbol used for Naira, Nigerian currency₦

http://www.cenbank.org/devfin/fininc.asp

http://www.worldbank.org/en/topic/financialsector/brief/islamic-finance


http://www.cenbank.org/devfin/fininc.asp



'he #ord ?1aiz’ in $rabic means something that has not been forbidden religiously. 'his #ord issometimes used instead of sahih or mubah5. Jaiz means allo#ed or man)oor 6. 'hus the #ord ?1ai)’indicates religious sanction. @ith a vision to be the dominant non&interest bank in <ub&<aharan $frica,($"A ank *lc7 #as established as the first fully fledged such bank in Nigeria chose its punch line ?our interest is mutual’, carving out dual meaning. 'he first meaning is ?interest is mutual’ means bank andclient have common concern. 'he second meaning is ?our interest’ means charge for using money is

mutual.

2onogram for (ai) ank *lc

'he poem cited in /4 $nnual Beport reflects business philosophy in follo#ing #ordsC

D"n a game of golf, both the caddy and the golfer have the same goal...to get the ball in the hole.

"nterest free banking is similar...@e tee up #ith a clear vie# of the fair#ay and a pre&defined agreement...@ithout shifting targets, things should end up #here you #ant them.Eour deposits are safe+ funds are ethically managed #ith a transparent ande-uitable approach to sharing risk and re#ard. No interest burden means more time to relax...#ithout having to #orry aboutnasty surprises.

(ai) ank’s vision, mission and core values are captured in follo#ing paragraphs.

Vision

D'o be the dominant noninterest financial services provider in <ub&<aharan $frica

Mission

'o provide innovative, value added non&interest financial services to our clientele employingthe best people supported by technology

Core Vaues

• Guality <ervice

• 0ustomer First

& Sahih in $rabic means genuineHauthenticHsound, mubah means an action as neither forbidden norrecommended, and so religiously neutral. 'his is one of the degrees of approval in "slamic 1urisprudence

6 httpCHHhamari#eb.comHdictionariesHallo#edIurdu&meanings.aspx manzoor means sanctioned

' *ublic limited liability 0ompany, incorporated in //3. 0ommenced non&interest commercial banking

activities on (anuary 6, /

http://hamariweb.com/dictionaries/allowed_urdu-meanings.aspx





• 'eam <pirit

• Bespect for the individual

• Jthics

• 'rust

• *artnership

• Jntrepreneurship

(ai) ank is no# operating in locations. (ai) ank has obtained $pproval&in&*rinciple for a

license from the 0entral ank of Nigeria to operate nation#ide. 2anaging irector and 0hief

Jxecutive !fficer of 5Nigeria eposit "nsurance 0orporation N"0, $lha1i ;maru "brahim

informed the (ai) ank team that the 0orporation had developed a non&interest banking deposit

insurance fund frame#ork in 2ay /: designed to create a level playing field and provide

deposit protection for depositors involved in non&interest banking and protect them against any

possible losses. Ke further explained that the benefits of profit and loss banking are a mutually

re#arding partnership among all participants in the "slamic anking in line #ith its business

practices.

eing a profit and loss banking (ai) ank *lc. is likely to benefit of these initiative. (ai) ank

has recently granted "slamic infrastructure bond facilities to some state governments in the

0ountry.

!he "romoters and Management:

(ai) ank *lc 5(ai) ank #as created out of the ashes of the former (ai) "nternational *lc 5("*L0 #hich

#as set up in //3 as a special purpose vehicle. ("*L0 #as incorporated on st $pril //3 as a public

limited liability company #ith ob1ective clause to establish "slamic anking "nstitution in Nigeria. 'he

approval to start banking #as given by the 0entral ank of Nigeria 50N in //3. (ai) ank subscribed

capital of .: billion but subse-uently in (uly //4, the 0N raised capital limit to : billion. 'he₦ ₦

promoters struggled long to secure additional capital of .: billion.₦

'he bank #ent into the trenches. uring testing time of ("*L0 management, the decision of Aamfara

<tate came to its rescue. Aamfara <tate’s expression of intention to return to a full application of "slamic

la# became catalyst. $ccording to the <tate 0ommissioner for (ustice the pro1ect #as to establishment of

"slamic banking system. *ursuant to this goal, the Movernment had floated Kalal Mroup #hich then

became Kalal "slamic ank. "t cannot take off for long time, lead to merger #ith (ai) Mroup. 'hus the

state government became one of the promoters. 'he promoters still struggled to comply #ith the

conditions and succeeded to raise the capital base of : billion through private placement in //.₦

($"A "nternational *lc applied8 in / to <ecurity Jxchange 0ommission 5<J0 for private placement of

,767,766,4: ordinary share of .// each at .// per share. "t launched its maiden Bight "ssue in₦ ₦

/: for ,9:7,44,93/ e-uity shares of each .// each at .3/. 'his exercise is done as part of its *lc₦ ₦

( http://www.sec.gov.ng/fles/2nd%20)uarter%202012%20*+,%20-%20)uarterl

%20report.pd#

http://www.sec.gov.ng/files/2nd%20Quarter%202012%20SEC%20NG%20Quarterly%20report.pdf






plans to upgrade to a national operating license by /:, conse-uently, to re-uired increase its current

<hare 0apital ase from .7 billion 5;< =7: million to : billion 5;< =78 million.₦ ₦

'he promoters of the 0ompany are composed of leaders in their respective field of business, commerce

and social activities #ith rich experience in various sectors. ank’s prominent international partner

includes "slamic evelopment ank and "slamic ank angladesh Limited 5"L. "L is the 'echnical

*artner of (ai) ank *lc as approved by the 0entral ank of Nigeria. (ai) ank and angladesh

"slamic ank signed 2o; for a technical partnership in the positions of managing director,

Kead, "', Kead, 'raining and 0hief Bisk !fficer.

(ai) ank is governed by oard of irectors chaired by $lha1i 5r. ;maru $bdul 2utallab #ith full&

fledged directors. 2ohammad Nurul "slam, lead the bank as 2anaging irector till November /:.

Nurul "slam 1oined (ai) ank in November /3 and turned it around from a negative balance&

sheet to a positive result in /4. DKe came in on a 'echnical $greement (ai) ank has #ith the

"slamic ank of angladesh to train and put the staff of (ai) ank through "slamic anking because of their long experience in the subsector the statement said. Nurul "slam led a team of (ai)

ank staff to obtain "<!&7// and *0"<< certification to render e&banking on a robust platform. Ke

came in on a 'echnical $greement (ai) ank has #ith the "L to train and put the staff through "slamic

anking because of their long experience in the subsector. Ke 1oined the "L in 983 as an officer and

#as gradually promoted to be eputy 2anaging irector. 'he detail of oard of irectors and $dvisory

0ommittee of Jxperts is captured in $nnexure&" "" respectively.

(ai) ank bank appointedt 2r. 2ahe $bubakar as the acting 2anaging irectorH0J! of (ai)

ank *lc. Ke is taking over from 2uhammad Nurul "slam, #hose t#o&year contract ends on the

7th of November, /:. ;ntil his appointment, $bubakar #as an Jxecutive irector in charge

of usiness evelopment. 2ahe is considered Dan astute banker #ith over / years cognate

experience. efore he 1oined (ai), he #as a Meneral 2anagerH Mroup Aonal Kead of Aenith ank

*lc in charge of the North#est region

#ro$th:

(ai) ank recorded gross earning of 79.:6 million and operating loss of ./7 billion in its first year of ₦ ₦

full&fledged operation as non&interest bank in /. 0hairman of the bank, 2utallab 9, mentioned at the

maiden $nnual Meneral 2eeting of the bank that the bank realised 3.9 billion as deposits in the period₦

under revie#. Ke attributed the Dlackluster performance’’ of the bank to lack of sharia&compliant li-uidity

management instruments and hiccups experienced in 1oining the settlement and clearing system. Ke saidthat investments made by the bank in the year amounted to .9 billion, #hile shareholders’ funds rose₦

by :3 per cent from 6.4: billion to /.billion. 'he chairman attributed the increase to the recently₦ ₦

concluded private placement exercise conducted by the bank #hich #as successful.

" ,hair$an lhai 3r 5$aru bdul utallab



D'he #hole idea of this banking option is to bring more people into banking in Nigeria that provides

banking #ithout interest, the bank chairman, $lha1i ;mar 2utallab, told the bank’s inaugural $nnual

Meneral 2eeting. Ke added that the bank #ould adopt ade-uate strategies, including aggressive deposit

drive, investment in the real sector of the economy and agriculture, to enable it achieve its set ob1ectives.

@ithin t#o years, (ai) ank attained breakeven point and generated profit in /4. 'he bank #itnessed

remarkable gro#th #ith total assets moving in double&digits by about 4%/

, total earning assets by about4% #hile total income increased by /%. 'he ank>s 'otal "ncome took a massive leap of about

%3 keeping the expenditure gro#th restricted to only /% 4 not#ithstanding the expansion in the

ank>s operations and branch net#ork #hich #itnessed a :/% increase in /4. 'he bank generated a

modest *rofit before 'ax of :7.7million. 'he profitability #as driven by continuing revenue gro#th,₦

disciplined cost management and lo#er financing impairment expenses. !ne of the investors, "slamic

ank of angadesh5"L is said to have signed a memorandum of ;nderstanding #ith the

promoters to invest in (ai) ank and also bring along other off&shore investors. "n addition, "L

#ill provide technical management service #ith emphasis on skills development as soon

approval is obtained from the 0N. 'he "L #ith over / years’ experience in "slamic banking

is said to have an asset base of over =billion and is rated the best bank in angladesh in terms of capital, management and assets.

"n $ugust /:, representatives of (ai) ank *lc and "slamic evelopment ank 5" signed a

2emorandum of ;nderstanding authori)ing (ai) ank as the sole collector of Kadaya 5Gurbani

or animal sacrifice collections from intending pilgrims to <audi $rabia. 2anaging irector of

(ai) ank 2uhammad Nurul "slam and the 0ompany <ecretary Bukayat <alaudeen signed the

agreement on behalf of (ai) bank, #hile $hmed Beheimi and 2ansur Noibi signed for ".

(ai) "nternational *Lc also hopes to raise further capital from local investors to compliment the

contribution from "L, the aim being to surpass the minimum capital base. 'he <ecurities and

Jxchange 0ommission 5<J0 approved: in !ctober /:, the rights issue of .96 billion shares of each

.// at price .3/ per share.₦ ₦

10 from 33.9billion in /3 to 4billion in /4₦ ₦

11 from .:billion in /3 to 4.:billion in /4₦ ₦

12 from /.9billion in /3 to .9billion in /4₦ ₦

1! from /.9:billion in /3 to .94billion by ecember /4₦ ₦

14'otal income in /4 #as ,9/,79,/// against 9:,849,/// in /3 #hile total expenses #ere₦ ₦

,774,897,/// and ,3,73,/// respectively.₦ ₦

1& http://www.fnancialedge.co$.ng/detail.php7title89ai%20;ank%20<=ers

%20-2.4bn%20>ights%20?ssue@cat8 ,apital%20arket@id8c$k144"&021"6

http://www.financialedge.com.ng/detail.php?title=Jaiz%20Bank%20Offers%20N2.4bn%20Rights%20Issue&cat=%20Capital%20Market&id=cmk1449502196






Strategy:

$s per JFin$6 survey conducted in /, 34.9 million Nigerians, i.e. 39.7% adult population #ere

excluded from formal financial services. 'he exclusion is due to numerous reasons including religious

belief. Kalf of Nigeria’s population of over 7/ million is craving for such Non&"nterest banking services.

'hese people are desirous of ethical banking services #hich provide for socially responsible investmentoutlets. 'his focus #ill make it easy to service the ma1ority of Nigerians #ho #ant do a#ay #ith Biba

5;sury in their daily activities. Non&"nterest banking is a profit and loss sharing arrangement #here the

mode of financing is mostly on mark&up, leasing and partnership basis. (ai) ank’s strategy is to capture

this opportunities to serve excluded community to provide platform for individual gro#th and participate

in nation building. 'he bank launched the operation on follo#ing positive socio&economic indicatorsC

• Large population over 7/ million

• Large muslim population

• Large number of informal business

• anks and clients are seeking innovation

•0an fill gap created by defects in interest banking

• "ncreasing disposable income

• Lack of formal employments

• "ncreasing global acceptance

• Jstimated "slamic anking 2arket <i)e is N4.3: trillion, representing 44% of total industry

deposit liabilities 5N9.9'rillion as at ec //8.

• eposits in Nigeria are expected to gro# at a 0$MB of :% for the next five years.

• iversification eepening the market

'o ensure #ealth maximi)ation and optimum risk&return relation, the bank has strong risk governance

structure in place. $s per /4 annual report bank’s non&performing assets #ere only .8% against

national average7 of 3%. 'his performance is attributed to sound banking policies and internal controlstructure. 8/% of total finance is extended to corporate clients. 8% of credit is extended against

mortgages, title deeds debentures #hile 8% against guarantees, postdated che-ues and domiciliation

contracts8. 'he bank has fixed ranges to mitigate risk through various caps on financing by industry,

sectors, products, entities and tenure. 'he bank use modern technology and management principles in its

decision making process. Non&"nterest anking offers almost all the services offered by conventional

banks except that they do not give or receive interest, nor finance anything that is harmful to society like

alcohol, tobacco, gambling, speculation, deceptive transaction etc. 'he banking has spirit of

entrepreneurship based on ethical principle of fairness, transparency and ob1ectivity.

(ai) ank has cultivated risk culture around follo#ing core principlesC

16 http://www.efna.org.ng/aboutus/fnancialinclusion/

1' http://pulse.ng/business/exposurecbntopublishlisto#bankdebtorsaugust1

id!(620((.ht$l

1( nnual >eport 2014

http://www.efina.org.ng/about-us/financial-inclusion/

http://pulse.ng/business/exposure-cbn-to-publish-list-of-bank-debtors-august-1-id3862088.html


http://www.efina.org.ng/about-us/financial-inclusion/





• 2inimi)ation of potential risk that can 1eopardi)e its fiduciary responsibility as N"F" #hile

expanding the ank>s market share.

• 'he responsibility for risk management in the ank is fully vested in the oard of irectors,

#hich in turn delegates such to senior management.

• 'he ank pays attention to both -uantifiable and un-uantifiable risks #ith special treatment for

sharia>h non&compliance risk.• ank>s management promotes a#areness of risk and risk management across the ank.

• 'he ank avoids products, markets and businesses #here it cannot ob1ectively assess and manage

the associated risks in line #ith both the sharia>h and country perspective.

(ai) ank asel ""H""" in (anuary /4 in line #ith the 0N>s circular dated /th ecember /3 on

implementation of asel ""H""". "n pursuant to "slamic Financial <ervices oard 5"F< standard No., in

addition to the above pillar & re-uirements, J-uity "nvestment risk 5#hich the ank includes under credit

risk, Bate of Beturn Bisk including isplaced 0ommercial Bisk 5under market risk and Shariah Non&

0ompliance risk 5under operational risk have been taken care of in line #ith the re-uirement of Non&

"nterest Financial "nstitutions. ;nder the *illar of the ne# asel "" re-uirements, (ai) ank *lc has

undertaken a self&assessment of its internal capital re-uirements, an "nternal 0apital $de-uacy$ssessment *rocess.

%$nershi&:

!ver 6,/// shareholders o#n the bank. 'he o#ners range from individuals, corporates, governments 9

and international institutes/. 'he o#nership pattern is depicted in follo#ing chartC

,orporateA !6%

*tate overn$entA &%

Bocal overn$entA !%

?ndividualA !0%

9ointA 0%

?ndtitutionA 1'%

CoreignA (%

Share Holding Types

!echnoogy:

1" Da$#ara stateEs ?sla$ic ;anking unit $erged with 9ai ;ank

20 ?3; @ ?;;B



(ai) ank has collaboration #ith the "slamic evelopment ank 5" for technical kno#&ho#,

capacity building and training. " had also recommended the "slamic ank of angladesh

Limited to (ai) for managerial and technical support for the ank. $s part of the terms of

agreement "L seconded five of its senior management staff to (ai) ank, including the

2anaging irectorH0J!.

0entral ank of Nigeria has issued standard guidelines on "' standard to save customers from "'

frauds. (ai) ank #as assessed and certified in /: #ith *ayment 0ard "ndustry ata <ecurity

<tandards 5*0"<< O.3./ and "nternational !rgani)ation for <tandard 5"<!7//. 'hus the

(ai) ank has 1oined the league of organi)ations that are managing customer>s information in a

safe and secure manner to mitigate the sharp practices of fraudsters. igital(e#els is technology

partner #ith (ai) ank to attain compliance to global best practice standards in "nformation and

0ommunication 'echnology.

Cor&orate Socia 'es&onsi(iity )CS'*:

(ai) ank promotes both corporate activities and corporate citi)enship activities in an integrated fashion.

"n corporate activities the core business of non&interest banking, #hile in corporate citi)enship activities

as a corporate citi)en, recogni)ing that integrating these t#o aspects is #hat constitutes 0<B activities.

(ai) ank>s 0orporate <ocial Besponsibility 50<B activities are based on principles classified based on

the core sub1ects of "<! 6///, vi). holistic approach, community involvement and development, human

rights, consumer issues, labour practices, the environment, fair operating practices and interdependence.

"slamic anks have a body that is similar to the oard of irectors termed D'he <hari’ah oard. "n

Nigeria this oard is called the $dvisory 0ommittee of Jxperts 5$0J. "t regulates all the activities of the

bank to make it compliant #ith the "slamic (urisprudence. uring the maiden meeting of the $dvisory

0ommittee of Jxperts 5$0J of (ai) ank *lc held on the 9th and /th !ctober, /, it #as resolvedthat an independent D@a-f type Foundation be established in #hich present and future interest accruals

of the bank #ill be transferred as a full&fledged o#ner. $lso annual donations from the profit of the bank

#ill also be made available to the Foundation. 'his gave rise to the formation of the (ai) 0harity and

evelopment Foundation on the nd $pril, /

"roducts:

'he Bisk *roducts are developed based on <hariat la# and market demand after careful research. 'he

products available for its financing operations are depicted in the chart belo#C



Pro

duc

ts

*hirkatFartnership

?1arah

2>ental4Ga#alah

Hakalahbased.uarantee

)ard

;enevolent

Boan

*ervices

;aiI2sale4

based

'e+enue (y "roducts:

Eear /4 revenue touched N billion derived from various segments as sho#n in the follo#ing chartC

urabaha ,orporate A 24%

?arah Ha ?Jtina ,orporate A 21%

usharakahA !%)ard KassanA 1%

urabaha uto Cinance A 6%

?arah uto CinanceA 0%urabaha KouseholdA 0%

?arah Ko$e Cinance A 14%?arah *erviceA 1%

urabaha >etail/en.A 26%

?stisnaA !%

>evenue b Froducts

In+estment )inancing* 'isk "roductsC

(ai) ank has the follo#ing risk asset master products that have received certification from$dvisory 0ommittee of Jxpert 5$0J and approval from 0entral ank of Nigeria 50Navailable for its financing operationsC

. Bai>5sale based

Bease to own

Cor service

*ale on proft

$arkup

*ale on credit

dvance *ale





through fraudulent buying 0ompliance Bisk ank is the buyer evidenced #ith

ackno#ledgement and receipt of

invoice in its name or endorsed

No profit at overdue period as

it can never be restructured

#ith charging profit continually

alance sheet

Bisk

*rudent and careful <tructure

considering return of sales revenue

"mposing *enalty #hich

ultimately goes to charity

<ale *rice can’t be increased

at any point even market prime rate

increases

Bate of Beturn

Bisk

2ark&up is defined considering

historic market trend and tenured as

much as possible for shorter period

Istisna

(ai) ank commits to manufacture

asset, subcontracts via parallel

"stisna’ and contractor delays

in deliveryHnot according to

specification

2arket and

*erformance Bisk

Bisk transfer via "akalah contract

#ith ultimate buyer to oversee the

pro1ects

'#o contracts in one sale <hariah Non&

0ompliance Bisk

0ompletely separate t#o contracts

one #ith contractor and another #ith

ultimate buyer but #ith the same

terms and conditions

No profit at overdue period as

it can never be restructured

#ith charging profit

continually

alance sheet

Bisk

*rudent and careful <tructure

considering return of sales revenue

"mposing *enalty #hich

ultimately goes to charity H(ai) ank

policy for option to sell under Ijarah #ausua 'idimmah

<ale *rice can’t be increased Bate of Beturn 2ark&up is defined considering



at any point Bisk historic market trend and tenured as

much as possible for shorter period

Ijara Wa Iqitina

$sset becomes ready or in place ,

customer does not buy bank’s

portion

2arket Bisk ;ndertaking for rent is signed by the

customerC customer e-uity

Bentals can’t be charged if the

asset does not generate usufruct

Ijarah $sset Bisk Mestation period is allo#ed till the

asset becomes ready to generate

usufructs, for that period profit

comes not rentals

$sset remains #ith (ai) ank !#nership Bisk 'he customer shall maintain the

asset in protection of the interest of

the Kiree at his o#n cost except in

cases of any accident due to any

natural calamityHdisaster 5acts of

*llah or the like, the calamity is to



be ascertained by the ank for that

+akaul is established

0ustomer efaults but residual

value of the asset does not cover

dues because of price fall

0redit Bisk !ther available sources collateral of

the customer

Musharaka2ismanagement of partner !perational Bisk <trict supervision and #eekly

monitoring #ith data collection and

approximate retirement of *rofit

sharing ratio 5*<B shortly, #eekly



monitoring #ith data collection and

approximate retirement of *<B

ishonest alance sheet !perational Bisk ;tmost careful selection of partner

#ho is supposed to be very kno#n

and high credibility

Lo# profit earning

.

Bate of Beturn

Bisk

<election of predictable profit

making pro1ect #ith sophisticated

accounting system in place that can

assist (ai) ank to assume



determining *<B at least not belo#

the benchmark rate of the ank

Bevocation of contract that

results capital loss due to

misconduct of the partner

J-uity investment

Bisk

isposal of security

"ncurring Loss alance sheet risk "mmediate exit

Isamic Banking +s0 Non-Interest Banking:

'he ob1ectives of "slamic banks are basically threefold. 'he first ob1ective is to offer 2uslims an

alternative to conventional banking and this alternative is interest&free banking. 'he second is to

achieve e-uitable distribution of income and #ealth #hile the third ob1ective is to promote

economic development.

$s per constitutional mandate, 0N has granted license to (ai) ank as Non&"nterest banking compant.Jxperts have conflicting vie#s and fe# of them interchangeably use "slamic anking as Non&"nterest

anking and ,i-. ,.rsa. $burine and $lo in their research emphasi)e follo#ing additional elements

5other than prohibition of interest as essential ingredients in "slamic ankingC

i. *rohibition of lending in certain commodities servicesii. Lo# consumer lendingiii. *rofit Loss or Bisk sharingiv. Kigh real sector investing

$ section of the experts believe that an institutional product or service may be operated #ithout attracting

interest but might have not complied #ith other "slamic mandates or <ariah’s provisions. 'he #ord Non&

"nterest anking is also used to avoid religious colour to the banking business and attract Non&"slamic

0lients. 'he licensing authorities are also using more liberal term to emphasi)e secular structure and

avoiding controversy.

0entral ank of Nigeria defines3 non&interest bank as a bank #hich transacts banking business, engages

in trading, investments and commercial activities, as #ell as the provision of financial products and

services in accordance #ith the principles and rules of "slamic commercial 1urisprudence. 'ransactions

and contracts under this type of banking are non&permissible if they involve charging or paying interest+

uncertainty or ambiguity relating to the sub1ect matter, terms or conditions+ gambling+ speculation+ un1ust

enrichment+ or exploitationHunfair trade practices.

1istory of Non-Interest Banking:

22 5.L. borine and C. lo 200"

2! Lhe Cra$ework Cor Lhe >egulation nd *upervision <# -on?nterest ;anks -ibs

?n -igeria



'he historians claims4 the root of "slamic anking dates back to more than thousand years. Financial

instruments like mudarabah25 #ere utili)ed6 in 7th 0entury. !ver the past decade "slamic finance has

emerged as an effective tool for financing development #orld#ide, including in non&2uslim countries.

2a1or financial markets are discovering solid evidence that "slamic finance has already been

mainstreamed #ithin the global financial system. "t has the potential to help address the challenges of

ending extreme poverty and boosting shared prosperity. "slamic finance is e-uity&based, asset&backed,ethical, sustainable, environmentally& and socially&responsible finance. "t promotes risk sharing, connects

the financial sector #ith the real economy, and emphasi)es financial inclusion and social #elfare.

2uslims represent nearly a -uarter of the #orld’s population and yet less than % of financial assets are

<hariah&compliant7. !nly 4% muslims have bank accounts. 'he non&interest banking industry is

gro#ing and may still rise as young 2uslim populations and communities start to save for later life and as

their investment preferences expand. 'he impetus for the sector is currently being provided by excess

savings from oil, #hich is held in both government and private hands, but also by #ider increases in

productivity and prosperity. Figures for the gro#th of the Shariah&compliant asset management industry

reveal ho# -uickly this interest is turning into concrete action. 'he market for "slamic investment

products is gro#ing at about :&/ per cent a year and e-uity fund assets alone are forecast to 1ump from=:bn in //8 to =:3bn by //. 5?"slamic "nvestment’, F'<J Mroup, //8

*rice#aterhouse0oopers report released in November / estimates "slamic finance industry of =

trillion si)e and expected to gro# annually bet#een : to / percent. !nce seen as a niche area, "slamic

5or Shariah2/ compliant finance has expanded rapidly over the past five years and is no# an increasingly

important element of the global economy. 'his calculation is based on total global financial assets of

=4/trn 5?2apping Mlobal 0apital 2arkets’, 2cinsey 0ompany, //9 and =79bn total assets in the

"slamic finance industry 5?"slamic Finance //9’, "nternational Financial <ervices London, February

//9. 'here is gro#ing pressure for banks, insurers, pension funds and sovereign #ealth funds to include

Shariah products in their portfolio mix. $sset management firms that can offer them not only gain entry

24 <risankoko . *. 200"

2& udarbah is an ?sla$ic contract in which one part supplies the $one and the

other provides $anage$ent expertise to undertake a specifc trade. Lhe part

suppling the capital is called owner o# the capital. Lhe other part is re#erred to as

an agent who actuall runs the business.

26 *..h$ed 200!

2' Lhis calculation is based on total global fnancial assets o# M140trn Napping

lobal ,apital arketsE cGinse @ ,o$pan 200" and M'2"bn total assets in the

?sla$ic fnance industr N?sla$ic Cinance 200"E ?nternational Cinancial *ervices

Bondon Cebruar 200".

2( ?sla$ic law



to a high&gro#th market, but also gain a foothold in a ne# region into #hich conventional products may

also be sold.

2odern <hariah&compliant products have come to cover the full spectrum of banking, capital markets,

asset management and, more recently, insurance 5takaful 9 business. 2any of the gro#ing number of

companies being attracted to the "slamic finance sector are conventional institutions looking to tap into

rising market demand, alternative investment opportunities and fresh sources of funding.

$ccording to $debayo, many 2uslims are not satisfied #ith the operation of the conventional interest&

based banking system #hich is against the spirit of their religion. 0entral ank of Nigeria publici)ed the

Frame#ork for the Begulation and <upervision of Non&"nterest anks 5N"s in Nigeria in 2arch //9.

'he ob1ective of the frame#ork is to provide minimum standards for the operation of non&interest

banking in Nigeria.

'he origin3/ of the modern "slamic bank can be traced back to the very birth of "slam #hen the *rophet

himself acted as an agent for his #ife’s trading operations. "slamic partnerships 5mudarabah dominated

the business #orld for centuries and the concept of interest found very little application in day&to&day

transactions.

"slamic banking refers3 to a system of banking or banking activity that is consistent #ith the principles of

the <hari’ah 5"slamic ruling and its practical application through the development of "slamic economics.

'he principles #hich emphasise moral and ethical values in all dealings have #ide universal appeal.

<hari’ah prohibits the payment or acceptance of interest charges 5riba for the lending and accepting of

money, as #ell as carrying out trade and other activities that provide goods or services considered

contrary to its principles.

'o understand the operation of "slamic banking, one has to visit #here it has been #ell established. "t is

kno#n that "slamic banking is banking based on "slamic la# called <hariah. "t follo#s "slamic rules on

transactions kno#n as figh muamalat #hich came from Dthe Guaran and the <unnah and other secondary

sources of "slamic la# such as opinions collectively agreed among <hariah scholars 5i1ma’, analogy

5-iyas and personal reasoning 5i1tihad 5bankinginfo.com.my, //9. 'he first "slamic bank #as

established in 2alaysia in 983. "t had a special logo to differentiate it from the conventional banks #hich

means that it existed side by side #ith the interest yielding banks. 2uslim <hariah la# #as strictly

applied.

"slamic finance and non&interest are synonymous #hich has emerged as an effective tool for financing

development #orld#ide, including in non&2uslim countries. "t has the potential to help address the

challenges of ending extreme poverty and boosting shared prosperity.

2" Lhe ?sla$ic approach to insurance. Laka#ul sche$es are structured as a

charitable collective pool o# #unds based on the idea o# $utual assistance.

!0 "nstitute of "slamic anking and "nsurance 5/3

!1 "slamic&banking.com 5/3



"slamic banking is banking activity that is consistent #ith the principles of sharia02 and its practical

application kno#n as ? sharia compliant finance’ through the development of "slamic economics.

Sharia prohibits the payment or acceptance of interest charges 5 riba for the lending and accepting of

money, as #ell as carrying out trade and other activities that provide goods or services considered

contrary to its principles. @hile these principles #ere used as the basis for a flourishing economy in

earlier times, it is only in the late /th century that a number of "slamic banks #ere formed to provide an

alternative basis to 2uslims although "slamic banking is not restricted to 2uslims.

$s per @orld ank Mlobal "slamic Finance evelopment 0enter /4 report, the "slamic finance industry

has expanded rapidly over the past decade, gro#ing at /&% annually. <haria&compliant financial assets

are estimated at roughly ;<= trillion, covering bank and non&bank financial institutions, capital markets,

money markets and insurance. "n many ma1ority 2uslim countries, "slamic banking assets have been

gro#ing faster than conventional banking assets.

!ver the past decade "slamic finance has emerged as an effective tool for financing development

#orld#ide, including in non&2uslim countries. 2a1or financial markets are discovering solid evidence

that "slamic finance has already been mainstreamed #ithin the global financial system P and that it has the

potential to help address the challenges of ending extreme poverty and boosting shared prosperity. "slamic

finance is e-uity&based, asset&backed, ethical, sustainable, environmentally& and socially&responsible

finance. "t promotes risk sharing, connects the financial sector #ith the real economy, and emphasi)es

financial inclusion and social #elfare. 'he follo#ing key principles guide "slamic FinanceC *rohibition

of interest on transactions 5riba+ ii Financing must be linked to real assets 5materiality+ iii Jngagement

in immoral or ethically problematic businesses not allo#ed 5e.g., arms manufacturing or alcohol

production+ iv Beturns must be linked to risks.

Non&2uslim dominated countries have e-ually valued the viability, practical essence and healthy

commercial values emanating from this type of banking and have conse-uently commenced operation on

it, #ith 0itigroup 5having a subsidiary as in 0iti "slamic "nvestment ank and K<0 5having K<0

$manah leading in the global scene.

2odern day "slamic anking started as ne# initiative in different part of the #orld in different #ays. 'he

current Non&"nterest anking is evolved after several experiments around the #orld. $rabian banking

practice and historic goldsmith founded the modern conventional banking. 2alaysia and *akistan

attempted short lived non&interest banking around 939 and 9:6 respectively. Movernment of 2alaysia

founded pilgrimage management fund kno#n as ?+abun &ajji in 96 to encourage prospective

pilgrims save some funds #hich #as invested to generate profit. Jgyptian city of 2it Mhamar attempted

limited interest free banking on a small scale in 963. $hmaad Jl&Na11ar initiated forum of a saving bank

based on profit sharing became popular but could not survive more than four year. <imilar nine banks#ere emerged #hich neither charged nor paid interest, investing fund in business through partnership and

share profit #ith investors.

"n mid97/s, during a conference of Foreign 2inisters of "slamic countries held in aranchi pondered on

"slamic anking leading to emergence of a failed effort for "slamic evelopment ank in (addah, to

!2 "slamic la#



support pro1ect financing on non&interest basis. uring the period, full&fledged commercial banking

started by ubai "slamic ank, Faisal "slamic ank of Jgypt, <udan and u#ait+ (ordan "slamic ank for

Finance evelopment and ahrain "slamic ank.

'he "slamic bank in 2alaysia, ank "slam 2alaysia erhad 5"2, #as established in 983 under the

"slamic anking $ct of 983. 'he bank offers services in line #ith the principles of <hariah 5"slamic la#.

'he "slamic banking $ct of 983 does not, ho#ever, have comprehensive provisions for "slamic banking

practices.

"slamic financial system started in 'hailand #ith the establishment of a cooperative society, *attani

"slamic <avings 0ooperative in 987. y the end of //, four other "slamic saving cooperative societies,

#ere established in the southern part of 'hailand 5Karon Eamirudeng, //:. 'hese cooperative

societies have successfully established themselves as viable financial institutions in managing and

mobili)ing 2uslims funds in the country.

0onventional commercial banks like 0itigroup and K<0 commenced "slamic anking operations

through subsidiaries named as 0iti "slamic "nvestment ank and K<0 $manah. 'he other follo#ed the

suit by opening dedicated "slamic anking branches like 0iti "slamic in ahrain, Mrindlays in arachi

and the National 0ommercial ank in <audi $rabia.

"-bal and 2olyneux estimated number of "slamic anks in //4 at 7/ plus fe# more in "ran <udan.

'hen there are 4/ conventional banks are offering "slamic anking #indo#s, // "slamic "nvestment

Funds and 7/ "slamic "nsurance companies having market operation exceeding =:/ billion. $hmed in

his paper tabled fifty four countries #ith detailing number of institutes and branches.

'he @orld ank and the Meneral 0ouncil for "slamic anks and Financial "nstitutions 50"$F", the

global umbrella of "slamic financial institutions, signed a 2emorandum of ;nderstanding 52o; in (uly

/: to help foster the development of "slamic finance globally and expand its use as an effective tool for

financing development #orld#ide, including in non&2uslim countries.

Isamic Banking in Nigeria:

"slamic anking history in Nigeria is of only recent past. $t the time of independence of Nigeria in 96/,

2uslim ank @est $frica Limited #as operating in Lagos. 'he bank #as closed in 96 after closure

order of the then 2inister of Finance. '#o provisional licenses #ere granted in 99, but neither of the

licensee banks lasted long. Kabib ank #as granted license to operate "slamic anking #indo# in 996,

but due to poor information and absence of frame#ork for non&interest banking it could not register

significant success33.

2essrs <anusi Lamido $minu <anusi assumed office in //9+ several non&interest banking products #erelaunched. Aamfara <tate Movernment planned to establish an "slamic ank as part of its policy of

application of full fledged "slamic La#. "t ho#ever dropped the idea before it #as implemented and

supported a private player (ai) "nternational ank to successfully pool resources.

!! http://isla$icbanking.asia/wpcontent/uploads/2014/12/pril9une2014.pd#

http://islamicbanking.asia/wp-content/uploads/2014/12/April-June-2014.pdf

http://islamicbanking.asia/wp-content/uploads/2014/12/April-June-2014.pdf



2uslims in Nigeria have been yearning for its establishment to enable them transact banking business in

line #ith the dictates of their religion. 'he first step in that direction #as to secure the country’s

membership of the "slamic evelopment ank 5" based in (eddah, <audi $rabia. 'hat actually took

-uite some time as Nigeria formerly 1oined the membership of " in //:.

!ther efforts to#ards having an "slamic banking and financial system in Nigeria included the convening

of an "nternational conference on "slamic economics organi)ed by the ;sman anfodio ;niversity,

<okoto in 98:. 'he conference #as part of the efforts aimed at sensiti)ing the public on the concepts of

"slamic economics.

0entral ank of Nigeria, in (anuary //9, gave an approval for the apex ank 50N to 1oin the

"nternational Financial <ervices oard as full member. 'he "F< is an international standard&setting

organi)ation for the "slamic financial services industry.

'he 0N, in $ugust //, released the ne# banking model, #hich included non&interest banks among

the speciali)ed banks and #ill operate either at National or Begional level #ith capital re-uirements of

N/ billion and N6 billion respectively.

"n response to positive step taken by the 0N, the Nigeria eposit "nsurance 0orporation 5N"0,

<eptember //, released its exposure draft on non&"nterest eposit "nsurance <cheme for stakeholders’

comment.

$nother effort manifested #hen anks and !ther Financial "nstitutions 5!F" $ct No. : #as enacted.

<ection 6 of !F" $ct recogni)ed the establishment of a profit and loss sharing bank in the country,

#hich basically is the "slamic form of banking.

Banking 'eguations in Nigeria:

y replacing anking $ct of 96 #ith anking and other Financial "nstitutions ecree of 99, the0entral ank of Nigeria 50N 1oined the League of Nations like 'urkey, (ordan and 2alaysia etc. that

permitted Non&"nterest anking system, later t#o permitted "slamic anking. 'he draft frame#ork for the

Begulation and <upervision of Non&"nterest anks #as publici)ed in //9. !ne of the ob1ectives #as to

provide minimum standards for the operation of non&interest banking in Nigeria. Ko#ever, the draft

defined Non&"nterest ank as a bank #hich transacts banking business, engages in trading, investments

and commercial activities, as #ell as the provisions of financial products and services in accordance #ith

the principles and rules of "slamic commercial 1urisprudence. 'he draft categorically prohibits the bank to

use the #ords ?"slamic’ as a part of the registered or licensed name.

Non&interest anking is an initiative of 0N to propel Nigeria economy and promote financial inclusion

and promote alternative products+ it e-ually offers veritable incentives and alternative options for investors. 0N grants license to Non&"nterest banks, #hich are kno#n as *rofit and Loss sharing banks.

$s per <ection 9, anks and other Financial "nstitutions ecree 5!F", 99+ every bank is re-uired to

display at its offices its lending and deposit interest rates but *rofit and Loss sharing banks are exempted

from this provision.

0N grants three types of licenses to deal in non&interest banking in NigeriaC



i. Full&fledged non&interest bank or subsidiaryii. Non&interest banking branch of a conventional bank iii. Non&interest banking #indo# of a conventional bank

Non&interest banks may transact business using any of the follo#ing instruments or financing modesC

• #urabaha• #udarabah• #usharakah• Ijarah• Salam and 3arall.l Salam• Istisna• Sukuk • $ny other financing mode or structure that is Shariah compliant and approved by the 0N

$ll licensed banks offering Shariah&compliant financial products or services shall have a

Shariah compliance revie# mechanism and a ank Shariah $dvisory 0ommittee 5<$0 as part

of their governance structure. "n line #ith the provisions of <ection 39 5 of !F"$ 99, banks

offering non&interest banking products and services shall not include the #ords D"slamic as part

of their registered or licensed name.

0N issued guidelines in / for 'he Begulation $nd <upervision of "nstitutions !ffering

Non&"nterest Financial <ervices in Nigeria. $ccordingly all licensed non&interest banks 5N"

shall be sub1ect to the provisions of the 0ode of 0orporate Movernance for anks in Nigeria

issued by the 0N and any subse-uent amendments thereto, and all relevant provisions

on 0orporate Movernance contained in 0ompanies and $llied 2atters $ct 50$2$ and anks

and !ther Financial "nstitutions $ct 5!F"$ 99.

$ll N"s are re-uired to develop appropriate policies, systems and procedures to identify

measure, monitor and control their risk exposures. "n addition, they are re-uired to put in place, a

risk management system that recogni)es the uni-ue risks faced by "slamic banks, such as

displaced commercial risk 50B, fiduciary Bisk, transparency risk, shariah risk, reputational

risk, mark&up risk etc. 0N also issued guidelines to follo# international standard setting bodies

like asel 0ommittee Bisk 2anagement Muidelines, "F< <tandards for Bisk 2anagement etc.

$ll N"s #ith *<"$s34 may maintain a *rofit J-uali)ation Beserve #hich #ould serve as an

income smoothing mechanism and risk mitigation tool to hedge against volatility of returns to

investment account holders. "n vie# of the ethical character of their business, all N"s arere-uired to screen their promoters, shareholders, customers, counterparties, transactions,

products and activities against the proceeds of crime, corruption, terrorist financing and other

illicit activities using legal and moral filters. 'he bank is re-uired to have effective anti&money

laundering policies and procedures in addition to measures for combating the financing of

!4 Froft *haring ?nvest$ent ccounts F*?



terrorism. eposit "nsurance 0orporation has developed a non&interest banking deposit insurance fund

frame#ork in 2ay /:. 'he scheme is designed to create a level playing field to provide deposit

protection for depositors involved in non&interest banking and protect them against any possible losses.

Concusion:

5pending



Anne2ure-I

Board of 3irectors and sharehoding interest:45

S.N 3irectors 3irect Indirect Indirecty 1ed

through

!ota No0 of

Shares 1ed

$lha1i 5r. ;maru

2utallab

977,7,774 84,93,3/9 Finmal Finance

<ervices Ltd

,6,646,/83

$lha1i 5r. $minu

antata

68,36,/7 ,4/,/9,7

/

antata "nvestment

<ecurities 0o. Ltd.

,/8,34:,477

3 r. Bil#anu Lukman 7:,6:,74 Nil NH$ 7:,6:,74

4 *rof. 'a1udeen $.

$debiyi

,33,47: Nil NH$ ,33,47:

: 2allamFalalu ello ,98,7// /,///,/// 2< 2erchants Ltd. ,98,7//

6 KBK 5Jr. ello 2. <ani :,///,/// Nil NH$ :,///,///

7 Nafiu aba $hmad 4,/:/,/// Nil NH$ 4,/:/,///

8 $lha1i ;maru #airanga 4,:/,/// Nil NH$ 4,:/,///9 $lha1i Marba $liyu

Kungu

,///,/// 4:/,///,/// ano <tate "nvestment

*roperties Ltd

4:,///,///

/ $lha1i 2ukhar <ani

Kanga

Nil ,///,///,//

/

angote "ndustries Ltd ,///,///,///

$lha1i 2ohammed La#al

(ari

:,///,/// 97,:67,/// atsina <tate 3,:67,///

$lha1i 2usbahu 2.

ashir

Nil 8//,///,/// $lthani

"nvestment Ltd.

8//,///,///

3 r. 2ohamed $li 0hatti Nil ,//,6/,49

4

"slamic evelopment

ank

,//,6/,494

4 $lha1i 5r 2uhammadu

"ndimi

Nil ,366,9/6,:

NH$ ,366,9/6,:

Anne2ure-II

Ad+isory Committee of 62&erts:

*rof. 2on)er ahf *rof. 2uhammed L.ashar r. 2uhammad $lha1i $bubakar

Anne2ure-III

Sharehoders ha+ing 57 or more units:

Sr0No0 Name 1oding 7

8 antata "nvestment <ecurities Limited ,4/,/9,7/ .9

9 "ndimi 2uhammadu ,366,9/6,: .::

4 "slamic evelopment ank ,//,6/,494 8.47

angote "ndustries Ltd ,///,///,/// 8.4:

!& 9ai ;ank Flc nnual >eport 2014



5 2utallab ;maru $bdul 977,7,774 8.6

; $lthani "nvestment Limited 8//,///,/// 6.76

< antata $minu $lhassan 68,36,/7 :.

Anne2ure-IV

Sharehoding history:

=ear >nits

?@@@

rom

?@@@

!o

?@@@

>nits

?@@@

rom

?@@@

!o ?@@@ Consideration

//3 ,://,///

,://,/// ,://,/// ,://,/// 0ash

//6 3,///,/// ,://,/// 3,///,/// 0ash

//8 ,:4,43/ ,://,/// 4,/4,43/ 0ash

/ 7,8:,7/ 4,/4,43/ ,89,7// 0ash

Anne2ure-V

6uity 'ange Anaysis:

'ange No0 of

1oders

1oders

7

1oders

Cumuati+e

>nits >nits

7

>nits

Cumuati+e

&,/// 6,73 :.7 6,73 6,79,8// /./6 6,79,8//

,//&:,/// 9,:48 3:.7/ 6,79 3,/4,// /.7 38,833,9//

:,//&/,/// 3,/87 .:4 9,366 9,979,4// /.: 68,83,3//

/,//& :/,/// 3,98 4.6: 3,84 :,87,/7: .8 /,///,37:

:/,//& //,/// ,6/4 6.// 4,888 :,/36,/:: .9 73,/36,43/

//,//& ://,/// ,3/ 4.87 6,9/ 363,83:,69: 3./8 73:,87,:

://,//& /,///,/// :4 .96 6,74 ,9,4,:9/ /.39 ,96:,94,7:

/,///,//&

:/,///,///

3 / ./: 6,77 374,9,3/: 3.7 ,34/,7,//

:/,///,//&

://,///,///

3 /./: 6,74/ 39347433 /. 4,73,:64,4:3

://,///,// $bove 7 /./3 6,747 7/973:67 :9.99 ,89,699,7/

'otal 6,747 //.// ,89,699,7/ //.//





Anne2ure-VI

!he genera Shariah conce&ts and instruments in Isamic (anking4;

No0 Isamic

Banking

Con+entiona

Banking

!he mechanism

Bai Bithaman *jil (BB*)

eferred

*ayment <ale

$ applies #hen a buyer pays the seller after the

buyer has sold the good. 'he seller pays back to the

supplier of the funds the capital #ith an agreed

interest as lump sum or installments. "n this scenario,

the borro#er picks an asset and the bank pays for it

and the o#ner pays back #ith an agreed mark&up

price. 'his #orks #ell #ith assets like land or house

Bai salam <pot payment

for future

delivery,

deferred

delivery,

For#ard sale

Bai salam means a contract in #hich advance

payment is made for goods to be delivered later on.

'he seller undertakes to supply some specific goods to

the buyer at a future date in exchange of an advance price fully paid at the time of contract. "t is necessary

that the -uality of the commodity intended to be

purchased is fully specified leaving no ambiguity

leading to dispute. 'he ob1ects of this sale are goods

and cannot be gold, silver, or currencies based on

these metals. arring this, ai <alam covers almost

everything that is capable of being definitely

described as to -uantity, -uality, and #orkmanship.

3 #udharabah *rofit <haring,

'rustee

financingcontract

#udharabah is a profit sharing arrangement bet#een

an investor and the entrepreneur. 'he bank could be

either the investor or the entrepreneur. Eou maysupply funds to the bank to invest or vice versa. 'here

is an agreement on profit sharing. @here there is loss

the supplier of the fund bears it. $ profit sharing

contract #here one party contributes his

entrepreneurial efforts #hile the other provides

capital. 'he Jntrepreneur and the financier #ill share

profit according to an agreed ratio in the contract. $ny

loss is exclusively borne by the financier.

4 &ibah Mift &ibah refers to a payment made #illingly in return for

a benefit received. JxampleC "n savings operated

under "adiah, banks #ill normally pay their "adiahdepositors hibah although the account holders only

intend to put their savings in the banks for

safekeeping

: Ijarah Kire *urchase Ijarah +humma Bai is normally used in financing

!6 ,o$piled b the author #ro$ various sources



+humma Bai consumer goods especially motor vehicles. 'here are

t#o separate contracts involved 5i Ijarah contract

5leasingHrenting 5ii ai’ contract 5purchase. e.g. if

one picks a car of his choice and pays a deposit and

asks the bank for Ijarah #ith a promise of leasing the

car. $fter the lease period the bank sells the car to youat an agreed sells price. <ale and lease&back of asset,

generally for long term financing. 'his re-uires <haria

compliant tangible and leaseable assets e.g property,

machinery, etc.

6 Istina !perating

lease

Istisna ( 2anufacturing Finance is a process #here

payments are made in stages to facilitate the #ork of

manufacturingHprocessingHconstruction. "nstallment of

Istisna, for example, may enable a construction

company to finance construction of sections of a

building or help manufacturers pay for an order of ra#

materials. Istisna helps use of limited funds to develop

higher value goodsHassets in different stages H

contracts. $ purchase order contract of assets #hereby

a buyer places an order to purchase an asset to be

delivered in the future, according to the specifications

given in the sale and purchase contract.

7 #urabahah 0ost *lus,

'rade #ith

markup or

cost&plus sale

#urabahah transaction involves the sale of goods at a

price #hich includes a profit margin agreed by both

parties. "n #urabahah, the seller must let the buyer

kno# the actual cost for the asset and the profit

margin at the time of the sale agreement. "t involvessale of an asset by the bank to a customer at cost plus

a profit margin, repayment of #hich can be instant or

spread over a period. "t is used mainly for #orking

capital financing.

8 #usyarakahor #usharakah

(oint Oenture,

J-uity

participation

contract

'his is a 1oint business bet#een individuals and the

bank or it is a partnership venture to make profit. $n

agreement as to ho# to share the profit or the loss, as

the case may be, is agreed. "t may be shred according

to the ratio of each partner’s contribution or other#ise

as agreed. $ partnership contract bet#een t#o or more

parties, each contributing capital. 'he profit is sharedamong the parties based on the profit sharing ratio

agreed in the contract and any loss is shared among

the parties based on the contribution ratio agreed.

9 3arall.l salam

eferred

delivery

"n an arrangement of 4arall.l salam, the bank enters

into t#o different contracts. "n one of them, the bank

is the buyer and in the second one the bank is the

seller. Jach one of these contracts must be



independent of the other. 'hey cannot be tied up in a

manner that the rights and obligations of one contract

are dependent on the rights and obligations of the

parallel contract. Jach contract should have its o#n

force and its performance should not be contingent on

the other. *arallel salam is allo#ed #ith a third partyonly. 'he seller in the first contract cannot be made

purchaser in the parallel contract of salam, because it

#ill be a buy&back contract, #hich is not permissible

in Shariah/ Qard "nterest&free

Loan

"n Qard , a loan is given for a period of time on

good#ill and the borro#er is re-uired to repay only

the amount borro#ed. 'he borro#er may decide on

his o#n volition, to sho# appreciation, add an extra

amount

Sukuk "slamic

onds,

0ertificates of

!#nership

Sukuk refers to financial certificates that share some

similarities #ith conventional bonds hence are also

commonly referred to as "slamic onds. $ ma1or

difference bet#een conventional bonds and sukuk is

the structure of sukuk removes interest based elements

#hich is replaced by an asset based income structure

using most typically Ijara or #akala contracts

"adiah <afekeeping "n "adiah arrangement a customer deposits cash or

other assets in a bank for safekeeping #hile the bank

guarantees its safety. ank may charge a fee for

keeping the money or the item. Eou are free to take

your moneyHitem at your #ish

3 "akalah $gency "akalah is a contract bet#een a person 5principal and

another party, agent 5probably the bank #here the

principal asks the agent to act on his behalf for a fee

for service rendered

Anne2ure-VII

Contracts under Isamic a$4<

Uqud al-mu‛āwadāt uqud al-tabāru‛āt uqud al-amānāt

50ontracts of exchange 5Mratuitous contracts 5'rust based contracts

buyu 5sales $a% 5endo#ment alta$liyyah 5cost price sale

!' ,o$piled b the author #ro$ various sources



shirkah 5partnership %ar6 5loan al$adi7ah 5less&cost sale

ij8rah 5lease or tenancy hibah 5gift al$adi ah 5deposit

rahn 5mortgage ka8lah 5guarantee

$ak8lah 5agency $a9iyyah 55testament

Í a$8lah 5assignment

sul Í 5reconciliation



Bi(iogra&hy: 5incomplete

$bdul-adir "brahim $bikan, 0onstitutionality !f "slamic anking "n Nigeria, 0ontemporary "ssues in

"slamic (urisprudence 5//9, Ba#el Fortune Besources, enin, 0hapter 7, *ages 94&

$bubakar <. !risankoko, 'he *ropagation of Non&interest anking in NigeriaC $n $ppraisal of

"deological Bisk, (ournal of "slamic Jconomics, anking Finance, Ool 7, No. , $pr&(un /

$debayo, Bafiu "brahim+ $ <tudy of the Legal and Begulatory "ssues of Non&"nterest anking system in

Nigeria, .(ournal of "slamic anking Finance, Ool 8, (an&2arch /

$hmed, <.$. 5//3+ 0urrent evelopment in "slamic anking and FinanceC $ Mlobal *erspective in

"slamic anking and Finance, """' *ublications, ano, Nigeria

ello $.F. 5//3+ ivine anking in NigeriaC 'he Gua’nic and iblical "n1uctions, $n !vervie# and

'he Begulatory Frame#ork, pp 47&:4

intube, 2. 2. 5n. d.. *ioneering "slamic ank in NigeriaC 'he *roposed (ai) ank <tory. (ai)

"nternational *lc *resentation JFL$ "nnovation Forum, /3

Kuud <hittu, "nterest&free FinancesH"slamic ankingC $ 0ontemporary 0hallenge for $hlu&l&itab

50hristians and (e#s and 2uslims in Nigeria, (ournal of "slamic anking and Finance $pril& (une /4,

pp 39&:/

2una#ar "-bal and *hilip 2olyneux 'hirty Eears of "slamic ankingC Kistory, *erformance and

*rospects *algrave 2acmillan, London, ;, //:, pp.9/

!risankoko $.<. 5//9C ’’$n $ppraisal of ;nethical *ractices in the 0ontemporary Nigerian anking<ystem vis&Q&vis Becourse to "slamic *anacea. $ conference paper presented at the st "nternational

0onference on "slamic anking and Jconomic Beform, epartment of "slamic La#, ;niversity of "lorin,

"lorin, Nigeria, and "B'" of the "nternational evelopment ank, (eddah, !ctober 6&8, //9, *p &3

B. ". $J$E! 5//C D'he 2otivating Factors for the Oiability of "slamic anking in Nigeria, being

a paper presented at an "nternational 0onference on "slamic anking and Finance, held at 0rescent

;niversity, $beokuta, et#een 9th $nd nd 2arch //, *.4

<. Karon and . Eamirudeng, >"slamic banking in 'hailandC *rospects and challenges, "nternational

(ournal of "slamic Financial <ervices, :& 5//3, &

<.$. $hmed 5//3C D0urrent evelopment in "slamic anking and FinanceC $ Mlobal *erspective in

"slamic anking and Finance+ <. <ulyman and .<. Maladanci 5eds, p. :

<.$. !luyemi K. ". $hmad, evelopment !f "slamic anking "n NigeriaC "ssues $nd 0hallenges,

N"0 Guarterly, 2arch&(une //7, pp 4&73

;. '. $burimo F. $lo 5//9C D"slamic ankingC 'heories, *ractices and "nsights for Nigeria, in

"nternational Bevie# of usiness Besearch *apers, Ool. : No , (anuary //9, p. 3



Oincent J. ;negbu and ;loma . !nuoha, $#areness and ;se of "slamic anking in Nigeria

$nnual Beport of ($"A ank *lc /3, /4

(ai) "nternational *lc, *rivate *lacement 2emorandum, p 3

!pen to comparisonC "slamic finance and "FB<, $ Beport by *rice@aterKouse0oopers

'argeting Lo#er Oolatility through Jthical and Guantitative <creening 2inimum Oolatility <hariah "ndex,

F'<J Besearch @hite *aper, /:

<ecurity Jxchange 0ommission, Nigeria, nd Guarterly *ublication /

httpCHH###.cenbank.orgH

httpCHH###.cenbank.orgH!;'H0"B0;L$B<H<H//9H'KJ%/B$F'%/FB$2J@!B%/F!B

%/'KJ%/BJM;L$'"!N%/$N%/<;*JBO"<"!N%/!F%/N!N&"N'JBJ<'%/$N<

%/%8N"<%9%/"N%/N"MJB"$.*F

httpCHH###.islamic&banking.comH

httpCHH###.islamic&banking.comH#hat IisIibanking.aspx

httpCHH###.1ai)bankplc.comH

httpCHH1ai)bankplc.comHindex.phpHmedia&centreHpress&releasesH4&press&releasesH/&1ai)&bank&

eyeing&national&global&market&capture&nurul&islam

httpCHH###.la#teacher.netHfree&la#&essaysHcontract&la#Hshariah&concepts&in&islamic&banks&la#&essay.php

httpCHH###.p#c.comHgxHenHfinancial&servicesHislamic&finance&programmeHassetsHcomparison&islamic&finance&ifrs.pdf

httpCHH###.#orldbank.orgHenHtopicHfinancialsectorHbriefHislamic&finance

http://www.cenbank.org/

http://www.cenbank.org/OUT/CIRCULARS/BSD/2009/THE%20DRAFT%20FRAMEWORK%20FOR%20THE%20REGULATION%20AND%20SUPERVISION%20OF%20NON-INTEREST%20BANKS%20(NIBS)%20IN%20NIGERIA.PDF



http://www.islamic-banking.com/

http://www.islamic-banking.com/what%20_is_ibanking.aspx

http://www.jaizbankplc.com/

http://jaizbankplc.com/index.php/media-centre/press-releases/24-press-releases/120-jaiz-bank-eyeing-national-global-market-capture-nurul-islam


http://www.lawteacher.net/free-law-essays/contract-law/shariah-concepts-in-islamic-banks-law-essay.php


http://www.pwc.com/gx/en/financial-services/islamic-finance-programme/assets/comparison-islamic-finance-ifrs.pdf




http://www.cenbank.org/




http://www.islamic-banking.com/

http://www.islamic-banking.com/what%20_is_ibanking.aspx

http://www.jaizbankplc.com/







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