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Thursday, July 14, 2011

CBN issues Islamic banking guidelines

ABUJA — The Central Bank of Nigeria, CBN, Wednesday, in Abuja, issued guidelines for the establishment and operation of Islamic banking in the country with a requirement that all funds coming into such banks from abroad must be fully screened to avoid money laundering and terrorism financing in the country.

Islamic banking operates in accordance with principles and rules of Islamic commercial jurisprudence that generally recognizes profit and loss sharing and the prohibition of interest.

According to the CBN,“promoters are required to screen shareholders, customers, counterparts, transactions, products and activities against the proceeds of crime, corruption, financing of terrorism and other illicit activities using legal and moral filters.”

The apex bank added that all funds to be received either from investors or depositors must be approved, not only by the bank but also by security agencies.

The guidelines required that anyone desiring to go into the model of banking must state clearly that it would operate under the Islamic laws.

A non-interest financial institution under this model shall ensure that its Memorandum and Articles of Association (MEMART) state that its business operations will be conducted in accordance with the principles and practices of Islamic commercial jurisprudence,” it said.

Advisory council of experts

The guidelines said the CBN must have in place an advisory council of experts charged with ensuring that financial products offered by such specialised banks meet the minimum requirements of Islamic commercial jurisprudence.

“In relation to non-interest Islamic financial institutions, the CBN will establish an Advisory Council of Experts to advise the CBN on the appropriateness of relevant financial products to be offered by such institutions.

Prohibits discriminations

“Discrimination on any grounds in the participation by individuals or institutions as promoters, depositors or other relevant parties in any transaction regarding a non-interest financial institution, whether based on Islamic or other model, is strictly prohibited,” the CBN also said..

To operate under Islamic commercial jurisprudence, the emphasis was on Non-Interest Financial Institutions operating under the principles of Islamic Commercial Jurisprudence.

The CBN said it would come up with other guidelines in the conduct of banking under the principles of Islamic commercial jurisprudence, e.g., operational, corporate governance, product compliance, risk management and capital adequacy.

Non-permissible transactions include those involving any of the following: certainty or ambiguity relating to the subject matter, terms or conditions; gambling; speculation; unjust enrichment; exploitation/unfair trade practices; dealings in pork, alcohol, arms & ammunition, and pornography.

From the provisions of the guidelines, conventional banks could operate Islamic products through full-fledged Islamic banking subsidiary, branch or window.

Applications for the grant of license shall be accompanied by evidence of a technical agreement executed by the promoters of the proposed institution with an established and reputable Islamic bank or financial institution. The agreement shall explicitly specify the role of the two parties and shall subsist for a period of not less than 3 years from the date of commencement of operations of the licensed IIFS.

A license to undertake Islamic banking business operations may be issued by the CBN upon such terms and conditions which authorize the operation of a non-interest financial institution on a regional or national basis for banks, or any other basis for other financial institutions.

The Islamic banks have been categorized into Regional and National Islamic banks.

Islamic bank with a regional banking authorization shall be entitled to carry on its banking business operations within a minimum of six (6) and a maximum of twelve (12) contiguous States of the Federation, lying within not more than two (2) Geo-Political Zones, as well as within the Federal Capital Territory (FCT).

“An IIFS with national banking authorization shall be entitled to carry on banking business operations within every State of the Federation including the Federal Capital Territory (FCT), Abuja”, the CBN said.

The CBN said guidelines for other categories of non-interest banking would be issued upon request and would be consistent with international best practice.

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