IMPACT OF SHARIAH GOVERNANCE ON CBN GUIDELINES ON NON INTEREST BANKING SYSTEM
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
IMPACT OF SHARIAH GOVERNANCE ON CBN GUIDELINES ON NON INTEREST BANKING SYSTEM
INTRODUCTION TO CHAPTER ONE OF THE IMPACT OF SHARIAH GOVERNANCE ON CBN GUIDELINES ON NON-INTEREST BANKING SYSTEM
1.1 BACKGROUND OF THE STUDY
The most recent and major development in the banking industry has been the introduction of Islamic Banking Systems and Interest-Free Banks (IFBs) in Nigeria as a result of the CBN’s non-interest banking guidelines.
This is a response to the conventional interest-based banking system’s failure to meet the country’s developmental needs, which also apply to other developing economies (Ahmed, 2000).
According to Adebayo (2010), many Muslims are dissatisfied with the operation of the conventional interest-based banking system, which is contrary to the spirit of their religion, and would prefer a Sharia-governed financial system.
They are, however, paralysed by the fear of exposing their money to the risk of theft if they keep their money at home, or by the fact that their wages will be paid to them through banks,
or by some other unavoidable transactions with these conventional banks that do not operate in accordance with Allah’s dictate. Those who choose current accounts with these banks face the risk of moving on the outskirts of usurious transactions, as this product has percolated an element of interest to clients as well.
The Central Bank of Nigeria recently joined other countries such as Turkey, Jordan, and Malaysia in developing specific guidelines and regulations for the establishment of Islamic banks, with the exception that she (Nigeria) chose non-interest banking,
similar to Turkey, which refers to it as a “Special Finance House” and operates within the framework of Sharia governance. This is a sign of relief for Muslims who were dissatisfied with the transactions of conventional banks following the replacement of Nigeria’s Banking Law (Banking Act of 1962) with the 1991 Banks and other Financial Institutions Decree (BOFID),
which provided the necessary framework for the establishment of Profit and Loss Banks in Nigeria. Another Draught Framework for the Regulation and Supervision of Non-Interest Banks (NIBs) in Nigeria was published on March 4, 2009.
The Sharia governance framework’s goal is to establish basic requirements for the functioning of non-interest banking in Nigeria. Among the topics covered in the guidelines are:
– Define non-interest bank
– Requirements for licencing
– Non-interest banking models
– Financial products that do not pay interest
– Corporate Management
– Shariah Council of the Central Bank of Nigeria
– Business Conduct Standards
PSIAs (Profit Sharing Investment Accounts)
The independence of the supervisory board in its supervisory role, as well as the uniformity of Shariah ruling, can contribute to an effective Shariah governance structure.
The presence of an efficient Shariah governance system will increase stakeholder confidence in the products of Islamic financial institutions in general and Islamic banks in particular. (Hamza, 2013).
In Islamic Economics literature, the terms Islamic Banking and Interest-Free Banking are used interchangeably as an alternative banking paradigm to interest-based conventional banking practise.
Although there is a distinction between an interest-free bank and an Islamic bank in technical terms, the terms are commonly used interchangeably. According to Ahsan (1988), an Islamic bank is “a financial and social institution whose objectives, operations,
principles, and practises must conform to Shariah principles and which avoids the use of interest in any of its operations.” It represents an alternative financial system based on Islamic principles. It is more than just a financier; it is also a partner in productive economic development.”
Gusau (2000) claims that the distinction between Islamic Banking and Interest-Free Banking is that “the Islamic banking system is supposed to operate completely within the Shariah in all its activities, both in the sourcing of funds and the disbursement of funds.”
It avoids not only interest in all of its ramifications, but also all other Islamically banned pursuits. The interest-free banking system, on the other hand, does not pay interest, but there is no reason to believe that all of its other activities will be entirely Shariah-compliant.”
Three things are obvious from the preceding: an Islamic bank must;
1) There will be no interest charged.
2) Adhere to Shariah principles in all aspects of its operation.
3) Spread Islamic ideals
As can be seen, interest-free operations are a required but not sufficient criteria for a bank to be classified as an Islamic bank. Aside from non-interest fees, the bank must promote Islamic beliefs.
As a result, Interest-Free Banking Window can be defined as traditional banks providing Interest-Free Banking services on the basis of profit and loss sharing (PLS) principles.
It is an operational strategy used by conventional banks in which interest-based banking services are operated alongside Islamic banking services within the same banking hall, in order to meet increasing customer demand, improve savings mobilisation, and benefit from the new vista of opportunity provided by the Islamic banking system.
It should be regarded as an essential component of financial globalisation, which comprises the integration of the Islamic financial system with the Western financial system in order to build a global financial system.
Jaiz Bank PLC arose from the ashes of the previous Jaiz International Plc, which had been established in 2003/2004 as a special purpose vehicle (SPV) to build Nigeria’s first full-fledged non-interest bank.
It is an unquoted public corporation with about 3000 stockholders scattered across Nigeria’s six geographical zones.
1.2 STATEMENT OF THE PROBLEM
According to Mannan (1976), Islamic banking is an interest-free financing system focused primarily on profit and loss sharing. And its operations are in accordance with Shariah law. As a result, it is the foundation of the Islamic Economic System, which is, by definition, interest-free.
Siddiqi (1983) defined an Islamic bank as a financial intermediary that mobilises public savings through Mudaraba (profit and loss sharing contract) and advances capital to entrepreneurs using the same contract.
The bank distributes the enterprise’s profits according to a mutually agreed-upon percentage and shares these profits with depositors according to a percentage disclosed in advance by the bank.
The researcher, on the other hand, is out to examine the CBN guideline on non-interest banking in order to determine its level of conformance with Islamic financial institutions.
A comparison of the guidelines with Islamic teachings will show several issues with the operation of the interest-free banking system, which must also be considered.
1.3 OBJECTIVES OF THE STUDY
The following are the study’s objectives:
1. To investigate the impact of Sharia governance on CBN standards for non-interest banking.
2. To examine the advantages of Nigeria’s non-interest banking system.
3. Identifying Islamic banking difficulties within the Sharia governance framework
1.4 RESEARCH QUESTIONS
1. What effect does Sharia governance have on CBN guidelines for non-interest banking?
2. What are the advantages of Nigeria’s non-interest banking system?
3. What are the challenges of Islamic banking in the context of Sharia governance?
1.5 HYPOTHESIS
HO: Sharia governance has no effect on the CBN’s non-interest banking guidelines.
HA: Sharia governance has no effect on the CBN’s non-interest banking guidelines.
1.6 SIGNIFICANCE OF THE STUDY
The following are the implications of this research:
1. This research will educate the general public on the CBN guidelines for non-interest banking systems that adhere to Sharia governance principles. It will also educate stakeholders and the general public on the benefits of a non-interest banking system.
2. This research will also serve as a resource for other academics and researchers interested in conducting additional research in this sector, and if utilised, it will go so far as to provide new explanations for the topic.
1.7 SCOPE AND LIMITATIONS OF STUDY
This study will address the overview of the CBN guideline for non-interest banking, Sharia governance, and the highlights of Islamic banking, as well as the impact of Sharia governance on CBN guidelines for non-interest banking.
STUDY LIMITATIONS
Financial constraint- A lack of funds tends to restrict the researcher’s efficiency in locating relevant materials, literature, or information, as well as in the data collection procedure (internet, questionnaire, and interview).
Time constraint- The researcher will conduct this investigation alongside other academic activities. As a result, the amount of time spent on research will be reduced.
Need help with a related project topic or New topic? Send Us Your Topic