Laws of Islamic Banking in Nigeria: Critical Review and Best Practice Proposal

Abstract

Strength of a regulatory regime could be discerned from progress in a concept(s) it seeks to implement and govern. Islamic banking (IB) is a concept practiced in Nigeria under conventional banking regulatory laws. The conventional laws are however not particularly meant for Islamic banking, a fact that leaves much to be desired for Islamic banking practice. A large Nigerian muslims population desirous of Islamic banking services has provided Islamic banking with supportive client base in the country. Regulatory laws have provided for Islamic banking and finance to be integrated into existing conventional system in countries with less muslims population like the UK and US. In light of this, the establishment of Islamic banking under the Nigerian conventional banking laws is critically examined in the light of Malaysian jurisdiction. Banks and other Financial Institutions Act (BOFIA) 1991, the principal Nigerian banking legislation, merely provides for non-interest banking to operate across the country which a non-interest bank known as Jaiz Bank International Plc was licensed. This study examines BOFIA and other regulations applicable to Islamic finance business and institutions in Nigeria. The study adopts a narrative review approach to deduce and examine lacunae in the applicable laws. Consequently, findings reveal that the applicable laws are insufficient and inefficacious to successfully drive IBF practice. Thus, suitable establishment and regulatory laws are needed to enhance IB practice, ensure its equal treatment like the conventional banking system and sustain its operations and institutions in Nigeria. Accordingly, it is recommended that extant laws and institutions be appropriately amended borrowing a leaf from Malaysian and align Nigerian legal regime on IB with global and standard best practice.