The Central Bank of Nigeria (CBN) has introduced three new financial instruments aimed at growing the country’s non-interest banking sector, also known as Islamic banking. This move is part of the CBN’s effort to deepen the non-interest financial markets and increase market participation.
In a circular signed by Okey Umeano, Acting Director of the Financial Markets Department, the CBN outlined the new instruments: the Nigerian Non-Interest Financial Institutions’ Master Repurchase Agreement (NNMRA), the Central Bank’s Non-Interest Asset-Backed Securities (CNI-ABS), and the Central Bank Non-Interest Note (CNIN).
The NNMRA is designed to standardize repurchase (repo) transactions within the non-interest banking sector. It sets clear rules and responsibilities for parties involved, including the CBN, to ensure the smooth operation of these financial deals in line with international standards.
The CNI-ABS is a new liquidity management tool backed by real assets, developed following non-interest finance principles. It aims to help non-interest banks better manage cash flow and liquidity without violating Islamic banking rules.
Similarly, the CNIN serves as an interest-free loan instrument between eligible participants and the CBN. It will be sold at periodic auctions, providing another way for banks to manage liquidity while respecting non-interest banking guidelines.
The CBN has warned that participants will not be allowed to access the Bank’s discount window on days when the CNI-ABS and CNIN auctions take place, reinforcing discipline and order in the market.
The Bank asked all eligible and authorized institutions to adopt these instruments into their operations and follow all existing rules and guidelines to ensure compliance. This includes the 2022 Revised Guidelines for the Operation of Non-Interest Financial Institutions’ Instruments.
This development highlights the growing importance of the Islamic banking sector in Nigeria. Non-interest banking provides financial services that comply with Sharia law, which prohibits the payment or receipt of interest.
The CBN also promised to continue monitoring the market and provide further instructions to support the sector’s growth and stability.
This initiative is expected to improve the efficiency of liquidity management for non-interest banks and increase confidence among investors and customers in Nigeria’s Islamic finance market.
