Nigeria to expand Islamic banking with assistance from Malaysia

By Time of article published Mar 17, 2011

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Nigeria plans to license at least two Islamic financial institutions by the end of the year and is getting assistance from Malaysia to expand its sharia-compliant industry, in a nation where 70 percent of people have no access to regular banking services.

Central Bank of Nigeria governor Lamido Sanusi said this month that as many as three non-Islamic banks had expressed interest in opening sharia-compliant “windows”.

Engku Rabiah Adawiah Engku Ali, a sharia scholar at the monetary authority in Kuala Lumpur, said Nigeria had signed an agreement with Malaysia’s central bank to co-operate in Islamic financial services, which included boosting microlending.

The west African country joins Egypt, Thailand and Turkey in seeking to expand the Islamic finance industry. Nigeria aims to diversify the economy by developing financial services. Gross domestic product growth might accelerate to 7.98 percent this year from 7.85 percent in 2010, driven by non-oil industries, Finance Minister Olusegun Aganga said last month.

There was “clearly” demand for sharia-complaint financing in Nigeria, said Daniel Broby, the chief investment officer at London-based Silk Invest. “Though it really hasn’t developed into real money on the table yet.”

The Islamic Financial Services Board said global demand for services and products that complied with Islamic law was rising by 15 percent a year and assets would rise to $1.6 trillion (R11 trillion) by 2012.

Nigeria drafted Islamic banking guidelines in 2009. Last year, the central bank granted a licence to the first Islamic bank, Jaiz International.

“It will take some time” to develop Islamic banking and it might be “easier to open Islamic windows in conventional banks” rather than license full-service sharia-complaint lenders, former finance minister Remi Babalola said earlier this month.

“Islamic banking is based on trust and there’s a perceived lack of trust in Nigeria,” said Babalola. – Bloomberg

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