The landscape of Nigeria's banking sector has expanded significantly with the official commencement of operations by Summit Bank Limited, bringing the total number of Islamic financial institutions in the country to five. This development marks a crucial step in the Central Bank of Nigeria's strategy to enhance financial inclusion and diversify the nation's economic framework.
Expanding Non-Interest Banking Options
According to regulatory authorities, the number of fully licensed non-interest banks operating under Islamic principles has now reached five with Summit Bank's entry into the market. The National Deposit Insurance Corporation (NDIC) confirms that the existing Islamic banking operators approved by the Central Bank of Nigeria include Jaiz Bank Plc, Taj Bank Limited, Lotus Bank Limited, and the Alternative Bank, with Summit Bank becoming the latest addition to this growing sector.
The Central Bank of Nigeria, which oversees non-interest banking operations in alignment with Sharia principles, has authorized Summit Bank to function as a regional Islamic bank with its headquarters situated in Abuja. This approval represents part of broader initiatives to broaden financial access and create a more varied financial ecosystem in Nigeria.
How Islamic Banking Differs from Conventional Systems
Islamic banking institutions operate on fundamentally different principles compared to traditional banks. These Sharia-compliant financial entities do not charge or pay interest on loans and deposits, instead focusing on profit-sharing arrangements and partnership-based financing models.
The key distinctions include:
- Elimination of interest charges on all financial facilities
- Profit distribution instead of interest payments on savings
- Partnership-based financing arrangements
- Avoidance of investments conflicting with Islamic teachings
- Exclusion of financial products involving excessive uncertainty (Gharar)
- Shared profit and risk arrangements with customers
For practical illustration, when a customer borrows 50,000 Naira for business purposes from an Islamic bank, they are only required to repay the principal amount without any additional interest charges.
Operational Framework and Financial Reporting Developments
Unlike conventional banks that primarily generate revenue through interest on loans, Islamic banks create income through trade and investment-focused activities. These include Murabaha (sales-based financing), Istisna (project and construction financing), Salam (agricultural financing), and Ijara (leasing arrangements). They also participate in partnership-based financing where both profits and risks are distributed between the bank and customers according to mutually agreed terms.
In a parallel development strengthening the sector's foundation, the Financial Reporting Council of Nigeria (FRC) has announced plans to integrate Islamic Finance Services into the country's financial reporting framework. Rabiu Olowo, Executive Secretary and CEO of the FRC, revealed during the 7th Africa Islamic Finance Conference in Lagos that Nigeria will adopt standards established by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI).
This strategic move corresponds with the FRC's responsibility to establish, monitor, and enforce financial reporting standards throughout Nigeria. Dr. Olowo emphasized that the rapid expansion of Islamic finance in the country—encompassing Islamic banking, Sukuk issuances, Takaful insurance, and non-interest capital market products—necessitates consistent reporting practices that maintain global comparability.
Despite their foundation in Sharia principles, Islamic banking services remain accessible to customers of all religious backgrounds. Neither account opening nor access to financial products requires customers to be Muslim, demonstrating the inclusive nature of these financial institutions within Nigeria's diverse economic landscape.
