Enhancing Liquidity In Non-interest Financial Institutions

(Sundiata Finance) – Non-interest (Islamic) banking has expanded rapidly over the past few decades, growing at 10-20 per cent annually. The assets have been growing faster than conventional banking assets. According to Sani Dutsinma, managing director/ CEO, Islamic Banking and Finance Institute Nigeria, sharia-compliant financial assets are estimated at roughly $2 trillion, covering bank and non-bank financial institutions. Islamic banking is currently offered by the Islamic window of Sterling Bank, Stanbic IBTC, a unit of South Africa’s Standard Bank, and Jaiz Bank, a full-fledged Islamic lender that has operated since 2012.
Dutsinma noted increased interest in Islamic finance from countries such as the United Kingdom (UK), Luxembourg, South Africa, and Hong Kong. Within sub-Saharan Africa, South Africa led the way, with one of the largest international Islamic banking conglomerates namely Al-Baraka Banking Group. To further strengthen the non-interest financial institutions in the country, The Central Bank of Nigeria (CBN) last week introduced two new financial instruments in Non-Interest Financial Institutions (NIFI) to aid liquidity management and deepens the financial system in the country.
The two instruments the regulator is offering at its window for access by NIFI are “Funding for Liquidity Facility (FfLF), and IntraDay Facility (IDF). For the FfLF, the CBN said it will provide a liquidity facility on overnight basis only and to be terminated on next business day while authorised NIFI is expected to provide eligible securities to the CBN as collateral for the facility.
In a circular signed by Alvan Ikoku, director, financial markets department, the value of collateral is to be a minimum of 110 per cent of the value of the facility. According to the circular, at maturity the transaction unwinds and the CBN receives back its funding and returns the collateral to the NIFI.
However, failure to provide adequate funding in the account for the un-winding of transaction at maturity, the CBN shall rediscount the pledged securities at par and recover the facility amount and return the net value to the NIFI. On the IDF, the CBN will provide an intra-day facility for settlement on same day business while authorised NIFI shall provide eligible securities as collateral for the facility.
Delivering a keynote address at the sensitization workshop on Islamic banking and finance for journalists, last week, Dutsinma called on policy makers to recognise Islamic finance as an option that could contribute positively to economic development.
He said Islamic banking helps in promoting financial sector development and broadens financial inclusion through expansion of the range and reach of financial access and fosters the inclusion of those deprived of financial service.
“If equity-base tools of Islamic finance are used to bring foreign capital into Nigeria, technically the new injection of foreign capital into the country will not lead to an increase in national debt, “Dutsinma said. Islamic banking products, which are compliant with Islamic sharia law, do not charge interest on financing. Profits or losses are instead shared with the borrower, meaning they discourage unnecessary speculation and spread risk.

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