The Nigerian central bank is setting up two new financial instruments to provide liquidity support for banks in the country which don’t rely on interest.

The move is designed to help foster the growth of the country’s nascent Islamic finance industry. Nigeria, which has the largest Muslim population in sub-Saharan Africa, aims to transform itself into a hub for Islamic banking.

To support this, the Nigerian central bank has been working on new regulatory measures for the proliferation of sukuk (Islamic bonds) and takaful (insurance). According to Reuters, it hopes to re-create the success achieved in countries like Malaysia.

Among the banks in Nigeria, only Sterling Bank, Stanbic IBTC and Jaiz Bank offer Islamic services. Jaiz, the only fully-fledged Islamic lender on the list, opened its doors in 2012.

“In a bid to aid liquidity management and deepen the financial system, the central bank hereby introduces two new financial instruments … for access by non-interest financial institutions,” the central bank said in a memo.

In compliance with Shari’ah law, Islamic lenders do not charge interest on finance. As a rule, they attempt to discourage speculation and risk.

The Nigerian central bank stipulated several conditions for offering Islamic finance in October. Non-interest lenders must have a liquidity problem to be able to access a new discount window – which will offer it at zero interest, though lenders must post collateral.

by Alex Hamilton
Alex is Senior Reporter at IBS Intelligence, follow him on Twitter or contact him at: