AN EVALUATION OF THE OPERATION OF NON-INTEREST BANKING UNDER THE EXISTING LEGAL FRAMEWORK IN NIGERIA

AN EVALUATION OF THE OPERATION OF NON-INTEREST BANKING UNDER THE EXISTING LEGAL FRAMEWORK IN NIGERIA

Background to the Study

This work sought to carry out “an evaluation of operation of non-interest banking under the existing legal framework in Nigeria.” This is in the light of the Guidelines issued by Central Bank of Nigeria (CBN) on banking operation under the Principles of Islamic Commercial Jurisprudence and non-interest window and branch operations of conventional banks and other financial institutions.1 Further to the release of the Guidelines in 2011, CBN issued a banking license to Jaiz Bank Plc in 2011 to operate under the Principles of Islamic Commercial Jurisprudence, which raised some legal issues relating to the operation of non-interest banking system.

The issues involved the power of CBN under Central Bank of Nigeria Act, 2007 and Banks and Other Financial Institutions Act2 to issue the license for the operation of Non-interest banking in Nigeria. Some of the issues were raised in the first Nigerian Case on the operation of non-interest bank in Nigeria, Godwin Sunday Ogbaji v. Central Bank of Nigeria & others.3 These also relate to regulatory and supervisory challenges relating to non-interest banking vis-à-vis the provisions of Companies and Allied Matters Act,4 Investments and Securities Act, 2007 and Nigerian Deposit Insurance Corporation Act, 2006.5

Prior to CBN guidelines on Non-Interest Financial Institutions,6 banks in Nigeria were based on interest. Black’s Law Dictionary, Eight Edition7 defines interest as „Payment a borrower pays a lender for the use of the money‟. It is different from usury and this distinction was introduced with the passage of Usury Law in 1545 by the British Parliament. A difference between “interest” and “usury” is that the later means “charging illegal high interest”. Interest, according to Encyclopedia Britannica, „became legalized from the 13th Century with expansion of trade. Demand for credits increased necessitating a modification of the definition of the term “usury”. In 1545, England fixed a legal maximum interest; any amount in excess of the maximum was usury‟. Microsoft Encarta Encyclopedia also supports the above in the following words: “Usury, in law is a payment of interest by a borrower to a lender for the use of money, in excess of the amount fixed by statute.” Interest, in other words, now stands for any charge paid by a borrower for the use of money within the limit allowed by CBN.

In essence, interest could take either one or two forms of interest – simple or compound. Simple interest is interest computed on the principal and principal alone. Compound interest, on the other hand, is capitalization of interest so that interest itself yields interest. In short, it is interest on both principal and accrued interest. The two forms of interest apply to both loan and overdraft. The case of NIDB v. Olalomi Ind. Ltd.8 illustrates what is compound interest.

TOPIC: AN EVALUATION OF THE OPERATION OF NON-INTEREST BANKING UNDER THE EXISTING LEGAL FRAMEWORK IN NIGERIA

Chapters: 1 - 5
Delivery: Email

Number of Pages: 80

Price: 3000 NGN

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