Interest Free Banking in Nigeria - Welcome Islamic Banking; Welcome Christian Banking

Abstract

The announcement by the Central Bank of Nigeria (CBN) that “CBN is in talks; in efforts to explore the possible adoption of sukuk (Islamic) bonds for financing the infrastructural requirements in Nigeria” has generated a raging argument forand against the proposal. Basically, Nigeria is a Secular State thus; CBN is not expected to be enmeshed in religious dichotomy. This paper examines the concept of Islamic banking and compares it with conventional banking system. It identifies the difference, simply as Interest. While conventional banks pay interest on deposits, and charge interest on loans and advances, Islamic banking, which is guided by Islamic law as prescribed by the Shariah,is interest free. However, the literature on interest rates, in relation to Commercial Bank Deposit (CBD) mobilization, indicate that CBD is interest inelastic in Nigeria; and this suggests that the Nigerian Financial System may provide a fertile ground for interest free banking to thrive. Therefore, it is concluded that the CBN may proceed with its desire to introduce interest free banking, however respect should be given to the secular status of the Nigerian State by ensuring that guidelines for establishment of interest free banking are not tied to any religion. Rather, general guidelines should be issued, to accommodate interest free banking according to the precepts of any of the religions in Nigeria; i.e. Islam, Christian or African Traditional Religion.

Keywords- Secularism, Islamic Banking, Interest, Bank Deposits.