CBN Issues Guidelines For Non-Interest Financial Institutions

The Central Bank of Nigeria has issued guidelines on the management of investment account holders for Non- Interest Financial Institutions (NIFIs) in Nigeria.

The regulatory body disclosed this in a tweet on their official Twitter page on Monday, saying the guideline is focused on providing the minimum standard to be met by NIFIs operating in Nigeria before they could recognise Profit Sharing Investment Account Holders(PSIA) deposits as risk absorbent and deduct same from the computation of Risk Weighted Assets (RWAs).

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This guideline, according to the apex bank, complements the issued regulations for NIFIS in Nigeria such as the guidance notes on calculation of capital requirements for non-interest financial institutions, the guidelines on income smoothing for non-interest financial institutions and the guidance notes on disclosure requirements to promote market discipline for non-interest financial institutions.

The CBN, further stated that the guidelines will be applicable to all NIFIs duly licensed by the institution including “Full-fledged non-interest microfinance bank or subsidiary, Non-interest branch/Window of a conventional bank or financial institution, A development finance institution registered with the CBN to offer non-interest financial services either full-fledged or as a subsidiary. , A primary mortgage institution registered with the CBN to offer non-interest financial services either full-fledged or as a subsidiary, A finance company registered with the CBN to provide non-interest financial services, either as a full-fledged or as a subsidiary.”

NIFI revealed by the financial institution mobilizes a large percentage of their funds using Mudarabah and Wakalah contracts.

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“In Mudarabah, the bank is acting as the Mudarib (entrepreneur) and the fund providers as the Rabb-ul-Mal otherwise called Profit Sharing Investment Account Holders (PSIAHs),” it explained

“In Wakalah, the bank acting as Wakeel (investment agent) for the PSIAHs, earns a Wakalah fee, and an incentive fee in the event of the realized profit exceeding an agreed threshold, and the agreed profit goes to the PSIAHs.

“Mudarabah contract by its nature entails the sharing of profit between the contracting parties based on pre-agreed profit sharing ratio and the bearing of loss by the fund provider except in cases of proven negligence, misconduct or breach of contract by the entrepreneur in which case the entrepreneur would bear such loss,” the CBN added.

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