DMBs Seeking Non-Interest Banking License Must Divest From Non-Shariah Compliant Activities, CBN Says In New Guidelines

The Central Bank of Nigeria has released a guideline for commercial banks, mortgage banks, microfinance banks and Other Financial Institutions seeking to change their licence type through conversion, re-categorization and re-designation.

The apex bank gave the requirements for eligible institutions in a document dated March 28 titled, ‘Regulatory Guidelines For Change Of Operating Licence For Banks, Other Financial Institutions in Nigeria.’

The CBN said the guideline was necessary to standardize the requirements for change of operating licence for banks and OFIs in Nigeria.

It listed Commercial Banks, Marchant Banks, Non-Interest Banks (Islamic Bank), Microfinance Banks Primary Mortgage Banks Payment Service Banks as eligible financial institutions.

But the CBN said converting institutions must have operated in the country for five years.

The apex bank also prohibited banks and OFIs applying for “conversion or re-categorisation from expanding or reducing its current banking network; roll out new products; carryout any strategic banking activity; take any decision after the conversion process has commenced, except inline with bank’s conversion strategy submitted to the CBN and engage in any banking activity specific to the proposed new licence.”

But the bank gave specific conditions for converting to Islamic Banking and Primary Mortgage Banks.

It said commercial banks or OFIs that intends to convert to non-interest (Islamic) banking business shall constitute its Advisory Committee of Experts (ACE) upon the grant of an Approval-In-Principle and the ACE shall commence operations before the grant of a final approval.

The CBN said, “Shariah Review Report and ACE’s Certificate confirming that the whole conversion process has been undertaken in conformity with Islamic commercial Jurisprudence.

“There shall be a meeting among the ACE, Shariah Compliance and Audit Unit of the converting institution with the CBN Financial Regulation Advisory Council of Experts (FRACE) to clarify any issue, where necessary.

“A bank or OFI converting to non-interest bank shall have a plan for migration or off-boarding of their customers within twelve (12) months. A bank or OFI converting to non-interest bank shall align its IT infrastructure with the new business model.”

According to the regulator, bank or OFI converting to Islamic bank shall divest from all their non-permissible activities within a maximum period of 12 months.

The apex bank noted that any non-permissible proceeds shall be treated in line with the extant CBN Guideline on Disposal of Non-Permissible Income.

The CBN added, “Revenue not yet received that are of doubtful permissibility are not subject to compulsory disposal, whether they were earned before or during the financial period in which the NIFI decides to convert. Institutions converting to non-interest bank shall be required to carry the NIFIs symbol.

“Undertaking by the directors that the bank will always adhere to the principles underpinning the operations of the proposed new license type.”

For Primary Mortgage Banks wishing to convert, CBN mandated them to provide evidence of divestment from mortgage loans under the National Housing Fund as a condition for the issuance of final approval.