Islamic banking is defined by (institution of Islamic banking & insurance IIBI 1991:3) as a system of banking activity that is consistent with the principles of the shariah [Islamic rulings] and it’s practical appreciation through the development of Islamic Economics.
The origin of modern Islamic bank can be traced back to the very birth of Islam, when the prophet himself acted as an agent for his wife’s trading operations. Islamic partnership [Modarabah] dominated the business word for centuries and the concept of interest found very little application in day-to-day transactions. Such partnership performed an important economic function. They combined the three most important factor of production namely: capital, labour and entrepreneurship the letter two function usually combined in one person. The capital owner contributed the money while the partner managed the business. Each shared in a pre-determined share of the profits. If there was a loss, the capital provider lost his money and the money and the manager lost his time and labour.
Then in1990s, Mr. Charles Chukwuemeka Soludo introduced Islamic banking formally in Nigeria, which began in 1991 through the amendment & to the banks and other financial institution Act, BOFIA. In 1996, the central bank of Nigeria [CBN] granted approval to Habib Nigeria bank to deal in Islamic banking principals. In 2004, Jaiz international bank plc applied for full pledged Islamic banking license and was however granted approval in principal to that effect. In 2008 Islamic balance working group comprising of Nigeria deposit insurance corporation, NDIC, National insurance commission, NAICOM etc, was established and in 2009, the CBN under the immediate past governor proff. Charles Soludo, applied for membership of Islamic finance service board and got admitted in taking cognizance of the fact that the operational license can not be granted without a supervisory/ regulatory framework. The CBN decided to expose the draft framework on non interest banking for the comments and inputs by industry stakeholders.
The legality of the non interest Islamic banking is derived from section 33(B) of the Central Bank of Nigeria Act of 2007 which states that in addition to any of this powers under the act. A guideline was left for comment about the introduction of Islamic banking for eight months by the stakeholders and released in January 2011. It was further revised in June 2011 to address some stakeholders observation.
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