NDIC Develops Framework For Non-Interest Bank Deposits | Independent Newspapers Limited
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NDIC Develops Framework For Non-Interest Bank Deposits

Posted: Jan 13, 2016 at 9:52 am   /   by   /   comments (0)

By Bamidele Ogunwusi

Following the successful take off of the non interest banking in Nigeria that is currently being undertaken by Ja’iz Bank and also by Stanbic IBTC and Sterling Banks, the Nigeria Deposit Insurance Corporation (NDIC) has developed a framework for insuring their deposit liabilities which were hitherto not covered under its Deposit Insurance Scheme (DIS).

The public policy objectives of the framework are based on public interest which seeks to provide corresponding protection to holders of non-interest financial products similar to that of conventional banks.

The objectives of the framework, according to a document  obtained from NDIC include depositor protection against loss in the event of failure of any non-Interest bank.

The framework will also engender public confidence and enhance resilience of Non-Interest Financial Institutions and also encourage competitiveness of Non-Interest Financial Institutions.

It will also help to contain the cost of resolving failed Non-Interest Banks and provide an orderly Failure Resolution Mechanism and also promote and contribute to the stability of Nigeria’s Financial System.

The emergence of the non-interest banking model in the global financial landscape and its acceptance worldwide as a veritable tool for financial intermediation as well as its proven resilience during the 2007/2008 economic meltdown paved the way for the introduction of non-interest banking in Nigeria.

A non interest bank is a banking model which offers banking products, engages in trading, investments and commercial services without conventional interest charges. It is rather restricted to a profit and loss sharing formula on its products.

The Maximum Deposit Insurance Coverage (MDIC) for the non-interest banking Institutions, according to the document,  would be the same as the conventional banks which is N500,000 and N200,000 per depositor per account in Deposit Money Banks (DMBs) and Microfinance Banks (MFBs) respectively.

The following non-interest deposits that will be covered under the scheme are safe keeping deposit (Wadi’ah), interest free deposit for investment (Qard); profit sharing/loss bearing deposit (Mudarabah), profit and loss sharing deposit (Musharakah); and any other deposit type that is non-interest based and approved by the Central Bank of Nigeria (CBN).

However,  financial products  like insider deposits which is  deposits of staff, including directors of non-interest banks or financial institutions will not be covered under the scheme.