All you need to know about Islamic banking as CBN approves five to serve Nigerians

In recent years, Nigeria's financial sector has seen a rise in non-interest banks, popularly known as Islamic banks.

These banks operate based on Sharia principles, which prohibit the payment or charging of interest on loans.

This implies that if you borrow N50,000 for a business venture from an Islamic bank, you are expected to repay the same amount without additional interest charges.

According to the Nigeria Deposit Insurance Corporation (NDIC), five banks in Nigeria operate the Islamic banking model(non-interest banks) they are:

Jaiz Bank PLC

Taj Bank

LOTUS Bank

Sterling Alternative Finance

Suntrust Bank Nigeria Limited

How Islamic bank is different from traditional bank

Islamic banks will not pay interest on any savings but give profit.

They will not charge interest on financial facilities or borrowed money; instead, they focus on partnership-based financing.

Islamic banks won’t support investments that are against Islamic teachings.

They don’t and will not support any financial product that offers a lot of uncertainty (Gharar).

They share profits with their customers They share risks with their customers.

Conventional banks mainly generate profits through interest charged on loans. However, Islamic banks operate differently and earn revenue from providing other services.

These include sales-based financing known as Murabaha, financing for projects and construction known as Istisna, agricultural financing known as Salam, and leasing arrangements.

In addition, Islamic banks also offer partnership-based financing in which they share risks and profits with their customers according to a pre-agreed ratio. They also generate profits through fee-based services such as Wakala (Agency), Kafalah (Guarantee), and other non-interest-based services.