HOW TO SET UP A NON-INTEREST BANK OR FINANCIAL INSTITUTION IN NIGERIA

What is a non-interest bank or financial institution?

A non-interest bank or other financial institution is one of the specialized institutions that can be licensed by the Central Bank of Nigeria (“CBN”), as complements of the conventional banking system, to undertake banking, trading, investment and other permissible financial services in accordance with any established non-interest banking principles. The CBN derives its licensing power under sections 2 and 3 of the Bank and Other Financial Institutions Act 2020 (“BOFIA”) as amended.

According to the CBN’s Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria 2011 (“Guidelines”), non-interest banking and financial services can be broadly categorized into two:

1. Non-interest banking and financial services that are based on islamic law (also known as Islamic Financial Institutions) ; and

2. Non-interest banking and financial services that are based on any other established non-interest principles (also known as Other Non-Interest Financial Institutions).

Please note that Deposit Money Banks (“DMBs”) may, with prior approval of the CBN, operate a non-interest banking window.

Please note that a non-interest bank may apply to be licensed as either a regional or national bank. 

Can a foreigner engage in non-interest banking operations in Nigeria?

Yes, foreign banks and investors are permitted to establish a banking business in Nigeria provided they meet the minimum capital requirement (which is currently 25 billion for conventional banks), and any other applicable regulatory requirements for a banking licence as prescribed by the CBN. 

What are the permissible and non-permissible activities of a non-interest financial institution in Nigeria?

As a specialized bank, a non-interest financial institution has permissible and non-permissible transactions as set out in the CBN’s Guidelines. Please note that both the islamic and other non-interest banks or financial institutions provide the same set of financial products and services just like the conventional financial institutions except that these specialized financial institutions operate in accordance with principles and rules that recognize profit and loss sharing but prohibit the practice of charging interest on loans. 

So, any form of interest on loan transactions by a non-interest financial institution is prohibited. Also, other non-permissible transactions include any of the following:

• Uncertainty or ambiguity relating to the subject matter, terms or conditions;

• Gambling;

• Speculation;

• Unjust enrichment;

• Exploitation/unfair trade practices;

• Dealing in pork, alcohol, arms & ammunition, pornography and;

• Other transactions, products, goods or services which are not compliant with the rules and principles of Islamic commercial jurisprudence.

Is there any mandatory share capital for a non-interest bank in Nigeria? 

Yes. The required share capital of a non-interest bank depends on whether it is seeking a regional or national licence. The minimum share capital for a regional non-interest bank in Nigeria is N5,000,000,000 (Five Billion), whilst a non-interest bank with national spread including (Islamic bank) must have a share capital of N10,000,000 (Ten Billion Naira).

What are the requirements for incorporating a non-interest Bank in Nigeria?

The incorporation of any company in Nigeria is by the Corporate Affairs Commission (“CAC”). It is useful to mention that a provisional approval of CBN (also known as Approval-In-Principle) must be sought and obtained as a pre-condition for incorporation of a non-interest bank. 

Below are the requirements for incorporation of a non-interest bank in Nigeria:

• Two proposed names for the company: these names will be submitted to the CAC for name search, screening and approval. Upon approval, the promoters may thereafter proceed to register the company with the approved name.

• Proposed registered address, email address and phone number of the bank.

• Details of at least 3 Shareholders, at least 5 Director(s) and a Company Secretary to include their names, Contact/Home address, Email address, Phone number, Date of birth, Occupation, National Identification Number (NIN), and electronic signatures respectively. Please note that for foreigners, an international passport will be sufficient for means of identification.

• Object of the Company: The proposed company must be registered as a non-interest banking services. A non-interest financial institution under this model shall ensure that its Memorandum and Articles of Association (MEMART) state that its business operations will be conducted in accordance with the principles and practices of islamic or other commercial principles of non-interest banking. 

Kindly note that the minimum number of board of directors of a non-interest bank is five (5), and the maximum of nine (9) members with 15% of members being non-executive directors (NED). Also, members shall be persons of proven integrity, and, at least two (2) members, other than the executive directors, shall be required to have banking or related financial industry experience.

You can learn more about the requirements for registering a company in Nigeria here

What are licensing requirements for a non-interest bank in Nigeria?

Promoters of non-interest banks are required to apply in writing to the Governor of CBN for grant of AIP and Final Licence before commencing business. Failure to comply with this may attract penalties as provided under section 2(2) of the Bank of Industry Act 2020.

The application for a non-interest bank licence must be supported by the following requirements:

1. Feasibility report for the proposed bank, including financial projections for at least five (5) years;

2. A draft copy of the memorandum and articles of association of the proposed bank;

3. List of shareholders, director and principal officers of the proposed bank and their particulars;

4. List of experts on non-interest banking or finance that will serve as its advisory committee of experts. 

5. Evidence of a technical agreement executed by the promoters of the proposed institution with an established and reputable Islamic bank or financial institution for a minimum of three (3) years from the date of operations;

6. Evidence of payment of a non-refundable application fee of N500,000.00 and a refundable deposit of either N5 Billion or N10 Billion (depending on the category of licence), being shareholders’ funds unimpaired loss with the CBN.

7. Such other information, documents and reports as the CBN may require.

Kindly note that not later than six (6) months after the grant of approval in principle (AIP), the promoters of a proposed bank must submit application for the grant of the final licence to the CBN with a Non-refundable licensing fee of N5,000,000.00 in bank draft and other required documents.

Are there post-incorporation registrations for a non-interest bank in Nigeria?

Yes. The following are the required post-incorporation registrations for a non-interest bank in Nigeria:

1. Registration with the Federal Inland Revenue Service (FIRS)

A Tax Identification Number (TIN) is assigned to a company upon incorporation. Nevertheless, a company is required to register with the Federal Inland Revenue Service (FIRS) for tax purposes.

The following are the requirements for the registration with the FIRS:

• Application letter using company’s letterhead

• Incorporation documents

• Particulars of the company directors, and

• Utility bill of the registered address of the company.

2. Registration with Special Control Unit against Money Laundering (SCUML)

SCUML is a unit of the Economic and Financial Crimes Commission (“EFCC”) that is saddled with the responsibility of supervising, monitoring and regulating the activities of Financial Institutions (“FIs”) or Designated Non-Financial Institutions (“DNFIs”) to ensure compliance with the Nigeria’s Anti-Money Laundering Act. Under the Anti-Money Laundering Act, non-interest banks are categorized as financial institutions and therefore require SCUML registration and compliance with periodic and transaction reporting obligations. 

Below are the documents required for registration:

• Incorporation documents;
• Tax identification number;
• CBN license/approval;
• National Identification Number of the Directors.

3. Registration of Non-Interest banks with the Nigerian Deposit Insurance Corporation (“NDIC”)

The NDIC is one of the regulatory supervision agencies for all banking and deposit-taking institutions in Nigeria, set up to protect depositors, ensure monetary stability and effective/efficient payment system as well as promote competition and innovation in the banking sector. 

Operators of non-interest banks are required to register with the NDIC after obtaining their licence from the CBN. Applicants are required to write a letter of introduction addressed to Managing Director of NDIC and accompany it with the following documents:

• Incorporation documents;
• Copy of CBN licence (the final licence, not the AIP)

Kindly note that NDIC operates a risk-based system, and therefore cost of registration with NDIC is be based on outcome of the inspection/assessment by representatives of NDIC.

Kindly note also that a non-interest bank, being a deposit taking financial institution, is required to pay to NDIC a premium which shall not exceed (8/16) eight-sixteenth of one (1%) percent per annum of its total deposit liabilities standing in its book as at 31^st December of the proceeding year.

What is the applicable cost for setting up a Non-Interest Bank in Nigeria?

********************************************************

About KORIAT & CO.

We are a commercial law firm in Nigeria with network of lawyers and consultants in Ghana, Kenya, Uganda and Rwanda. The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.

We assist local and foreign clients to process company registration and business licences in Nigeria, Ghana, Kenya and Rwanda.

Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance in making the application for a non-interest banking s licence.