In a significant step toward fostering financial inclusion and deepening the resilience of Nigeria’s financial system, the Central Bank of Nigeria (CBN) last week introduced a suite of new liquidity management instruments specifically designed for Non-Interest Financial Institutions (NIFIs).
This development underscores the apex bank’s ongoing efforts to ensure that all segments of the banking system, particularly those that operate on Islamic finance principles, are adequately equipped to handle liquidity challenges without compromising their ethical mandates.
The new framework, announced in a circular dated May 23, 2025, and signed by Okey Umeano, Acting Director of the Financial Markets Department, signals a strategic pivot by the CBN toward building a more inclusive, ethical, and robust financial architecture. The instruments, according to the circular, are aligned with the principles of non-interest finance and backed by eligible collateral, ensuring they meet both prudential and Shari’ah compliance standards.
Non-Interest Financial Institutions, typically operating under Islamic finance principles, have gained traction in Nigeria over the past decade. These institutions avoid interest-based transactions and instead rely on profit-sharing, lease agreements, and asset-backed financing to serve their clients. The sector, which includes full-fledged Islamic banks and windows operated by conventional banks, has been expanding steadily, drawing increasing interest from individuals and businesses seeking ethical banking alternatives.
Despite this growth, liquidity management remains a core challenge for NIFIs, given the scarcity of Shari’ah-compliant instruments in the Nigerian financial markets. Unlike conventional banks that can tap into interest-bearing tools such as Treasury Bills or access the central bank’s discount window, NIFIs have historically lacked equivalent mechanisms. This gap has made it harder for non-interest banks to manage their short-term liquidity efficiently, hindering their competitiveness and systemic integration.
The CBN’s latest initiative aims to bridge this gap by introducing a series of tailored liquidity management instruments. Among the headline developments is the Nigerian Non-Interest Financial Institutions’ Master Repurchase Agreement, a standardised contract designed to facilitate Shari’ah-compliant repurchase (repo) transactions. This master agreement serves as a regulatory and operational blueprint, clearly defining the responsibilities of counterparties including the CBN and ensuring that transactions remain within the bounds of Islamic finance.
There is also the CBN Non-Interest Asset-Backed Securities (CNI-ABS). These are structured as Shari’ah-compliant instruments backed by tangible, eligible assets, which can be used by non-interest banks to manage excess liquidity or obtain funding during short-term cash shortfalls. Unlike conventional securities, the CNI-ABS do not pay interest but rather provide returns derived from underlying assets, consistent with Islamic financial ethics.
Complementing the CNI-ABS is the introduction of the CBN Non-Interest Note (CNIN), an innovative instrument designed as an interest-free loan arrangement between the central bank and eligible participants. The CNIN is structured to operate through periodic auctions, giving non-interest institutions an alternative liquidity buffer. While these notes do not yield interest, they offer critical flexibility in managing short-term funding needs.
The CBN also clarified operational guidelines in its circular, stating that participants are not permitted to access the Bank’s discount window on the same days that CNI-ABS and CNIN auctions are held. This provision is intended to maintain regulatory balance and avoid distortions in the liquidity ecosystem.
The deployment of these instruments does more than solve operational liquidity issues, it also represents a milestone in Nigeria’s journey toward a more ethically grounded financial system. By creating tools that adhere to Islamic finance principles, the CBN is signaling its commitment to integrating non-interest financial practices into mainstream economic policy and risk management frameworks.
The instruments are all backed by collateral, which helps to mitigate default risks and enhances investor confidence. This is particularly critical in Nigeria’s evolving financial market, where transparency and risk management remain central concerns.
The introduction of these instruments also places Nigeria more firmly in alignment with global best practices in Islamic finance. Countries like Malaysia, the United Arab Emirates, and Bahrain have long supported their non-interest financial institutions through a range of regulatory tools and Shari’ah-compliant securities.
With the launch of the CNI-ABS, CNIN, and the master repurchase agreement, Nigeria is laying the groundwork for deeper integration with international Islamic financial markets, potentially attracting foreign investment and cross-border partnerships.
Furthermore, standardising instruments like the master repo agreement will help streamline operations and improve legal clarity for transactions between NIFIs and the central bank. This is especially important in fostering market confidence and ensuring that all stakeholders from regulators to investors, have a shared understanding of their rights and obligations.
At its core, this policy shift is a powerful endorsement of financial inclusion. Many Nigerians, particularly those in the north and among the Muslim population, have traditionally been underserved by conventional banks due to religious or ethical concerns about interest-based services. By strengthening the infrastructure around non-interest banking, the CBN is opening new pathways for these populations to engage more fully with the formal financial system.
Inclusion in this context is not just about access; it is about providing products that align with the cultural and ethical values of diverse communities. As more individuals and small businesses find products that meet their needs and beliefs, the overall participation in the financial system is likely to rise, bringing with it broader economic benefits such as improved savings rates, greater credit penetration, and enhanced capital formation.
With the launch, the CBN had called on all eligible and authorised participants to take the necessary steps to integrate the new instruments into their operations. This includes ensuring full compliance with extant guidelines, circulars, and regulatory frameworks. Institutions are expected to update their internal systems, staff training programmes, and client communications to reflect the new tools.
It is also expected that the CBN will continue to provide technical guidance and oversight as the instruments are rolled out, especially given the complexities involved in aligning Shari’ah compliance with macroprudential policy. The success of this initiative will depend not only on the availability of instruments but also on the capacity of financial institutions to implement them effectively.
