NDIC to insure non-interest banks

The nation’s banking sector is set to witness a revolution with the development of a framework by the Nigeria Deposit Insurance Corporation, NDIC, aimed at insuring the deposit liabilities of non interest banks which were hitherto not covered under its Deposit Insurance Scheme (DIS).

In a statement issued on Tuesday by the NDIC, the Corporation said “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.”

Specifically, the objectives include among others to ensure depositor’s protection against loss in the event of failure of any non-interest bank as well as engender public confidence and enhance resilience of non-interest financial institutions.

Besides, the move, is to encourage competitiveness of non-interest financial institutions as well as help to contain the cost of resolving failed non-interest banks and provide an orderly failure resolution mechanism which will in turn promote the stability of the nation’s financial system.

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.

Non interest banking in Nigeria is currently being undertaken by Ja’iz Bank, Stanbic IBTC and Sterling Banks.

According to the NDIC, the Maximum Deposit Insurance Coverage (MDIC) for the non-interest banking institutions would be the same as the conventional banks at N500,000 and N200,000 per depositor per account in Deposit Money Banks (DMBs) and Microfinance Banks (MFBs) respectively.

The following Non-Interest Deposits will be covered under the scheme: 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).

The financial products that will however not be covered under the Scheme include: Insider Deposits – Deposits of staff, including Directors of Non-Interest Banks or Financial Institutions; Counter-Claims from one person who maintains both a Deposit Account and a Non-Interest Bearing Loan Account and or a loan based on Murabahah financing where the Deposit Account serves as a collateral for either or both of the Loan Accounts and Inter-Bank Takings.

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