NDIC issues fresh framework for non-interest bank deposits

NDIC issues fresh framework for non-interest bank deposits

By GoBroadsheet with PTs

The Nigeria Deposit Insurance Corporation on Tuesday issued a new framework for insuring non interest banking deposit liabilities hitherto not covered under the Deposit Insurance Scheme (DIS).

The NDIC said the issuance of the framework followed the successful take off of the non-interest banking in Nigeria currently operated by Ja’iz Bank, Stanbic IBTC and Sterling Banks.

The public policy objectives of the framework, the Commission explained, were based on public interest seeking to provide corresponding protection to holders of non-interest financial products similar to those in conventional banks.

The new framework is expected to protect depositors against loss in the event of failure of any non-interest bank; promote public confidence, and enhance resilience of non-interest financial institutions.

The framework would equally encourage competitiveness; contain the cost of resolving failed non-interest banks; provide an orderly failure resolution mechanism as well as help contribute to the stability of country’s financial system.

A non-interest banking model, which offers banking products in trading, investments and commercial services without conventional interest charges, would be restricted to a profit and loss sharing formula on its products.

Under the new framework, the maximum deposit insurance coverage (MDIC) for the non-interest banking institutions would be N500,000 and N200,000 per depositor per account in Deposit Money Banks (DMBs) and Microfinance Banks (MFBs) respectively, same as conventional banks.

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

The NDIC said some financial products would however not be covered under the Scheme.
They include insider deposits of staff, including directors of non-interest banks, or financial institutions; counter-claims from one person who maintains both a deposit account.

Also, not covered by the framework is a non-interest bearing loan account or loan based on Murabahah financing where the deposit account was used as a collateral for either or both of the loan accounts and inter-bank takings.

Posted from GoBroadsheet