CBN warns non-interest banks over governance, compliance risks

The Central Bank of Nigeria has warned non-interest financial institutions to guard against governance and compliance risks that could erode public trust and threaten financial stability in the country’s fast-growing Islamic finance sector.

The warning came in a statement on Monday after the 2nd Annual Interactive Session between the CBN Financial Regulation Advisory Council of Experts and the Advisory Committees of Experts of Non-Interest Financial Institutions. The event was held at the CBN Auditorium in Abuja.

Speaking through the Director of the Financial Policy and Regulation Department, Dr Rita Sike, Deputy Governor for Financial System Stability, Philip Ikeazor, said the rapid expansion of the industry had increased exposure to operational and regulatory vulnerabilities.

“As the industry grows in size, sophistication, and interconnectedness, it faces unique risks, particularly non-compliance risk, governance challenges, operational vulnerabilities, and emerging technological risks,” the statement quoted Ikeazor as saying.

“Such risks, if not properly managed, could undermine public confidence, financial stability, and the overall credibility of the non-interest finance ecosystem,” he warned.

The CBN said the engagement was part of ongoing efforts to strengthen Shariah governance, improve regulatory clarity, and reinforce risk management standards within the non-interest financial services industry.

The apex bank noted that non-interest financial institutions now play an increasingly important role in Nigeria’s financial system. They provide ethical and Shariah-compliant alternatives to conventional banking, and support financial inclusion, real sector financing, MSME development, and shared prosperity.

The CBN explained that the establishment of FRACE and the mandatory constitution of ACEs across all non-interest financial institutions were designed to institutionalise a harmonised governance framework for the sector.

Sustained interaction between FRACE and ACEs remains critical to ensuring that regulatory expectations are properly understood and consistently implemented across the industry, the statement added.

“The objectives of today’s session include fostering the institutionalisation and effective operation of a robust Shariah governance system within Non-Interest Financial Institutions, and providing a structured platform for dialogue, knowledge-sharing, and collaboration,” Ikeazor was quoted as saying.

In his remarks, FRACE Deputy Chairman Prof Bashir Umar said the interactive session aimed to strengthen governance within the non-interest finance sub-sector and promote constructive engagement between regulators and industry advisory committees. He commended the CBN management for reviving the session, first introduced in 2014.

Earlier in her welcome remarks, Dr Rita Sike reaffirmed the CBN’s commitment to building a strong and well-governed non-interest financial services industry. She noted that the growing diversity of products and delivery channels, especially the rise of Islamic fintech, had increased the need for stronger regulatory oversight and continuous stakeholder engagement.

“The growing diversity of products, institutions, and delivery channels, particularly with the emergence of Islamic fintech, underscores the need for continuous dialogue, sound regulatory oversight, and robust advisory input from scholars and practitioners,” she said.

The session featured technical presentations on Shariah non-compliance risks in non-interest banks and the role of Islamic fintech in driving financial inclusion. Participants included FRACE members, chairmen and members of various ACEs, managing directors of non-interest banks, senior CBN officials, and representatives of the Bank of Industry and the Securities and Exchange Commission.

Experts in Nigeria’s non-interest finance space have called for larger and more frequent Sukuk issuances to deepen the market, unlock long-term capital for infrastructure, and widen financial inclusion. This comes as global market volatility pushes investors towards asset-backed and ethical instruments.