EXAMINING THE LEGALITY OF NIGERIA DEPOSIT INSURANCE COMMISSION AS INSURER OF CUSTOMERS’ DEPOSITS IN ISLAMIC BANKS IN NIGERIA

Abstract

The establishment of Nigeria Deposits Insurance Commission (‘NDIC’) was a major policy shift of the Nigerian government from rescuing the banks from collapsing to saving the deposits of the depositors; and the NDIC insures both conventional and Islamic banks. However, considering the ethical nature of the Islamic financial system, this study examines the legality of NDIC as insurer of
customers’ deposits within the provisions of Shari’ah by looking into the need for and the extent to which Islamic banks can participate in the scheme. The research used a qualitative method to retrieve data collected from both primary and secondary sources in order to examine the legality of NDIC (as the insurer of Islamic banks’ deposits) and its operation through the prism of the Shari’ah. The purpose, functions and operations of NDIC were analysed and it was found that the major aim of establishing the NDIC is in line with the maqasid al-Shari‘ah but some of the legislative frameworks for its operations contravene the provisions of the Shari‘ah. Appropriate Islamic models, suggestions and recommendations, such as introduction of Mudarabahh or Musharakah arrangement where the parties involved would share the profit and loss in respect of the invested funds and the adoption of an Islamic Deposit Insurance Scheme to ensure that Islamic Banks’ participation in Deposit Insurance Scheme is fully shari‘ah-compliant were prescribed to amend these lapses and to further improve the standing of NDIC as an insurer of Islamic banks customers’ deposits.