Islamic Banking in Nigeria: Prospects and Challenges

Islamic banking is consistent with the principles of Sharia which prohibits acceptance of interest on loans. Islamic finance has increasingly become a significant source of finance in the Western world, especially in the United Kingdom, despite the regulatory hurdles presented before it non-Muslim financial environment. The Nigerian state has also joined the other nations to establish Islamic banking against all hurdles, misconstrued and initial misconception of what Islamic bank stand for. The objective of this study is to ascertain the benefits and challenges facing the growth of Islamic banking in the Nigeria. Nigeria is said not to the hub of Islamic banking and does not naturally have the inbuilt instruments needed for Islamic finance due to its multi-religious nature. This study employed primary data via administering of questionnaire. Two hundred copies of questionnaire were distributed to prospective customers of Islamic banking and non-customers of Islamic banking residing in four geo-political zones in Nigeria. Our data were analyzed by employing Z-test statistical technique and chi-square statistical technique. The result showed that lack of awareness and customers’ preference for conventional banks and traditional money lenders are the major challenges facing the growth of Islamic banking in Nigeria. Our result further showed that poverty alleviation and job creation are the major benefits that will be derived from Islamic in Nigeria. Finally, the study reveals that there are greater opportunities for Nigeria the development and growth of Islamic financial system because most commercial bank customers are eager to switch from the convention banking (exhortative system) to take financial products that are interest free. The study recommended both Muslim and non- Muslim communities should be educated on the mission statement of Islamic bank and what they stand to gain from Islamic bank. The study also recommended that Islamic banking institutions in Nigeria should map out strategies that will enable them to compete favourably with conventional banks and the traditional money lenders