ECONOMIC VIABILITY AND COMPLIANCE WITH NIGERIAN LAWS OF ISLAMIC BANKING IN NIGERIA AMIDST MISCONCEPTIONS

Abstract

Islamic banking, a non-interest financial system rooted in Sharia principles, has gained significant 
traction in Nigeria over the past two decades. Emerging as a viable alternative to conventional 
banking, it aims to promote ethical finance, financial inclusion, and socio-economic development. 
However, its growth has been met with widespread misconceptions, ranging from its perceived 
exclusivity to Muslims to doubts about its economic viability, compliance with Nigerian laws, and 
operational transparency. These misconceptions have not only shaped public perception but also 
hindered the broader adoption of Islamic banking products and services. This article using 
qualitative legal analysis method examines misconceptions surrounding Islamic banking, 
evaluates legal frameworks, and assesses operational models through literature review and case 
studies. By analyzing legal frameworks, such as the Central Bank of Nigeria’s guidelines and the 
Banks and Other Financial Institutions Act (BOFIA), the study establishes the legitimacy and 
regulatory compliance of Islamic banking. Furthermore, it evaluates operational models, 
including profit-and-loss sharing (Mudarabah) and asset-backed financing (Murabaha), to 
demonstrate their economic viability and alignment with global best practices. The socio
economic impacts of Islamic banking are also assessed, highlighting its role in fostering financial 
inclusion, supporting small and medium enterprises (SMEs), and promoting ethical investment. 
The study reveals that Islamic banking is not only inclusive and accessible to all, regardless of 
religious affiliation, but also contributes significantly to Nigeria’s financial inclusion goals and 
economic development. To address persistent misconceptions, the article concludes with 
actionable recommendations, including public education campaigns, enhanced regulatory clarity, 
and proactive stakeholder engagement.