SAF FAQ

Frequently Asked Questions

1. What is Non-Interest Banking (NIB)?
Non-Interest banking, NIB is synonymous to Islamic banking. It refers to an alternative form of banking contrary to the well-known conventional banking in significant aspect. This type of alternative banking operates on some defining principles in Islamic Commercial Law such as: interest prohibition (riba) in exchange contracts; the prohibition of uncertainty or speculative behavior (gharar) in business transactions; the prohibition of any form of gambling (maysir). Furthermore, it also prohibits funding unethical concerns such, alcohol or tobacco, or ammunitions manufacturing and adult entertainment institutions; just to mention a few.

For the most part, non-interest banking engages in its unique ethical transaction such as: partnership contracts, trading contracts, leasing contracts, and other financial services that conform to Islamic commercial jurisprudence. The form and the intention, the ethics of the transaction bear equal importance.
2. How does NIB differ from conventional banking?
The major the difference between NIB and conventional banking lies in the definition of money. In the conventional economics, money is often defined as a store of wealth, a means of exchange, and a commodity, which can freely be rented or bought or sold for a profit. However, the NIB differs from those connotations which underpin the Conventional Banking on the underlying principles which governs it. Thus it considers money as only a medium of exchange.

Furthermore, the other major difference is that conventional banking deals in financial assets such as renting and buying while non-interest banking deals in tangible asset such as buying and selling them. In Islamic economics, money has no intrinsic value in itself. Thus it cannot be a means of storing wealth or a commodity. It only stands as a medium of exchange between contracting parties. In other words, money cannot earn itself directly. However, conventional banking allows money to earn money in the form of (interest) payments. Therefore, NIB deals in transactions where there is an underlying asset or a business investment, thus it is a trading house.
3. What is interest?
Interest is when ‘money’ earns or receives ‘money’ without counter value. It is the additional amount a client pays a creditor over a loan borrowed. When money is earned or received on money of the same denomination, i.e. in a loan or certain forms of monetary exchange or a claim after sales transaction, the earning represents the interest paid. Similarly, interest also occurs in foreign currency transactions; when money is exchanged but the Sharia principle rules violated in the process. All the above rules do not apply when an individual sells an asset and makes a margin or a profit from such trading activities because such are not currencies.
4. Can I get a return on my deposit under NIB?
Yes, a customer can earn returns under NIB but it depends on the underlying Sharia contract applied for which the deposits are lodged into the bank. For instance, if the underlying contract is loan agreement, a customer cannot naturally earn a return on it. In the Islamic commercial law, loan contracts are categorized under benevolent or gratuitous deeds and hence no material earning should be accrued to a creditor. He or she is simply rendering a selfless act of charity to his or her debtor. However, if the underlying Shariah contract is other than loan, a return can be earned. There are various contracts on that.

In other words, there are different types of deposits, financial contracts and Islamic financial instruments under NIB which determines whether there is profit to be earned or not; and whether the profit is either fixed or varying. Popular opinion allows the use of Qardh (interest free loan) for transactional accounts such as current and savings account. The depositor is the lender while the bank is the borrower, thus the bank returns the exact amount to the depositor on demand.

Other income or return generating deposit is mudaraba contract. The Mudaraba (partnership where there is a fund manager and owner of capital) can also be used as savings account, termed deposit accounts and investment account. Return or profit to depositors in this case is dependent on the performance of the business transactions the bank uses the funds for; however the bank may set a minimum benchmark profit rate. There may however be some circumstances where the customer authorizes or restricts the bank to use his/her fund for a particular project or transaction which may have very high risk/high profit or low risk/low return. Investment in equities falls under this category where the depositor’s fund may even be lost if it falls against unfavorable market.
5. How can I finance my business or project under NIB?
Interest is the increase over a loan which is inapplicable in NIB. Such interest results either from a sale contract on credit or a benevolent contract such as qard extend to a client. Thus, non-interest banking modes or contracts such as ‘partnership’ where there is a fund owner and fund manager’ (mudaraba) can be used to fund business proposals or projects. Unlike fund management, the bank in this case acts as the fund owner while the customer acts as the fund manager.

The bank and the customer may go into a ‘joint venture arrangement’ (musharakah) where both parties bring funds and expertise. For a customer dealing in trading, the bank may opt for the option of ‘purchase and resale at a markup’ (murabaha); while for other customers the option may be a lease arrangement (ijarah) where they wish to use assets such as machineries, equipment, generators, vehicles and the likes. The bank uses these underlying contracts to finance businesses or projects.

In sum, property development or building of machineries will require a ‘build-to-order contract’ (istisna); while ‘deferred delivery’ is appropriate for agricultural production. Such are the ways or methods NIB deploys in meeting customers’ financing need in business or project.
6. Do I need to provide security under NIB?
Security is allowed in exchange contracts such as Murabaha (purchase and resale at a markup). Most contracts under NIB have imbedded security design where customers will be informed and may also be required in certain investment cases. Therefore under NIB, security might be required in some contracts especially in exchange contracts such as murabaha. Similarly, it might also be required in some investment contracts.
7. Do I need equity contribution in NIB?
Yes, equity contribution may be required in some underlying contracts such as Musharaka but disallowed in others such as Mudaraba.
8. Can I get predetermined profit on my deposit?
A customer cannot get a predetermined profit on a deposit except a predetermined profit ratio sharing agreement and the underlying contract. Since no profit is often paid to current and savings account holders where a Qardh contract is used in the product design, a profit cannot be earned because qardh is usually the underlying contract. In the case of savings, term deposits and investment accounts where mudarabah is used, profit determination is dependent on the particular instrument or underlying contract the bank invests the funds in.

For example: 10 customers deposit a total of N1,000,000.00 and the bank buys goods worth same amount for a business woman using a murabaha (purchase and resale at a markup) contract on the agreement that she will buy the goods back from the bank at N1,200,000.00. The N200,000.00 margin can be equated to 20% profit on the N1,000,000.00. If the sharing formula between the bank and the depositors is 40:60, it means the bank will have N80,000.00 while the depositors will have N120,000.00 distributed to them in the proportion of their capital. This N120, 000.00 constitute 12% of the N1,000,000.00 the depositors kept with the bank for investment purpose.

Thus, in some cases of NIB, the bank may predetermine profit rate from inception depending on the kind of contract used in financing a business transaction or project. In other cases, they may simply set a minimum profit benchmark that is competitive with market trends.
9. How do non-interest banks determine markup on business/project financing?
Across the globe, NIBs generally determine their markup rates based on the prevailing conventional interbank bid and offer rates. In Nigeria, NIB’s markup may be benchmarked around NIBOR (Nigerian Interbank Bid and Offer Rate). This way, an imbalance might be avoided in the financial market. In other words, it is not expected that markup should be more than conventional interest rate. Practically, this would be a strategic decision for the non-interest bank to determine with recognition of market conditions at that point in time. In the same vein, non-interest banking does not operate in isolation rather it operates within the conventional space dominated by interest rate.
10. How do non-interest banks determine profit rate for savings, term deposit or investment accounts?
Profit rate are usually tied to the performance of the business the bank and customer engages in. On the one hand, some transactions might have high risk and high profit outcome while on the other hands others might have low risk and low profits altogether. On this reality, the non-interest bank however takes account of market behaviors. As such, based on the regulatory requirement or internal decisions, it creates profit reserves often kept as a measure to help smoothen consistent profit rate even where market performance drops. Therefore, NIB while it designs a pre-determined profit sharing ratio, its final profit accrued over savings, or term deposits or investment accounts will be determined by the overall market success or outcome.
Is it possible to convert my conventional current, savings or term-deposit account to NIB account?
The Terms and Conditions for NIB contracts are absolutely different from the conventional terms and conditions. Hence conventional accounts cannot be converted to NIB account, except, perhaps ‘Know Your Customers’ (KYC) details which applies to prospective NIB account holders. In other words, you may agree to a switch from your current conventional account, thereby closing it, to an NIB account thereby opening a new account. In doing so, you will give up any claim on interest.
12. Are overdraft facilities allowed in NIB?
A major principle in NIB is the existence of an ‘asset’ in its business models, which becomes the subject of the transaction at all times either constructively or physically. There are conflicting arguments on the use of ‘reversed murabaha’. However; the potent popular opinion of all disallows it. Thus, we may safely conclude that overdraft facilities in this part of the world may be unavailable yet. Therefore, to avail a customer an overdraft without an interest element is based solely on the banks discretion and subject to ACE approval.
13. How can NIB avoid money laundering and other illegal activities?
NIB will adopt generic CBN guidelines in this regard, thus due diligence will be strictly carried out before accounts are opened while inherent and residual risk will be properly mitigated. This due diligence will be an ongoing procedure throughout.
14. How will NIB generate income to meet up its financial obligations?
Non-interest banks do not give or receive interest but engages in variation of partnership deals and share profits/loss with customers. They are into trading or sales transactions where they make a spread from the markup on such deals. They do leasing contracts and get rentals from asset leased out to customers. Furthermore, they also engage in other financial services and charge fees/commission while they can also participate in financial markets such as the sukuk (Islamic certificates) which will help them generate streams of incomes over a long period.
15. What is a non-interest banking window?
This window practice is when a conventional financial institution also offers NIB services using its existing structures such as head office, channels, staff and other core competencies that already exist in the conventional arm. However, in doing so, it strictly ensures its funds are segregated. This is also based on global best practice and the CBN has laid down strict guidelines in this respect.
16. Why is Sterling Bank offering NIB?
Sterling offers NIB as alternative products and services. It aims to provide service to a segment of the market that has been underserved in the industry due to certain beliefs or constraint. This NIB service is also another means to broaden the alternative financial structure and thus increase the product lines and to reach out to as many customers as possible.
17. Which of Sterling Bank branches offer NIB?
All our branches offer the service. We however designated NIB champions to selected branches. Click here to the Branches
18. How can I get more information about NIB?
Click here to read more about us or call our customer service.
19. Can I approach any Sterling Bank staff for my NIB needs?
Yes, any of our staff will either be able to assist you or direct you to the NIB experts in another branch, the head office, or customer care where you get detail explanation of your inquiry.
20. How will the Sterling NIB ensure that my fund does not mix with Sterling Bank’s conventional fund?
A major prerequisite for CBN to grant NIB license is absolute account separation. This means there is a different vault on the system that separate NIB funds. This does not refer to the physical cash but the accounting entries. In essence, funds or deposits collected on the basis of NIB are only used to create NIB investments while the Advisory Committee of Experts approves the product and processes.
21. What kind of service do I get under NIB?
NIB can offer virtually all financial services as the conventional banks do. The main difference is the ‘processes’ of such service. NIB is only an alternative which finds its guiding principles in Islamic commercial jurisprudence. It adheres to certain rules, standards and regulations specifically to its nature.
22. How do I confirm that the products offered in Sterling NIB conform to the rules of Islamic commercial jurisprudence?
It is a global best practice that scholars who are sound in ‘fiqh muamalat’ (Islamic commercial jurisprudence) approve all NIB product, process, technology, marketing materials including this FAQ aside many other functions as captured in the CBN ACE guidelines. The CBN on the other hand approves members of ACE; the product mechanism; the technology provider and architecture; NIB staff running the business; and any other resource required to achieve sincere non-interest banking practice in Nigeria. Furthermore all NIB products and services are certified by the ACE and approved by the CBN.
Who are the members of the Advisory Committee of Experts in Sterling Bank?
1. Sheikh Abdulkader Thomas (BA [Arabic & Islamic Studies, Chicago],MALD [Fletcher]) – President & CEO, SHAPE Knowledge Services – USA 2. Abdurraheem Ahmad Sayi, (LL.B Comb. Hons - Common and Islamic Law), UDUS, Qadi, Lagos State Independent Shariah Panel and Chief Imam Lekki Muslim Ummah 3. Sheikh Muhammed Musa Abubakar (LLB Shariah, Riyadh, MA,(CIFP), PhD In-view) – Shariah Advisor & Consultant –SHAPE Knowledge Services – USA, resident in Nigeria