CBN Raises Alarm Over Rising Risks In Non-Interest Banking Sector

CBN Raises Alarm Over Rising Risks In Non-Interest Banking Sector

The Central Bank of Nigeria (CBN) has raised fresh concerns over growing risks in the country’s non-interest banking sector, warning that weak governance, regulatory non-compliance, and emerging technology risks could undermine financial stability and erode public confidence if not urgently addressed.

The apex bank said the rapid expansion and increasing complexity of Non-Interest Financial Institutions (NIFIs) have exposed the sector to operational vulnerabilities, governance weaknesses, and heightened exposure to digital and fintech-related risks.

The warning was issued during the second Annual Interactive Session between the CBN Financial Regulation Advisory Council of Experts (FRACE) and the Advisory Committees of Experts (ACE) of Non-Interest Financial Institutions in Abuja.

Represented by the Director of the Financial Policy and Regulation Department, Dr. Rita Ijeoma Sike, the Deputy Governor in charge of Financial System Stability, Mr. Philip Ikeazor, said the risks confronting the sector require stronger oversight, improved compliance, and more effective governance frameworks.

He warned that failure to properly manage these risks could damage the credibility of Nigeria’s growing Islamic finance and non-interest banking system, reduce investor confidence, and weaken the sector’s contribution to financial inclusion.

According to him, the establishment of FRACE and mandatory Advisory Committees of Experts across all non-interest financial institutions was designed to strengthen Shariah governance, ensure regulatory alignment, and promote consistency across the industry.

“The objective is to institutionalise a robust Shariah governance system, provide structured dialogue, and enhance collaboration between regulators and market operators,” Ikeazor said.

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He added that continuous engagement between FRACE and ACE members is essential to ensure institutions fully understand regulatory expectations and implement them effectively across their operations.

The CBN stressed that non-interest banking has become an important part of Nigeria’s financial ecosystem, supporting financial inclusion, funding for MSMEs, real sector development, and ethical investment practices.

However, the bank warned that increasing product sophistication, expansion of service channels, and the rise of Islamic fintech innovations have introduced new risks that must be carefully managed.

These risks, according to the CBN, include weak internal controls, gaps in governance structures, inconsistent Shariah compliance monitoring, and cybersecurity vulnerabilities associated with digital financial services.

In his remarks, the Deputy Chairman of FRACE, Prof. Bashir Aliyu Umar, said the session was aimed at strengthening regulatory coordination and improving governance standards across the non-interest finance industry.

He commended the CBN for reviving the interactive forum, which was first introduced in 2014, noting that it remains a critical platform for dialogue between regulators and industry experts.

Earlier, Dr. Sike reaffirmed the apex bank’s commitment to building a credible, resilient, and well-regulated non-interest financial system capable of supporting sustainable economic growth.

She noted that the increasing diversity of institutions and financial products in the sector makes continuous regulatory engagement and expert advisory input more important than ever.

Technical sessions at the meeting focused on Shariah non-compliance risks, the implications for financial institutions, and the growing role of Islamic fintech in Nigeria’s financial inclusion drive.

Participants also discussed key industry challenges, including capacity gaps, independence of advisory committees, risk management practices, and the need for stronger governance structures to support innovation.

In his closing remarks, Prof. Abdul-Razzaq Alaro urged stakeholders to translate discussions into actionable reforms, stressing that the effectiveness of the session would be measured by improvements in governance and compliance within the sector.

The FRACE framework serves as a bridge between conventional financial regulation and Islamic finance principles, while ACEs provide internal Shariah oversight within individual institutions to ensure compliance with non-interest banking standards.

The CBN reiterated that it will continue to strengthen regulatory supervision, enhance risk monitoring systems, and support the development of a stable and trustworthy non-interest financial services sector in Nigeria.

CBN Raises Alarm Over Rising Risks In Non-Interest Banking Sector