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Protecting the Interest of Profit-Sharing Investment Account Holders in Islamic Banks: The Nigerian Experience

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The Importance of New Technologies and Entrepreneurship in Business Development: In The Context of Economic Diversity in Developing Countries (ICBT 2020)

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 194))

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Abstract

Islamic banks (IBs) have three major sources of funds; from shareholders, transaction deposits and profit-sharing investment account holders (PSIAHs). Shareholders are protected by the IBs’ directors, while transactional deposits are guaranteed by the IBs. PSIAHs have no representation on the banks’ board and their funds are neither guaranteed nor repaid on demand. They rely on the goodwill of the banks’ directors and management to protect their interest and share profit (if any) from the investment of their funds, and could lose part or all their capital if the bank incurs losses. This could lead to moral hazard and agency problem which put the PSIAHs at disadvantage that requires the establishment of policies to protect them. The objective of this paper is to review corporate governance challenges in the management of PSIAHs by IBs and share Nigeria’s experience in the protection of PSIAHs. The paper contributes to literature on deposit practices by IBs which has been reported to be scarce.

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Notes

  1. 1.

    Islamic Banks in Nigeria are referred to as Non-Interest Banks (NIBs) or Non-Interest Financial Institutions (NIFIs) because BOFIA prohibits banks from using any religious affiliation as part of their names.

  2. 2.

    The information is obtained from the financial statement published at Jaiz bank Plc’s website at jaizbankplc.com and from returns submitted by the other three Islamic banks at the CBN EFass platform. The figure was at December 31, 2019.

  3. 3.

    Shariah Supervisory Boards of Islamic banks in Nigeria are called Advisory Committee of Experts (ACE).

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Authors and Affiliations

  1. Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia

    Ya’u Isah, Romzie Rosman & Ashurov Sharofiddin

Authors
  1. Ya’u Isah
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  2. Romzie Rosman
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  3. Ashurov Sharofiddin
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Correspondence to Ya’u Isah .

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Editors and Affiliations

  1. Middle East Technical University-Northern Cyprus Campus, Güzelyurt, Turkey

    Bahaaeddin Alareeni

  2. College of Business and Finance, Ahlia University, Manama, Bahrain

    Allam Hamdan

  3. Middle East Technical University-Northern Cyprus Campus, Güzelyurt, Turkey

    Islam Elgedawy

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Isah, Y., Rosman, R., Sharofiddin, A. (2021). Protecting the Interest of Profit-Sharing Investment Account Holders in Islamic Banks: The Nigerian Experience. In: Alareeni, B., Hamdan, A., Elgedawy, I. (eds) The Importance of New Technologies and Entrepreneurship in Business Development: In The Context of Economic Diversity in Developing Countries. ICBT 2020. Lecture Notes in Networks and Systems, vol 194. Springer, Cham. https://doi.org/10.1007/978-3-030-69221-6_101

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  • DOI: https://doi.org/10.1007/978-3-030-69221-6_101

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