CHAPTER ONE GENERAL INTRODUCTION
Background to the Study
Nigeria’s financial system is dominated by the universal deposit money banking sub- sector. Generally, it has witnessed significant transformation since banking business started in the country in the mid-nineteenth century. Before the establishment of the Central Bank of Nigeria in 1958, the financial system operated largely, under a Laissez faire system and was characterized by the systemic instability and episodic bank failures.1 The emergence of the Central Bank of Nigeria (CBN) brought about a measure of systemic stability as supervision and regulation were enthroned and efforts were made to ensure that only ‘fit and proper’ persons were granted a banking license.2 Similarly, the specialised financial institutions as well as the insurance and pension fund sub-sectors have remained minor players in the financial system, even after several reforms.
Historically to the Muslims, banks were looked upon as a “sinful place” meant for the rich non-Muslims, because it practiced ‘riba’3 which is prohibited in Islam. Their pessimism and fear was based on the provisions of the Quran, which provides thus;
— they say that trade is like interest (riba), but God hath permitted Trade and forbidden interest (riba)4 At that time, no one, not even Muslims, ever thought that there would one day be such a thing as Islamic banking, Islamic finance and takaful, what more in the next two decades.5 The term takaful comes from the Arabic verb kafal meaning joint guarantee.
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