CBN Introduces New Liquidity Instruments for Islamic Finance

The Central Bank of Nigeria has introduced three new financial instruments aimed at improving liquidity management within the country’s non-interest financial sector.

This initiative, outlined in a circular dated May 23, 2025, seeks to enhance the adoption and operational efficiency of Islamic finance tools. The newly launched instruments include the Nigerian Non-Interest Financial Institutions’ Master Repurchase Agreement, the CBN Non-Interest Asset-Backed Securities, and the CBN Non-Interest Note.

These tools are designed to standardize market practices, encourage broader participation, and align Nigeria’s Islamic finance framework with global standards.

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The Non-Interest Financial Institutions’ Master Repurchase Agreement serves as a contractual framework to regulate repurchase transactions in Nigeria’s non-interest financial markets.

It provides a structured approach for Islamic financial institutions to manage liquidity while adhering to Shariah principles. By implementing this agreement, the Central Bank aims to establish clear operational guidelines for banks offering Islamic finance services. Historically, non-interest banks in Nigeria have faced challenges in managing short-term liquidity due to limited Shariah-compliant options.

The agreement is expected to facilitate more efficient interbank funding and integrate non-interest financial institutions into the broader monetary system.

Alongside the master repurchase framework, the Central Bank has commenced auctions for two new Islamic liquidity instruments, the CBN Non-Interest Asset-Backed Securities and the CBN Non-Interest Note. The asset-backed securities are tradable financial instruments backed by tangible assets and structured in accordance with Islamic finance principles. They enable Islamic banks to manage excess liquidity while complying with reserve requirements without relying on conventional interest-based mechanisms. The non-interest note is an interest-free loan instrument between the central bank and eligible financial institutions. It complements the asset-backed securities by offering an additional liquidity management tool through periodic auctions. These instruments are expected to provide non-interest banks with a reliable mechanism for liquidity absorption and injection, addressing a longstanding challenge in the sector.

The Central Bank has directed all authorized participants, including full-fledged non-interest banks and conventional banks with Islamic finance windows, to integrate these instruments into their operations. Institutions must adhere to existing regulatory guidelines and ensure compliance with relevant financial frameworks.

Additionally, financial institutions will not be permitted to access the central bank’s discount window on auction days for the asset-backed securities and non-interest notes, reinforcing the separation between Islamic and conventional liquidity operations. For further details, stakeholders are encouraged to review the Revised Guidelines for the Operation of Non-Interest Financial Institutions’ Instruments. Let me know if you need any further refinements.