1.1 Background to the Study

Non- interest banking otherwise or also known as Islamic banking is one which raised a lot of fumes in Nigeria and the world over. It usefulness as well as its religiosity raised a lot of controversy. Some have seen it as a good way of banking while others have given it a dismissal attitude. If this is so, we would like to know what this system of banking entails and weather it is useful to the society and the world at large. In doing so, it raises a question in our mind. That is, ‘what is non- interest banking?’

Non-interest banking or Islamic banking is a banking activity that is consistent with principles of sharia and its practical application through the development of Islamic economics. Also according to Charles M. Hudwick, in his book Banking evolution, 2008, pg.205, Islamic banking refers to a banking activity or a system of banking that is in consonance with basic principles of Islamic sharia (rules and values set by Islam).

Furthermore, as defined by Abdul Gafoor in his book titled ‘interest-free commercial banking’, 1995, Islamic banking is a banking system which is based and propelled by the sharia. Nothing is done by a non-interest bank without reference to the sharia and the Quran.

Banks play a crucial role in the modern economy essentially. They perform some important functions in society and significantly influence the distribution of income, the level of economic activity and even the level of cost in a country positively. The function of financial institutions in economic development cannot be overemphasized considering the evidence from the current empirical studies, which suggest that broader, deeper, and better-functioning financial system can enhance higher economic development which is highly necessary and desirable for Muslim country’ economics (International Center for Education in Islamic Finance, INCEIF, 2006).

In 2008, the central bank of Nigeria (CBN) asserted that the poverty has been a recurring problem in Nigeria since the declared that 70% of Nigeria’s population of well over 150million is not only unbanked, but also lives below the poverty line. In view of this, successive Nigerian governments over the years have introduced different policies that will facilitate access to finance for all in order to reduce between the have and have not.

Unfortunately, the government’s efforts in that respect have failed due mainly to low income level or lack of awareness about/ or distance from where the services are available. For instance, the CBN long ago have presented micro finance banking in rural and urban settings to cater the needs of non-bankable Nigerians and promote financial inclusion, but still the system ended up being relentless with the problem of low patronage or participation particularly in the northern part of the country. The rejection may be owing to conventional interest based microfinance; its non-compliance with Islamic principles, especially the paying and receipt of interest(riba), which is strongly prohibited under Islamic sharia law (Aliyu,2013). The rise of Islamic banking in Nigeria rooted in 1991 with the promulgation of banks and other financial institutions Acts (BOFIA), which replaced banking Acts of 1969. In 1992, the central bank granted license for Habib Nigeria Bank limited (former bank phb and now keystone bank plc), to offer non-interest banking services on a’ window basis’. In addition, under the governorship of Charles Chukuwuma Soludo, the CBN joined the Islamic development bank (IDB) as a full member and the basic business model of this bank was to provide financial assistance and support on profit sharing, and also the international financial services board (IFSB) as full member. 

The origin of Islamic banking system can be traced back to the advent of Islam when prophet himself carried out trading operations for his wife. The ‘mudarabah’ or Islamic partnerships has been widely appreciated by the Muslim business community for centuries but the concept ‘riba’ or interest has gained very little diligence in regular or day-to-day transactions.

The first model of Islamic banking system came into picture in 1963 in Egypt. Ahmad Al Najjar was the chief founder of this bank and the key features are profit sharing on the non interest based philosophy of the Islamic sharia. These banks were actually more than financial institutions rather than commercial banks as they pay or charge interest on transactions. By the end of 1970, several Islamic banking systems have been established throughout the Muslim world, including the first private commercial bank in Dubai (1975), the Bahrain Islamic bank (1979) and the faisal Islamic bank of Sudan (1977).

The history of Islamic banking in Nigeria is very short and not most individuals regard Islamic banking in Nigeria as having a history due to its young age. However, for the purpose understanding this research, we would give a brief history on Islamic banking in Nigeria. Islamic banking was first introduced in Nigeria by the CBN governor, Sanusi Lamido Sanusi as an alternative to the other forms of banking in Nigeria in the year 2010. He introduced this banking system so as to ensure that the excesses of the commercial banks where checkmated. In 2005, the Nigeria’s central Bank (CBN) approved jaiz Bank’s request to establish non-interest banking. 

Also in 2008, some conventional banks sought CBN license to run non-interest banking window. It is significant to note that by the time of this research the only full-fledged non-interest bank in Nigeria is jaiz bank plc., which on 11th November, 2011, was granted a license from the Nigeria’s central bank, the national banking regulator, to operate as a regional bank. On 6th January, 2012, the institution commences business with offices and branches in Kano, Kaduna, Kwara and Abuja ( The banks ultimate objective is to expand beyond the shore of Nigeria in line with its vision. The bank intends to increase its current share capital base from ₦15 billion (USD $75 million) to ₦25 billion (USD $125 million). This upgrade will enable the bank position itself towards the actualization of its vision of serving the sub Saharan African markets effectively in one of the most thriving sectors of African economy. 

The bank sees absence of sharia compliant liquidity management instruments in the Nigerian money market as a major hurdle to growing earning assets, as only Osun state has been able to issue sharia compliant sukuk bonds as of today.

In the last two decades, the banking sector witnessed the emergence and the development of a new financial industry: The Islamic banking (Goaied, 2015). The Islamic banking system emerged as a competitive and a viable substitute for the conventional banking system. Islamic banking has grown substantially and has become one of the well truly established world’s fastest-growing economic sectors. This industry is characterized by banking operations excluding the use of the interest rate and it is based on underlying fundamental concept of justice as well as sharing risk. 

Economic prosperity means having the money necessary to fill your needs and many of your desires (Taylor hall, 2015). Let’s note that a nation can be economically prosperous as economic prosperity comes from earning sizable amounts of money.   For example, a young broke person is not economically prosperous. After several years at a good job, this young person begins upgrading to a functional car, a nicer apartment or home, a washing machine and dryer, the ability to buy what they want from grocery store, trips to restaurants if they would like, money in savings and investment accounts. They can afford a vacation annually. This person is now economically prosperous. It can have different levels of status (living a middle class life is prosperous, but a yacht and private plane is more prosperous), but overall economic prosperity is having the level of money you need to take care of yourself and family, without the stress of surviving from paycheck to paycheck.

Islamic banking can ensure economic prosperity because of its non-interest nature, this will help in increasing the level of savings and investment as no interest rate is charged thus giving an individual the opportunity to save without the fear interest rate, with the profit and loss sharing ratio the financial status of an individual will increase, this will further lead to economic prosperity. Islamic banking emanated from Islam which discourages concentration of wealth in a few hands thus the Importance of Islamic banking system is to bridge the gap between the rich and the poor by modifying the distribution of wealth and economic resources in favor of less fortunate (Ismail 2010). 

1.2 Statement of the Problem 

There has been much debate over whether the growth of financial intermediation facilitates economic development or if banks expand because of economic development (African development Bank, 2011). Islamic Banking has become ever popular in the last three decades, not only in Arab and Islamic world but also in other parts of the World (Fatai, 2012).

 However, despite over four decades of experience of Islamic banking and finance, the industry has its critics, both Muslim and non-Muslims (African development Bank, 2011). According to Nguena, (2014) Islamic finance products and services are often accused of mimicking those of the conventional financial system, while some criticisms consider the Islamic financial system as window dressing. 

Islamic banking eliminates the barrier between those who save and those who invest, and bring them closer to the real market. that is, it eliminates the barrier between individuals and entrepreneurs. The nature of financial intermediation of Islamic banks significantly defers from conventional banks and it is in harmony with real market and development changes in it. 

The underlying principle of Islamic banks is the principle of justice which is an essential requirement for all kinds of Islamic financing. In profit sharing of a financed project, the financer and the beneficiary share the actual or net profit/loss rather than throwing risk burden only to the investor. The principle of fairness and justice requires that the actual output of such a project should be fairly distributed among two parties. If a financer is expecting a claim on profits of a project, he should also carry a proportional share of the loss of that project.

In contrast with conventional finance methods, Islamic financing is not centered only on credit worthiness and ability to repay the loans and interest, instead the worthiness and profitability of a project are the most important criteria of Islamic financing while the ability to repay the loan is sub segmented under profitability.  

In spite of the growth potential in Islamic banking, studies have shown that several challenges have been facing Islamic financial institutions and Nigeria stands to be faced by such challenges. Eze and Chiejina (2011) identified these challenges to include shortage of experts in Islamic banking, uncertainty in accounting principles involving revenue realization, disclosures of accounting information, accounting basis, valuation, revenue and expense matching to Islamic banks. Thus, the results of Islamic schemes may not be clearly defined, particularly profit and loss shares attributed to depositors (Khan and Bhatti, 2008).

Apart from these financial and accounting issues, there are also issues of knowledge of the people over operations of Islamic banking. According to Brown, Hassan and Skully (2007), many people do not understand Islamic banking; this includes both Muslims and non-Muslims. The fact that sharia boards, which oversee the transactions in relation to the Qur’an, are often at the individual bank level, can lead to many interpretations of what is and what is not a suitable ‘Islamic’ transaction. Other problems include a lack of suitable trained staff able to perform adequate credit analysis on projects, as well as suitable managers, rather than just the owner. Latest technologies as used in conventional banks are often not used by Islamic banks. 

Furthermore, in a study carried out by Iqbal and Molyneux (2005, they found out some challenges facing Islamic banking which they termed ‘unresolved issues’. These include problems of conditions of participation in equity markets, delinquent borrowers and the issue of penalties, indexation, financial engineering, risk management, appropriate legal framework and supportive policies, regulation and supervision, development of a money market, corporate governance, human capital formation. In the Nigerian situation, the problem of policy making and implementation have often been lack of proper communication to the people by the government of the benefits they stand to get from a policy and the methods by which a particular policy is to be implemented. The proposed Islamic (non-interest) banking system may not see the light of the day if not properly communicated to the people before its full implementation. Again, religious-wise, the proposed Islamic non-interest banking will definitely encounter the challenge strict competition and comparison with the existing conventional banks in the country. Their activities will always be viewed and interpreted from religious angle as Nigeria is a highly religious sensitive country. This controversy has already begun.

There is no misgiving that the development of Islamic banking system plays an Important role in an economy as many writers have maintained that the development and the efficiency of such financial system is closely linked to economic growth. They have pointed out various channels through which Islamic banking system affects economic prosperity. Popular amongst such studies are; Goaned (2008); Furqan and Mulyany (2009); Iqbal and Murakhir (2013); Iqbal (1997); Tabash and Dhankar (2014); Abuh and Chowdury (2012) etc. but their works are mainly narrowed to Gulf Cooperation Countries GCC and Asian countries. However, the available literatures to Islamic banking are limited to theoretical components and only few studies to some extent linked economic prosperity with Islamic banking system. Thus, creates a vacuum in the literature. To help in filling this gap, necessitate the need for this study.

1.3 Research Question

The research questions, which would guide this study Is as follows:

1. Does Islamic banking have a significant impact on economic prosperity? 

1.4 Research Hypothesis 

The hypothesis that will guide through this research are:

1. HO: Islamic banking has no significant impact on economic prosperity.

H1: Islamic banking has significant impact on economic prosperity.

1.5 Objectives of the Study

The main objective of this study is to empirically examine the impact of Islamic

 banking on economic prosperity. 

The specific objectives go as follow:

1. To examine the effect of Islamic banking on economic prosperity. 

1.6 Significance of the Study

In trying to justify why the current study is important, it is vital to mention that researchers have found this area of study very important to the development of the socio-economic activities in developing countries and their contributions to economic prosperity in Nigeria. A study of this nature is equally very important because it is going to enlighten the government and public on the role Islamic banking is playing in the economy.

The relevance of the roles played by modern Islamic banking institutions cannot be overlooked. When the objectives of this study are achieved it will go a long way to create awareness about the existence of Islamic banking as well as correct the perceptions of the citizens that have unfounded reservations about the operations of Islamic banking.

The research may help entrepreneurs and managers understand the major role of Islamic banking institutions in financing small scale businesses as well as how to benefit from loans given to them by these institutions. It will also serve as a guide or reference to scholars and writers who need to know more about Islamic banks role in financing small scale businesses.

Most of the previous studies focused on bank credit in general and its impact on the economic growth, other focused on bank credit and its impact on economic fluctuations. This study is considered an addition to the literature related to the subject of credit in general.

1.7 Scope of the Study

Primary data will be used through the use of questionnaire method; this restriction is unavoidable because of non-availability of some data. The questionnaire will be distributed among Jaiz bank officials and some individuals regarding Islamic banking and how it leads to economic prosperity.

1.8 Organization of the Study

This study shall be divided into five chapters. The first chapter provides the background to the subject matter justifying the need for the study. Chapter two presents related literature concerning Islamic banking and economic growth, the empirical, conceptual and theoretical framework. Chapter three presents the research methodology, which includes sources of data, model specification, and estimation techniques etc. while data presentation, analysis and interpretation of regression result were made in chapter four. Concluding, comments in chapter five, reflects on summary, conclusion, recommendations and suggestion for further studies based on findings of the study.




RESEARCHWAP.NET is an online repository for free project topics and research materials, articles and custom writing of research works. We’re an online resource centre that provides a vast database for students to access numerous research project topics and materials. guides and assist Postgraduate, Undergraduate and Final Year Students with well researched and quality project topics, topic ideas, research guides and project materials. We’re reliable and trustworthy, and we really understand what is called “time factor”, that is why we’ve simplified the process so that students can get their research projects ready on time. Our platform provides more educational services, such as hiring a writer, research analysis, and software for computer science research and we also seriously adhere to a timely delivery.


Please feel free to carefully review some written and captured responses from our satisfied clients.

  • "Exceptionally outstanding. Highly recommend for all who wish to have effective and excellent project defence. Easily Accessable, Affordable, Effective and effective."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "I saw this website on facebook page and I did not even bother since I was in a hurry to complete my project. But I am totally amazed that when I visited the website and saw the topic I was looking for and I decided to give a try and now I have received it within an hour after ordering the material. Am grateful guys!"

    Hilary Yusuf, United States International University Africa, Nairobi, Kenya.
  • " is a website I recommend to all student and researchers within and outside the country. The web owners are doing great job and I appreciate them for that. Once again, thank you very much "" and God bless you and your business! ."

    Debby Henry George, Massachusetts Institute of Technology (MIT), Cambridge, USA.
  • "Great User Experience, Nice flows and Superb functionalities.The app is indeed a great tech innovation for greasing the wheels of final year, research and other pedagogical related project works. A trial would definitely convince you."

    Lamilare Valentine, Kwame Nkrumah University, Kumasi, Ghana.
  • "I love what you guys are doing, your material guided me well through my research. Thank you for helping me achieve academic success."

    Sampson, University of Nigeria, Nsukka.
  • " is God-sent! I got good grades in my seminar and project with the help of your service, thank you soooooo much."

    Cynthia, Akwa Ibom State University .
  • "Sorry, it was in my spam folder all along, I should have looked it up properly first. Please keep up the good work, your team is quite commited. Am grateful...I will certainly refer my friends too."

    Elizabeth, Obafemi Awolowo University
  • "Am happy the defense went well, thanks to your articles. I may not be able to express how grateful I am for all your assistance, but on my honour, I owe you guys a good number of referrals. Thank you once again."

    Ali Olanrewaju, Lagos State University.
  • "My Dear Researchwap, initially I never believed one can actually do honest business transactions with Nigerians online until i stumbled into your website. You have broken a new legacy of record as far as am concerned. Keep up the good work!"

    Willie Ekereobong, University of Port Harcourt.
  • "WOW, SO IT'S TRUE??!! I can't believe I got this quality work for just 3k...I thought it was scam ooo. I wouldn't mind if it goes for over 5k, its worth it. Thank you!"

    Theressa, Igbinedion University.
  • "I did not see my project topic on your website so I decided to call your customer care number, the attention I got was epic! I got help from the beginning to the end of my project in just 3 days, they even taught me how to defend my project and I got a 'B' at the end. Thank you so much, infact, I owe my graduating well today to you guys...."

    Joseph, Abia state Polytechnic.
  • "My friend told me about ResearchWap website, I doubted her until I saw her receive her full project in less than 15 miniutes, I tried mine too and got it same, right now, am telling everyone in my school about, no one has to suffer any more writing their project. Thank you for making life easy for me and my fellow students... Keep up the good work"

    Christiana, Landmark University .
  • "I wish I knew you guys when I wrote my first degree project, it took so much time and effort then. Now, with just a click of a button, I got my complete project in less than 15 minutes. You guys are too amazing!."

    Musa, Federal University of Technology Minna
  • "I was scared at first when I saw your website but I decided to risk my last 3k and surprisingly I got my complete project in my email box instantly. This is so nice!!!."

    Ali Obafemi, Ibrahim Badamasi Babangida University, Niger State.
  • To contribute to our success story, send us a feedback or please kindly call 2348037664978.
    Then your comment and contact will be published here also with your consent.

    Thank you for choosing