CBN introduces intra-day, overnight liquidity for non-interest banks

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8 years ago

THE Central Bank of Nigeria (CBN), on Thursday introduced two financial instruments for intra-day and overnight liquidity for Non-Interest Financial Institutions (NIFI).

The instruments aimed at liquidity management and deepening of the financial system are known as: “Funding for Liquidity Facility (FfLF)” and “Intra-Day Facility (IDF).”

A circular available on its website and signed by CBN’s Director, Financial Markets, DrAlvanIkoku states that under FfLF, the apex bank shall provide liquidity facility on overnight basis only, and to be terminated on next business day.

Also, under the IDF, CBN will provide facility for settlement, the same business day.

According to the apex financial institution, under the two windows, authorised NIFI’s shall provide securities as collateral and the value of such securities shall be a minimum of 110 per cent of the facility.

The circular read in part, “CBN shall specify acceptable collateral from time to time. These include, but not limited to the following security (ies): CBN Safe Custody Account (CSCA) Deposit; CBN Non-Interest Note, CBN Asset backed security (CBN-ABS); sukuk that has received liquidity from CBN,” among others.

Explaining the rationale for this facility, Dr AbdulqadirAbikan, an Islamic banking and finance expert said it is to guard against mismanagement of funds borrowed.

According to him, though, no interest is chargeable, any NIFI that avails itself of the facility shall equally ask any of its borrowers to provide a collateral that is commensurate to the amount of money borrowed, so as to enable the bank fulfil its obligation to CBN.

He said the major benefit of this and other Islamic banking products is that it is based on profit sharing between the borrower and the lender.

“I call Islamic banking the new global financial order. It is the new sustainable financial window,” Abikan stated on the side-lines of a one-day sensitisation workshop on the Fundamentals of Islamic Economics, Banking and Finance for working journalists in Lagos on Thursday.