By: Ahmed Mohammed
Date: 7
th November, 2025

INTRODUCTION
We have been instructed to render a legal opinion on how Islamic Law financing mechanisms can be utilized to alleviate or mitigate some of the prevailing inflationary pressures in the Federal Republic of Nigeria.
This opinion examines the legal, economic, and regulatory dimensions of Islamic finance within the Nigerian financial system and considers how the adoption of Sharia-compliant instruments could complement conventional monetary strategies in promoting macroeconomic stability.
Inflation in Nigeria has reached persistently high levels, driven by factors including currency depreciation, excessive money supply growth, cost-push pressures, and limited productive investment.
Given these structural challenges, non-interest and asset-based financing models, as permitted under Islamic law offer alternative mechanisms for monetary and fiscal discipline that could support inflation control and economic resilience.

ISSUES FOR DETERMINATION
1. Whether Islamic Law financing, as recognized under Nigerian law, can play a meaningful role in addressing inflationary trends.
2. What legal and regulatory frameworks currently support the operation of Islamic finance in Nigeria.
3. How specific Islamic financial instruments, such as Sukuk, Murabaha, Ijara, and Mudarabah can be applied to promote real-sector productivity and reduce inflationary pressures.
4. What legal and policy recommendations can enhance the effectiveness of Islamic finance in macroeconomic management.

LEGAL FRAMEWORK FOR ISLAMIC FINANCE IN NIGERIA
Islamic finance has gained statutory recognition and operational legitimacy within Nigeria’s financial system through several key enactments and guidelines, including:
• The Banks and Other Financial Institutions Act (BOFIA) 2020, particularly Sections 9 and 52, which empower the Central Bank of Nigeria (CBN) to regulate and license non-interest financial institutions (NIFIs).
• The Central Bank of Nigeria Guidelines on Non-Interest Financial Institutions (NIFIs) issued in 2011, which define the scope, instruments, and supervisory framework for Islamiccompliant banking.
• The Financial Reporting Council of Nigeria (FRCN) Guidelines adopting Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards for reporting Islamic transactions.
• The Investments and Securities Act (ISA) 2007, which provides for the issuance of Sukuk (Islamic bonds) through the Debt Management Office (DMO).
• Constitutional and Jurisprudential recognition of Islamic Law in Nigeria’s plural legal system, under Sections 6 and 277 of the 1999 Constitution (as amended), empowering Sharia Courts of Appeal to interpret Islamic commercial law in relevant jurisdictions.
Together, these instruments establish a legal foundation for the deployment of Islamic financing models as legitimate tools of fiscal and economic policy.

ANALYSIS: ISLAMIC FINANCING AND INFLATION MANAGEMENT
Islamic finance differs from conventional finance in fundamental respects that are directly relevant to inflation management:

• Asset-Backed and Risk-Sharing Nature Islamic law prohibits riba (interest), gharar (excessive uncertainty), and speculative transactions. Financing is instead tied to tangible assets or productive activities.
  This discourages speculative lending and credit bubbles, common drivers of inflation, and ensures that money supply growth corresponds to real economic output.
• Productive Investment through Sukuk The issuance of Sukuk (Islamic bonds) channels savings into infrastructure, agriculture, and manufacturing projects. Since Sukuk are asset-backed rather than debt-based, they promote long-term
  productivity rather than short-term consumption.
  Nigeria’s previous Sukuk issuances (₦100 billion in 2017, ₦162 billion in 2018, and ₦130 billion in 2020) financed tangible infrastructure like road construction, a non-inflationary form of government spending.
• Reduction in Cost-Push Inflation via Murabaha and Ijara
  Under Murabaha (cost-plus financing) and Ijara (leasing), financing is provided for the acquisition of real assets or commodities, not speculative foreign exchange or consumer credit. This promotes access to capital for small and medium enterprises while discouraging currency speculation, one of the primary contributors to imported inflation in Nigeria.

Fiscal and Monetary Discipline
Because Islamic finance prohibits interest-bearing instruments, it limits the government’s capacity for uncontrolled borrowing through Treasury Bills and Bonds.
Consequently, it enforces fiscal restraint and discourages expansionary monetary policies that lead to inflation. The model thereby complements the Central Bank’s inflation-targeting efforts.

Encouragement of Real-Sector Growth
Through Mudarabah (profit-sharing) and Musharakah (joint venture) structures, Islamic financing links returns to actual business performance. This aligns financial intermediation with real-sector outcomes, boosting production, employment, and supply capacity, all of which help moderate inflation.

COMPARATIVE PERSPECTIVE
Empirical evidence from countries like Malaysia, Indonesia, and Saudi Arabia shows that economies with strong Islamic finance sectors often experience lower volatility in inflation rates.
By contrast, heavily interest-based systems are more prone to speculative capital flows and liquidity shocks. Nigeria’s adoption of similar frameworks through the CBN and DMO could strengthen macroeconomic stability and reduce inflation sensitivity to currency fluctuations.

LEGAL AND POLICY RECOMMENDATIONS

Expansion of Regulatory Support:
The CBN should broaden its Non-Interest Financial Institutions (NIFI) framework to include guidelines for Islamic microfinance banks, agricultural cooperatives, and fintech platforms.
Integration into Monetary Policy:
The Monetary Policy Committee (MPC) should consider Sukuk-based open market operations as part of its liquidity management tools, thereby aligning money creation with real-sector investment.
Tax and Legal Harmonization:
Amendments to the Companies Income Tax Act and Stamp Duties Act as embedded in the signed Consolidated Nigeria Tax Act (NTA), 2025 should ensure parity between Islamic and conventional instruments, eliminating double taxation on asset transfers in Ijara or Murabaha arrangements.
Public-Private Collaboration:
Government infrastructure projects should continue to be financed through sovereign Sukuk, while private sector issuances should be incentivized through listing privileges on the Nigerian Exchange (NGX).
Judicial and Professional Capacity Building:
Sharia scholars, legal practitioners, and judges of Sharia Courts of Appeal should receive continued training in Islamic commercial jurisprudence and finance regulation to strengthen legal enforcement.
Public Awareness and Inclusion:
Broader literacy campaigns are needed to inform Nigerians that Islamic finance is inclusive and non-discriminatory, promoting stability and equity rather than religion-based exclusivity.

CONCLUSION
In our considered opinion, Islamic Law financing presents a credible and legally sustainable mechanism for addressing Nigeria’s inflationary challenges.
Its asset-backed, risk-sharing, and non-speculative principles foster fiscal discipline, productive investment, and real-sector expansion  all critical in curbing inflation.
Nigeria’s existing legal framework under BOFIA 2020, the CBN Guidelines, and the Investments and Securities Act provides sufficient regulatory backing for its mainstream integration into national monetary and fiscal policy.
Accordingly, we recommend that the Federal Government, the Central Bank of Nigeria, and financial market regulators adopt deliberate policies to expand Islamic finance operations as a complementary instrument for sustainable economic stabilization.

Ahmed Abiola Mohammed, Esq.
Partner, Commercial, Contract and Islamic Financing Advisory
Fort Legis Attorneys