Interest-Free Banking in a Dual Monetary System: An Institutional Analysis of Nigeria with Comparative Insights from Malaysia

Nigeria combines a large potential market for non-interest finance with a sector that accounted for only 1.1 percent of banking-system assets at the end of 2023. This study examines the institutional conditions shaping interest-free banking in Nigeria and draws comparative insights from Malaysia. It uses a mixed-method institutional design combining documentary analysis, an expert survey of 109 respondents, semi-structured interviews with a 20-person sub-sample, and descriptive financial evidence from Nigerian non-interest financial institutions and Malaysian Islamic banks. The expert assessment yields an overall institutional-quality score of 2.56/5.00, classified as Weak. Islamic capital-market infrastructure records the lowest score (2.18), followed by Sharia governance (2.52), while the legal and regulatory framework (2.68) and human capital/public awareness (2.84) fall within the Moderate band but remain below the neutral scale point of 3.0. Interview and documentary evidence identify recurring constraints in legal specificity, Sharia-governance coordination, liquidity-management infrastructure, capital-market depth, specialist human capital, and public awareness. Descriptive comparison with Malaysia is consistent with the proposition that mature complementary institutions are associated with stronger Islamic-banking performance, although the study does not claim causal identification. The findings support a sequenced reform agenda centred on legal clarity, governance coherence, liquidity and capital-market infrastructure, consumer protection and institutional capacity. The article contributes an empirically grounded institutional critique while distinguishing verified survey and documentary findings from statistical claims that cannot be independently reproduced from the surviving research files.

interest-free banking; institutional economics; dual monetary system; financial inclusion; Sharia governance

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