Our mandate

Overview

Deposit Insurance is a government-backed financial guarantee that protects bank depositors from losing their money if a financial institution fails.

It serves as a critical safety net for the economy. By ensuring that depositors can recover their funds up to a set regulatory limit, it maintains public confidence, discourages panic, and prevents widespread bank runs.

Deposit Insurance exists to:

1. Protect depositors from losing their savings
2. Maintain public confidence in the banking system
3. Prevent widespread panic or bank runs
4. Support financial system stability

Without such protection, the failure of one bank could trigger fear across the entire financial system.

Deposit Insurance within the Financial Safety Net

Deposit Insurance operates as part of a broader financial safety net, which includes:

• Prudential regulation and supervision
• A lender of last resort (Central Bank)
• Deposit protection mechanisms

Key Considerations for Effectiveness

For deposit insurance to work effectively, it must:

• Be clearly defined and understood by the public
• Operate within a strong legal and regulatory framework
• Be supported by sound financial and accounting systems
• Align with the structure of the banking system and economic conditions

Overview

The Deposit Insurance Scheme (DIS) is the operational system, legal framework, and governing body that physically manages deposit protection, collects premiums from banks, reimburses depositors during bank failures, monitors banking risks, manages the collective insurance fund, and resolves distressed financial institutions to prevent economic contagion and maintain public confidence.

Core Functions of DIS

• Guarantees deposits up to the legally required limit
• Provides financial and technical assistance to failing or distressed banks
• Partners with the CBN to create and implement policies that promote sound banking practices and fair market competition
• Undertakes any additional measures or activities that the Board deems necessary to achieve the public policy goals of the Corporation

Types of Deposit Protection

Implicit Protection

• Not formally defined
• No formal means of funding the system
• Based on expectations of government intervention
• Creates uncertainty and inconsistency

Explicit Protection (NDIC Model)

• Clearly defined by law
• Funding arrangement
• Specifies coverage limits and rules
• Failure resolution
• Reimbursement of depositor's claim
• Provides transparency and predictability

Moral Hazard and Risk Control

One of the key challenges of deposit insurance is moral hazard, where banks or depositors take excessive risks because they feel protected.

• Strong supervision and regulation
• Risk-based premium assessment
• Corporate governance standards
• Legal enforcement mechanisms

Design Features of the Scheme

Mandate and Powers

• Paybox – focuses only on reimbursing depositors
• Risk Minimizer (NDIC) – includes supervision, intervention, and resolution powers

Membership

• Compulsory membership for system stability
• Promotes broad participation

Coverage

• Defines insured deposits
• Sets limits of protection
• Specifies reimbursement eligibility

Public Awareness

• Regular awareness campaigns
• Clear communication of benefits and limits
• Guidance during bank failures

Key Takeaway

The Deposit Insurance Scheme is not just about compensation—it is a preventive and stabilizing system that supports the entire financial ecosystem.

Overview

The Deposit Insurance Fund (DIF) is the dedicated, government-backed reserve of money used to reimburse bank depositors in the event of bank failure. It is the pool of resources maintained by NDIC to ensure that insured depositors can be reimbursed promptly when a bank fails.

Sources of Funding

• Premium contributions from participating institutions
• Investment income
• Borrowings when necessary
• Special contribution by the participating banks

Classification of Insurance Fund

• Deposit Insurance Fund (DIF): Licensed Deposit Money Banks (DMBs), including commercial and merchant institutions.
• Special Insured Institutions Fund (SIIF): Microfinance Banks (MFBs) and Primary Mortgage Banks (PMBs).
• Non-Interest Deposit Insurance Fund (NIDIF): Full-fledged Non-Interest (Islamic) Banks or non-interest branches/windows operated by conventional commercial banks.
• Non-Interest Special Insured Institutions Fund (NISIF): Islamic or Non-Interest Microfinance Banks (NIMFBs) and specialized window micro-lenders.
• Payment Service Banks Insurance Fund (PSBIF): Payment Service Banks (PSBs), which primarily drive rural financial inclusion via digital and telecom networks.

Uses of the Fund

• Pay insured deposits
• Provide financial assistance to failing banks
• Support resolution processes

Key Insight

Strong funding ensures quick reimbursement, reduced financial disruption, and sustained public trust.

Overview

The Core Principles for Effective Deposit Insurance provide the global standards that guide how deposit insurance systems should be designed, implemented, and operated.

Key Principles

• Clear mandate and governance structure
• Adequate and reliable funding
• Strong legal and regulatory support
• Effective supervision and risk management
• Public awareness and transparency
• Timely reimbursement processes

Why It Matters

• Remains credible
• Operates efficiently
• Adapts to changing financial environments

Overview

The Premium Assessment Rate framework, implemented through the Differential Premium Assessment System (DPAS), determines how insured financial institutions contribute to the deposit insurance fund based on their level of risk.

Why DPAS is Important

• Promotes fairness
• Encourages better risk management
• Protects the insurance fund

How It Works

• Capital adequacy
• Asset quality
• Liquidity levels
• Management practices

Each bank is then classified into a risk category and assigned a premium rate.

Flat Rate vs Risk-Based System

• Flat Rate – Same premium for all banks
• DPAS – Premium varies based on risk

Key Insight

Banks with higher risk exposure contribute more—ensuring system sustainability and fairness.

Overview

International collaboration is a key component of NDIC's strategy for strengthening deposit insurance and enhancing financial system stability.

Key Partnership

• Member of the International Association of Deposit Insurers (IADI)

Benefits of Collaboration

• Access to global best practices
• Knowledge sharing and research
• Capacity building and training

NDIC's Contributions

• Founding member of IADI
• Leadership in Africa Regional Committee
• Hosting international conferences and workshops
• Participation in global research initiatives

Overview

The Framework for the Non-Interest Deposit Insurance Scheme (NIDIS) provides a structured approach for extending deposit protection to financial institutions that operate without interest-based transactions.

Objectives

• Protect depositors in non-interest banks
• Promote financial inclusion
• Ensure fairness across banking systems
• Strengthen financial stability

Coverage

• ₦5,000,000 (commercial banks)
• ₦2,000,000 (microfinance banks)

Eligible Deposits

• Wadi'ah (safe-keeping)
• Qard (loan-based deposits)
• Mudarabah and Musharakah (profit-sharing deposits)

Excluded Deposits

• Insider-related deposits
• Interbank placements
• Borrowings

Funding Structure

• Premium contributions
• Investment income (non-interest compliant)
• Sukuk and other instruments

Failure Resolution Options

• Assisted mergers
• Bridge banks
• Asset purchase
• Direct payout to depositors