In a bid to enlighten people on the issues of non-interest banking and its benefit, the Managing Director/CEO recently had an interview with business editors in Lagos.
Q: How has it been since you open your doors for banking business?
First of all we thank God Almighty for everything. More so, considering the fact that despite the controversy that heralded the introduction of Non-Interest Bank in Nigeria, Jaiz Bank Plc is now fully operational. Ordinarily, our entry into the Nigerian market should have been occasioned by a grand opening. However, we opened our doors quietly out of respect for the sensitivity of all our people and to make sure that we don’t rock the boat. This is not to say that we’re doing something that is illegal or illegitimate. We started in fact in January when Occupy Nigeria was just happening and also after that, the Kano bombings. As such, we felt that it was not the time to come out with so much noise, so out of respect for Nigerians, we decided to start quietly. So back to your question of how has it been; I would say there are always initial challenges when you start a new venture. Be that as it may, we are already 6 months in operation and I can tell you that we are proud of the progress that we have made in terms of customer deposits, in terms of the number of customers that are coming to us and also in terms of people appreciating and understanding what Non-Interest banking is all about.
Q: Can you expatiate on what Non- Interest banking is all about?
Even though the concept of Non-Interest banking started in the western world, it’s no longer new here. People are embracing it irrespective of their race or affiliations. Answering your question specifically, it is a specialized bank based on the principles of fairness, transparency and objectivity. What do I mean by that? It means there’s nothing like absentee landlord, if you want to benefit from something, you should take some share of responsibility or risk. That is really the basics, I hope you understand that.
The second principle is that when you’re going into a business with somebody, whether it’s an individual or company, you should be fair and objective. Don’t take too much advantage of other people in other words, you have to be fair in your dealings and you don’t gamble with people’s money. These in a nutshell are some of the basic principles of Non-Interest Banking. Today non- interest banking is a global phenomenon practiced all over the world. Britain, United States of America (USA), France, Malaysia, United Arab Emirates, South Africa etc, with a global market size of over $1 trillion. Those of you that are privileged to go to London at Oxford Street you’ll see a commanding presence of Islamic Bank of Britain on Edgeware Road. The first Managing Director of that bank is a Christian and his name is Michael Harlon, he’s an English man and after him, there was there was George I think. If you go to France, they have Non- Interest Banks and it would interest you to know that they don’t hide it like we do here; they call it Islamic banking and its being run by Non – Muslims. Also, if you go to New York, USA, they have what is called Islamic index where people buy and they trade in SUKUK (Islamic Bond) and make money out of it. Actually in Nigeria, both BOFIA and the CBN act gives the Governor of the Central Bank of Nigeria the power to approve us as Islamic Bank if we wanted to use Islamic in our name, but as I said, because of the sensitivities of Nigerians we decided to drop it completely. Our customers, our staff, our vendors, our contractors are diversified meaning they come from different parts of the country. Our shareholders, who started coming on board as far back as 2004/2005, cut across the six geographic zones of Nigeria. Some from the South-South, South- East, South- West, North-Central, North-East, and these shareholders are both big and small from somebody who put in N10, 000.00 to someone who put in more, and that is why we said that look, we know that it’s based on the Islamic principles of Sharia, but then, it’s not an exclusive bank, its open to all. As a matter of fact, we have Pastors and Bishops who are shareholders of the bank.
Q: Are there likely plans of your bank going national?
That is a very good question. Yes there are plans to go national by next year, God’s willing. We held the Annual General Meeting of the Bank on the 4th of July, 2012 where the shareholders approved that we can go to the market and raise an additional N8 Billion new capital that will qualify us to go national under the specialized banking license requirement. Our migration plan is to grow from a Regional bank to a National bank and Sub- Sahara Africa. By then, we will have branches in major commercial cities of all the states of the Federation. Specifically, we would have branches in Lagos, Ibadan, Ilorin, Onistsha, Aba, Nnewi, Enugu, Port Harcourt etc.
Q: So what is the required capital base by the CBN for a specialized National License and how much is your private placement going for?
The capital base for a specialized national banking license as prescribed by the Central Bank of Nigeria (CBN) is N10Billion. By the time we are through with the private placement and have gotten all the necessary Security and Exchange Commission’s (SEC) approval, our capital base will be within N12-N13Billion which is like N2-N3Billion more than the N10billion capital requirement for national license. The good thing is that thank God, we already have commitments for 60 to 70% of what we are shopping for. So we’re appealing to all investors all over Nigeria, the same investors that put their money from the six regional zones to come out and invest now because the price is just N1.15k . We are already adding value and as soon as we are listed in the Nigerian Stock Exchange (NSE) and the expected stability returns, we believe the price will appreciate to about N3. We believe this is possible if we continue to expand our branch network, improve on our service delivery channels i.e. Internet Banking, ATM’s, IT capacity, POS terminals and continue to earn the confidence of the generality of Nigerians.
Q: What would say in simple terms are the benefits of Non-interest Banks to Nigerians?
One, it gives Nigerians an option to conventional interest base banking and by so doing it will deepen and diversify the financial system for the benefits of all. Secondly, it will create employment opportunities. Thirdly, it will attract new skills and thus enhance our human capacity building. Fourthly, it will attract new foreign direct investment (FDI’s). Already, we have the Islamic Development Bank (IDB) which is like the World Bank as an important shareholder and sits on our Board. We are expecting more foreign investors to come on board, God Willing.
Q: Interesting! So how do you make money?
We make money through three basic means. One is through buying and selling or what we call Murabah (Cost-Plus Mark-UP). You see non-interest banks are the only ones who are authorized to engage in trading. Here a customer can approach us with a need to acquire an asset. We will in turn look for that asset that he/she require, purchase it on his behalf and we put our little mark-up (profit) and sell to him/her. If the terms are acceptable to both parties then we enter into a sale contract whereby the customer is given the benefit to conveniently pay on agreed installments. Secondly, is through Leasing or what we call Ijara. Here customers (Individuals or Corporate bodies) approach us based on the need to acquire equipment say a generator for their businesses. Consequently, we will acquire the generator and give to you on lease basis, but you will be paying us rental for the use of the generator also based on agreed terms and conditions. Note that under the lease agreement the leased item is not your property; it is the banks’ property. The third way we make money is through partnership or what we call Musharaka (partnership through profit and loss sharing). How does it work? Let’s say you have a mass of Land somewhere around Lekki in Lagos, but you don’t have the money to develop it. Probably you want to develop block of flats of two bed rooms each which people can afford to buy with ease. In this instance you can come to the bank and enter into a partnership with it. We’ll in turn do our due diligence based on our expertise and risk management policy to establish the actual cost of the project and when we are fully satisfied and have established the cost to be say N1billion, and you have only say N100Million, we’ll then give you about N900Million. So after the completion of the project and we make profit we will then share with you based on agreed profit sharing ratio, which could be either 40:60% in proportion to the level of risk taken or sometimes it can be the other way round where the customer takes 60 and we take 40. For instance if you brought N500 million and the land also belongs to you, we will on the basis of fairness, take 30% of the profit while you the customer will take 70%. This is what I was telling you about earlier that there no absentee landlord in Non-Interest banking, in this case both of us took risk, we put up capital into a business, we were transparent and you took 30% of the profit and we took 70% based on level of risk assumed by each party. However, if there is a loss after the whole thing, then we share the loss according to the capital we put in. In this case, we take 70% of the loss and the Customer takes 30%.
Q: Can you please shed more light on the acquisition of a land or property, especially in a case, where, I want to buy the land and I don’t have the money, you pay 70%, I pay 30% and we develop it together how are we going to share profit?
First, we will not finance you to buy any land, because that will be speculative. What we can do if you have a land and you want to develop it either for personal home use or for business purposes, we can then support you in financing the development through our home financing model or other products as indicated earlier.
Q: Define your banks method of non interest banking?
I think I have explained this earlier, but it is simple, we don’t charge interest and we don’t take interest from our customers. What we do is to engage in productive venture and by so doing we are able to make money through the profit sharing formula, leasing, buying and selling etc.
Q: Coming on board now, especially at this time after the banking reforms, most of these banks are by now we believe, firmly rooted, and you’re now coming in to assert your presence, are you not intimidated by these big banks? In other words, how do you hope to gain your grounds in this market?
I think it is more like the other way round. They are the ones who are intimated by our presence in the Nigerian financial terrain. We believe that the market is big enough for everybody to play in. We are a niche bank and we will continue to perfect our strategies and do what we are set up to do. The most important thing to us is customer satisfaction and the socio-economic development of our country and our people.
Q: To add to that, I think there is a very large market here in Nigeria compared to all those other African countries. Even here in Nigeria there are a lot of people out there, that are still unbanked, there is a lot of to be done to bring them on board. So where do you envision the bank to be in the next 5years?
In the next 5 years like I told you, we want to be a national bank and we believe our customer base will more than triple and multiply compared to where we are now. We also believe that by that time, the ratio between Muslims and Non-Muslims will be at least 50:50. In the next 4 years, we should be seen and respected by most of these banks. They would respect us for our high quality service, specialized products, high ethics and for our professionalism. Simple! Not because of the name that we have.
Q: Tell us more about the products and services you will be offering.
We offer almost all the products and services being offered by the conventional banks. We have our Jaiz Current Account, Jaiz Mudarabah Savings Accounts, Jaiz Auto Finance, Jaiz Home Finance, Jaiz Home Appliances Scheme and more.
Q: Do you have any product for agriculture?
Yes we do, we have for instance,” Sallam” for farmers, where a farmer say a Cocoa farmer can use for financing inputs for his products or a Wheat farmer who wants to grow and sell wheat to the Flour Mills. In this Case for financing his inputs, he will pay us with his products at a fixed price and at a future date. We in turn can sell the products to flour mills or other food and beverage manufactures. We are also exploring how to access the CBN Agricultural Financing scheme.
Q. How do you want to respond to the impression that your Bank is for Muslims only?
Let me use this medium to emphatically tell all Nigerians that Jaiz Bank Plc is not an exclusive club. It is open to all irrespective of race or religion. It is a business. Right now I can confidently tell you that we have Non-Muslims Staff working with the bank, we have Vendors, Contractors, Customers who are Non-Muslims. Recently John and Mohammed submitted bids for supplies with us. After careful evaluation, we decided to give it to John. Both of them have been our suppliers for quite some time, but this time, we felt John deserves it. These are real people and real names, not hypothesis.
Q: You talked about your profit and loss sharing as against the other commercial banks who compound their interest over a period of time and make a lot of margin, This is a grey area for many Nigerians that I want you to clarify, how would you in a short time make profit?
I have explained this earlier. I told you through three areas, one is through buying and selling, second is Leasing and the third one is partnership which is profit and loss sharing. Unfortunately, 99% of people only know about the profit and loss sharing aspect, they forget about the fact that we also actively engage in trading, leasing etc.
Q: How are your deposit base looking out and your projections?
I’ll say significantly we are doing well and given the level of challenges we had, I’ll say that our deposit base and customer are quite significant and growing.
Q: Where do you see your deposit base rising to, in the next 3-5 years?
We’re looking at about N60Billion within the next one to two years.
Q: Let’s look at the recent controversial court pronouncement on your license, what really happened?
First of all on the issue of court pronouncement, we were not joined in the suit; we just read it in the Newspapers like you did. What I can categorically tell our various stakeholders and Nigerians in general is that our operating license has not been revoked and we are fully opened for business. Customers have since then been coming in and out of our branches to transact their banking business, deposit, withdrawals, financing proposals etc. Having said that, on the pronouncement itself, it is important for all of us to know that, the law is in full support of Islamic banking. BOFIA (Banks and other Financial Institutions Act) section 61 contains provision on Non-Interest banking. Furthermore, sections 23, 55 and 59 all re-affirmed the legality of Non- Interest banks. So I can say that the CBN as an Institution and Lamido Sanusi as an individual all acted within the confines of the law. In any case if you go back to history, it started during the time of Alhaji Abdulkadir Ahmed, our Elder Statesman, Mr. Joseph Sanusi, Professor Chukwuma Charles Soludo culminating with Mal Sanusi Lamido Sanusi. So it has been an ongoing process and an idea whose time has come.
Q: What is the insurance coverage of the deposit like? Is there any arrangement that is being applied?
Yes there is. The Nigeria Deposit Insurance Company (NDIC) is finalizing it. Also, the National Insurance Company of Nigeria (NAICOM) is also working on Takaful (Islamic Insurance).
Q: More information about the bank in terms of training of your staff, in meeting up with the standards you have talked about?
We place a lot of emphasis on training. More so, because it is a new and specialized area. We have both local and International Professionals training our people including the Board and Management.
On standards, I’d like to say we will be customer centric bank, led by top notch professionals, IT savvy and value creating institution. I envision a Bank that is highly respected for its ethics, professionalism and Market prowess.