In this interview with IFEANYI ONUBA, the Managing Director/Chief Executive, Jaiz Bank Plc, Mr. Hassan Usman, speaks on some of the issues affecting the operation of non-interest banking system in Nigeria. Excerpts
Jaiz Bank got listed on the Nigerian Stock Exchange at a time many companies would not want to list their shares. What informed the decision?
Jaiz Bank had been a project prior to starting the business of banking in 2012. The first Initial Public Offering we did was in 2003. That was almost 15 years. This was before the banking consolidation.
So, we said once we start the bank and the platform gets stabilised, we would list so that we could create avenue for them to buy or sell as the case may be. That was one of the strong reasons for us to list because we had to keep our promise.
Secondly, we believe that listing has a number of advantages. It creates not just liquidity for the shares but also a platform to discover the price based on the interaction of demand and supply.
It also enabled Jaiz Bank to reach out to as many people from the investing public as possible in and outside the country because the Nigerian Stock Exchange is internationalised. The shares that are traded are also going international.
In fact, what I hear is that those who own shares from outside, that is foreign portfolio investors, in terms of volume and value, have much more stake than local investors.
So, that created an opportunity for anybody who would like to buy the shares and also an opportunity for us to be more transparent. And because of listing requirements, it would ensure that we are more disciplined in-house.
The pressure to meet those requirements would make us to raise the bar of our efficiency level, governance and general compliance, more so creating visibility.
What really gave you that confidence to list the shares of the bank on the stock exchange?
Following the successful listing of Jaiz Bank’s shares on the stock exchange, what are your plans to expand the it’s operations, having been awarded a national banking licence by the Central Bank of Nigeria?
We started in 2012 with only three branches; one each in Abuja, Kaduna and Kano. Today, we have about 30 branches and these branches cut across at least five out of the six geo-political zones of the country.
We have almost covered every zone of the country with our branch expansion and we are continuing to do so because we believe that we should be in all major commercial centres to start with across the country.
Our communication strategy is to make use of all models of communications to reach out to a community of people who are interested in this mode of banking. They still need to understand what this product is all about.
At the beginning, we concentrated on using radio programmes that were aired regularly around the areas we were operating as a regional bank, which were the North-West and North-East.
As we are now a national bank, we have to spread our activities and communication as well. Anywhere we go, we make sure that we meet with the community to have interaction with them and they help us to convey the message.
The concept of Islamic banking is not well understood by many people. Some see it as a type of banking for only Muslims. Is it open to everybody?
Yes, non-interest or Islamic banking is open to all, irrespective of their religious persuasions. The concept is informed by religion but the operation is not religious. It is not only Islam that propagates non-interest banking; it is equally informed by Christianity and Judaism.
All the three religions talk about impermissibility of charging interest on loan from their roots. The operations and activities of Islamic banking do not discriminate against any religion. The criteria are those for banking.
To what extent is non-interest banking different from conventional banking?
The contract on Islamic banking is tilted towards trading and partnership, while the concept in conventional banking is on loans, which is giving out money and creating debt that can be traded in.
In Islamic financing, you have to deal with real commodities for you to make a return. You can’t just give money to someone and earn a profit on it. You must partake in a commercial and entrepreneur risk to be able to earn income. This is the major difference.
Of course, Islamic finance tends to be more ethical in terms of choice of the type of business to finance. If you take these two differences; that is all you have. That is for non-interest banking; we trade with our partners. We lease assets to them.
We can also jointly finance and share profit or loss as the case may be. In conventional banking, you just give the loan and then you charge a pre-defined rate of interest but in Islamic banking, we take initially business risk and not financial risk.
The financial risk follows subsequently but firstly, you have to take a business risk of buying the commodity and selling it on credit or buying a commodity, or an asset and leasing it. Or if you are very comfortable with a customer, you can invest in his business as a partner and then you share whatever profit or loss.
The Federal Government in a bid to embrace the non-interest financing concept recently issued a N100bn Sukuk bond, which was described as very successful. What role did Jaiz Bank play in the issuance of the bond?
We have been in the forefront because we have been trying to make the government to understand that this form of financing is attractive to the public. It provides us an avenue to diversify the way the public infrastructure is developed. And the specific instrument, which is the Sukuk, is used the world over. In West Africa before now, Senegal had issued it; Gambia had done that; Togo and Ivory Coast had all issued sovereign Sukuk.
The beauty of a Sukuk is that unlike a conventional bond that you take out by ways and means, spend it anyhow, the proceeds of Sukuk bond have to be dedicated to specific projects.
For instance, the just-concluded N100bn Federal Government Sukuk was to construct and build roads across the country. If those projects are not identified, you cannot raise money by Sukuk because Sukuk investors cannot realise any benefit without an underlying asset.
They are investing to earn and for them to earn, those projects have to be identified and financed. If it is construction of railway or airport, they have to be established.
It is the services that those infrastructure will provide that is being sold by the Sukuk holders. So they now get in return the profit that is distributed or the rental that the government has to pay or whoever is using those services or infrastructure.
So the return to Sukuk holder is not interest but it is the rent or profit that is generated from those projects or from leasing of those assets. So Sukuk gives an excellent way to ensure that projects are managed properly, and there is no diversion, which is very rampant in this part of the world and leads to so many abandoned projects. So, we were part of the process from the inception.
One of the main challenges of banks is the high operating cost caused by the harsh business environment; to what extent is this affecting the financial inclusion strategy of your bank?
This is very critical. Of course the issue of insurance, security and other infrastructural challenges such as roads and power are equally there because the small businesses you would like to support, if there is no power, they will just die with your money.
Government needs to support and ensure that enough investment is made in infrastructure to ensure that power problem is sorted out and power is made available to as many Nigerians as possible so that they could be able to do some activity or businesses that the bank can support and the economy grows that way.
There is this argument that non-interest banking concept may not be sustainable in Nigeria owing to its conservatism. Is the current economic situation supportive of this banking model?
I believe that non-interest financing is the fastest-growing sub-sector of the financial system globally. It is growing at an average of 15 to 20 per cent per annum. It is a strong growth area and it is being adopted in major financial centres around the world.
It is a more disciplined way of financing and more conservative. It is more realistic, it is a system that tries to avoid the creation of paper assets. Rather, it creates assets that are supported by reality. It is profitable and it is growing fast.
The evidence can be seen from Jaiz Bank. We have been growing at about 30 per cent per annum over the last five years. So to all our stakeholders, we assure them of the fact that Jaiz Bank is here to stay and also going to be adding greater value to the economy.
The system is quite sustainable; it is supported by the reality of the economy and the specific situation of our commercial transactions. I believe we will achieve our plans and vision, which is to be a clear leader in this sector and to be a very serious contender among banks in Nigeria and sub-Saharan Africa. To those who want to be associated with growth in profitability and sustainability, Jaiz Bank is the way to go.
How has the bank performed in terms of profitability?
The year 2016 was a very difficult year for everybody. But let me say that in the Islamic banking world, Jaiz Bank has done excellently well. We set a record time for break-even. We broke even in 2014 and since then, we have been making profit. We made profit in 2015 and even in 2016 in spite of the difficulty witnessed in the economy.
This year, 2017, looks better because the fundamentals have started to improve and so our performance will follow the trend of improved fundamentals. We hope and believe that based on 2017 financials, we will be able to pay some dividend.