Muhammad Jibrin is the founding MD/CEO of the recently launched Sun Trust Bank and has been around the banking sector for well over two decades of his adult life. Jibrin spoke with Kazeem Sumaina adding that one of the ways government can come of the presentrecession is to spend heavily on such critical infrastructure as power, roads and housing with the SMEs acting as the ultimate engine that drives a growing economy.The excerpts:
With recession on our doorsteps, do you think the country is moving in the right direction?
I am optimistic the country is moving in the right direction, the recession it is currently experiencing notwithstanding. My advice is that the way out is for government to invest heavily on capital projects, like it is done elsewhere, to be able to walk out of the recession. Happily the first and second quarter releases to power, housing and works ministries are aimed at getting the economy back on track. Thank God for the first time thirty percent of our budget is devoted to capital projects expenditure and if you look at allocations on the first and second quarters, a large chunk of the releases is for capital expenditure in the Works, Housing, Power and Transport sectors. And the most critical thing government must spend on is power, we cannot joke with it. Once these things are started, then the small and medium enterprises, the SMEs, the small businesses will now become the engine oil for the growth of the economy.
Agreed these are hard times for the country and they are hard times for everybody, countries go through this process; it didn’t happen overnight. We are in a recession; anywhere in the world, when there is a recession, government must spend its way out of that recession and this government that we have today has tried to put things in place but they need to do more, but more importantly, there are basic things that are required and they have focused on these basics and they have done it very well. One is security because without security you cannot do anything; without peace, you cannot do anything; these are the basic ingredients required in each and every country. You see what is happening in Syria and Libya, these are big countries; you see what is happening in Iraq; without peace an economy is gone. So, don’t take it for granted. I did not live through the first civil war that we’ve experienced in this country, but I have travelled far and wide; I have seen the devastating effect of war in many countries from Rwanda to Gabon to other countries all over Africa and the world at large, without peace, nothing can happen.
We need heavy investment in critical wrought network infrastructure to be able to transport people for commerce; Nigeria and Nigerians are highly enterprising but you need to be able to move people, goods and services from one place to another. An investment in transportation, particularly in road network and railway is very critical; the sad thing is that you need to also invest in Housing because Housing has that ability to have a multiplier effect in creating jobs, ensuring that the GDP is growing; for most countries of the world, on the average Housing accounts for forty percent of their GDP, so government needs to spend heavily in these infrastructure and when they spend their way out, we will get out of the problems.
Nigerians are resilient, the country is resilient, the economy is resilient, we havehad our own share of the bashing and we thank God, we have a very responsible government in place now, but the government needs to take it to the next level, the next stage; they need to do this investment as it is very important and very critical for the economy to grow. Once these things are started, then the small and medium enterprises, the SMEs, the small businesses will now become the engine oil for the growth of the economy and it will start to thrive again.
How is the industry meeting the needs of housing requirements in the country in terms of the United Nations development goal on housing?
Nigeria has not done enough in terms of the global standards set for development in this sector and the biggest challenge like I said in an earlier interview is that there are a lot of legal issues particularly regulatory or policy issues. . We have the national housing policy whose biggest challenge is the land tenure system and no one is addressing the issues seriously. The legislation that is expected to take place was supposed to be passed into a bill by the National Assembly but has been swept under the carpet since 2007. The expected millennium development goal in terms of providing decent and affordable houses will not be available so to speak on a larger scale. Government needs to move forward and make sure those bills are passed into law.
Secondly, private sector participation is central to the growth of the sector. Nigeria today for example, has an estimated shortage of over 16 million houses based on Federal Mortgage Bank of Nigeria figures. But depending on these figures you are looking at the minimum shortage in the sector. Some say 12 million, while some insist on 14 million but even if it is 16 million units a decent home in the country will cost over N15 million given the current inflation figures and a highly devalued naira. N15 million multiplied by 10 million units will sum up to N15 trillion. So there is a huge gap in terms of the housing that is required in this country and the available capital to develop the sector. Now government has the responsibility to make sure that the land is available. Private sector participation has to be there through PMIs, and investors, particularly through long term funding and long term funding can only come from the people who have access to the fund, the Pension Funds.
What can government do to turn around the fortunes of the industry?
In terms of sincerity and the provision of an enabling environment, government has been trying and we have to accept this as a fact. However, players have to take advantage of existing opportunities in the sector though the conditions are stringent but expected in the development of the economy. Addressing the housing sector problem, is the same as addressing the unemployment problem, you address the issue of diversifying the economy’s base away from dependence on the oil sector. Nigeria’s housing crisis is not abating. In the next 15 to 20 years Nigeria cannot close the gap, and therefore the mortgage department of Sun Trust has positioned itself to be able to help close this gap by providing mortgage to millions of Nigerians in need of decent and affordable homes.
How will pension funds assist the PMIs’ demand for long term funding?
It will help by providing funds to bridge the acute shortage in the supply (particularly those targeted at the low income to middle class) of funds for the housing sector. Due to its capital intensive nature, housing development can hardly be financed from the private savings of intending home-owners and real estate developers, without recourse to providers of finance. In the recent past, most homebuilders sought finance from informal sources such as traditional thrift societies, cooperatives, friends or family. These sources generally did not require collaterals, relying more on third party guarantees, peer pressure as well as moral suasion to ensure repayments. However, they generally lacked the size of funds required for large-scale impact and wide coverage, since beneficiaries had to be acquaintances. In addition, new loans could not be made until existing loans had been largely repaid.
How will you describe the market situation now?
There are numerous challenges, but the sector here continues to receive widespread attention with favourable investment opportunities with residential development dominating the activities of the industry, and this is largely due to the significant shortage in urban housing and the corresponding high rents and favourable payment terms for owners who as you and I know demand rent at least one year in advance with a minimum of two years‟ advance payment, for new tenants. Obviously, finance constitutes a major constraint to the development of the sector. Many of the housing corporations in the states and agencies established for housing provision usually source their funds from the money market, the commercial banks, at market determined rates. The effect of this is high cost of housing, which consequently impacts negatively on the hopes of Nigerians to own their houses at affordable prices. It is in the light of the above scenario that maximum advantage of the capital market be explored to provide a steady source of finance to the housing sector on a long-term basis. This can be done through several instruments; the types that Sun Trust Bank offers to its customers. The SMEs your flagship sector if you recall has over the years remained a debatable conversation that has defied that expectation of becoming the engine room or hub of positive change for the industrial sector with the establishment of the National Economic Reconstruction Fund (NERFUND).
So why do you think Sun Trust would make a difference given the game plan it has set for itself? Our inspiration is drawn from the courage to venture into a virgin territory, it is simply a move aimed at doing what no one else has done with significant benefit as the end result and it is not sheer rhetoric. You know someone has to start somewhere and this is what we are doing. NERFUND’s inability to deliver on promise has to do with the absence of the quantum of funding needed to drive the dream. What NERFUND needs is adequate funding to deliver on its own mandate and that is not there; we need to provide that, we need an institution that would understand that segment of the economy, the retail, the small and medium enterprises and actually provide it with the right financial intermediation; that is what we are doing here.
For any people to grow or develop, you need to have access to finance and the engine room to the growth of each and every economy is the small and medium enterprises, yet they are without access to finance. I have seen it; I have lived among them all through my life. We must find an institution that will clearly provide the funding and support of small and medium enterprises. That has always been my passion and this would propel the economic growth of this country, there is no doubt about it. I am confident we would meet our target of growing the bank’s revenue by one billion naira before our next Annual General Meeting and N30 billion in five years with a customer base of 10 million people using other banking agents and network providers to get to those areas where Sun Trust may be physically restricted to operate as a regional bank, to expand our customer base. That is our projection for five years. If this happens as we expect it would, we would have captured a third of the current banking industry number.
Apart from catering to the needs of the SMEs what other cutting edge stands your bank out from the old school? We are part of the tectonic movement in banking, a financial technology based bank with minimum branches. Sun Trust is part of the 21 commercial banks in the country; there are also specialised banks like the non-interest banks like Jaiz, the only one for now and four merchant banks. These are what we call the deposit-money banks and they are categorised into regional, national and international banks. You also have the other financial institutions like the mortgage, micro finance and finance houses. The Nigerian financial system is made up of all these various banks that are working together but once you are a commercial bank you are not restricted to a particular practice unlike say the mortgage banks, which are only focused on mortgage. Sun Trust is a regional financial technology based bank with a capital requirement of N10 billion, though we are in excess of one billion naira. We are operating with minimum staff with branches in Lagos, Abuja and Port-Harcourt covering the South south and South west and of course Abuja where by the law setting us up, we are limited to operate physically.
Our strategy is very clear, we don’t see us increasing our capital, and there is no need for us to have a big capital that we cannot give returns. By implication, we will remain a regional bank for now and what that means is that we cannot physically be in the other regions; we will be everywhere because we are not limited by barriers or by physical locations; technology is not limited physically and therefore whether you are in the South east or in the North, we can easily service your needs.
What is your strategy for attracting the potential 30 million youths left out of banking services?
I said earlier we have 30 million bank accounts only, okay? And we have looked at it and seen that in a population of 180 million, 150 million people are excluded from the banking population. Let’s agree that 50 million of that population is our target; the idea still is to add value to the existing number of the bankable population. Here we are trying to attract or accommodate about 50 million people excluded from having banking services; that is one. Secondly, statistics have shown that of all the transactions executed today, not only in Nigeria but worldwide, more than 90 percent of such transactions are electronic; so it is just this very insignificant ten percent that is being projected to be accommodated in the tectonic banking plan; That was why we were very clear about this policy from day one, which is that any institution that thinks the branch banking is still at the core of its brand network is not ready for the customer of tomorrow. The customer of today is executing 90 percent of his transaction electronically, and we are not even talking of the customer of tomorrow.
Does this mean branch network banking is over?
No, I don’t think so. We will still have physical presence; people need to interact; nobody wants to talk to machines from time to time but when we tried to test our systems, people did come with cheques to cash them and we asked them why they need the cash and they replied they needed to make a withdrawal because someone has given them a cheque and they wanted to pay it into their accounts. I asked them to give me their account details and after giving me the account details, I transferred the money to their accounts immediately and they received their alerts and then thanked me for saving them from some problems. Seriously, this is exactly what we need now and all it takes is to educate the customer.
There will be zero behind-the-counter transactions?
Exactly but there will be one or two such activities even now there are financial technology banks that don’t even have any physical presence. Today, you don’t need to come to SunTrust to open an account, you don’t need to fill a physical form to open an account, all I ask you to do is go to the website, go to the personal banking page of the website and you will be able to fill your account opening form online, submit it online and the next morning you will get your account number, cheque book and data.
What is really is the cutting edge relative to the old banks?
It is a matter of emphasis and reaching out to a larger population because over ninety percent of transactions today are executed electronically. Here at Sun Trust we do not have counter, teller and cashier cubicles. This is because there is no need for them. Any institution that believes that physical branches are at the core of its brand is not prepared for the customer of tomorrow who neither wants to go to the physical branch nor wants to go and carry out a transaction over the counter either in cash or cheque; on the contrary most customers today would rather execute their transactions electronically; at the minimum if they need cash they will go to an ATM. So banking is no longer where you go to today; it is what you do 24/7 and this is at the heart of our philosophy and if you believe in this then there is no need for you to have physical branches.
Our game plan is to drive and deliver banking services using technology, and this is the future of banking. The truth is that quite a large number of the populace has been excluded from having access to financial services, so our target market would continue to be the small and medium enterprises and the retail enterprises. The Nigerian population of about 180 million is growing at an annual growth rate of about three percent; when this is compounded over the next ten years Nigeria would be in the range of 220 to 230 million wand the young people dominating the statistics by over 70 with the potential of doubling its size by 2020; sadly this percentage is excluded from financial services and we are looking at a technologically savvy population that cannot be ignored because they are the future drivers of the Nigerian economy. We believe that we should target the youths as tomorrow’s beneficiaries of the larger network of electronic banking technology.
Where does the retail customer stand with you?
He is the king in our kind of business because retail business is the economy’s engine room for growth. Our target therefore is the retail customer, who is poorly organize whereas when you bring them together in clusters, in cooperatives and in groups they drive the economy in the right direction. We shall provide them credit and when we do the growth process would be on course accommodating every member of the group.