Usman: More Investment in Infrastructure is Necessary to Grow the Economy


Jaiz Bank Plc is the first and only non-interest financial institution listed on the Nigerian Stock Exchange. The Managing Director/CEO of the bank, Hassan Usman spoke to journalists on non-interest financing, how to grow the economy and other sundry issues. Goddy Egene presents the excerpts:

Jaiz Bank got listed on the Nigerian Stock Exchange (NSE) at time many companies will not want to list their shares let alone your bank that is unique and new. What really gave you that confidence to list the bank?
If you recall when we did the listing, I said we made a promise. We have to look at the history. Jaiz Bank has been a project prior to starting thebusiness of banking in 2012. The first Initial Public Offering (IPO) we did was in 2003. That is almost 15 years ago. This was before the banking consolidation. It was a time when we had more shareholders than many banks because we had more than 20,000 shareholders then. You also have to know that many of those shareholders were people who were just yearning for investments. Some of them were investing in shares for the very first time in their lives and we said look, once we start the bank and the platform gets stablised, we will list so that we can create avenue for them to buy or sell as the case may be.

That is one of the strong reasons for us to list because we have 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 enables Jaiz Bank to reach out to as many investing public as possible in and outside because the Nigerian Stock Exchange (NSE) 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, they have much more stake than local. So that creates 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 will ensure that we are more discipline in-house.

The pressure to meet those requirements will make us to raise the bar of our efficiency level, governance and general compliance more so creating visibility. These were the reasons, even though the market was tough. We are looking at the long run not the short run. We also know that there were pent up demand for people to get cash, there is the likelihood that they will come to the market and because they have been holding this shares for many years, they will look for the opportunity to sell.

Jaiz Bank is the first and only non-interest bank to list on the NSE. That concept is not well understood by most people both customers and investors. Can you educate us more what this Islamic banking is all about. 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. The contract on Islamic banking is tilted towards trading and partnership, while the concept in conventional banking is on loans (giving out money and creating debt which 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 significant 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 asset 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. 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.

You have been talking about partnership with businesses, what is the place of individuals who want to patronise your services and benefit from Islamic banking?
Individuals have their lifestyles to finance. So we finance their lifestyle and this can be household equipment or motor vehicle among others. There is also the need for medical services, education services etc. All of these range of things that an individual needs, we can finance them. But we come in not by giving you the money but by providing the service or providing the commodity on a trade basis with deferred payment. That is the kind of financing that we do – we provide the services. If it is medical for instance, we hire the service of the specialist to provide the surgery and pay for it. We get the service from the specialist and make it available to the patient who is the customer and then he pays us later.

Instead of him going to the hospital and there is no money and the doctor will turn him down, we come in between, buy the service from doctor, add our mark-up, which is what we get for coming in between our customer and the doctor so that he can get his surgery or whatever treatment now, rather than later when he gets the money. So after the treatment, which was facilitated by our coming in, he pays us the money later on agreed term. And similarly, if it is education for the child, we buy the credit hours and he goes through the education now, and then pays us later. And because we are selling a service to him, we earn a profit on it.

It sounds so interesting. But what are you doing to deepen the awareness so that more people can really understand this concept?
Part of the awareness creation is what we are doing now through this interview. You (the media) are the channel through which information is disseminated. We engage as much as possible with the media both print and electronic. We are also, now looking at our strategy for the social media as well. Also, anywhere we go, we engage the locals and tell them how this differs and how advantageous this way of banking is to them and the benefits they stand to gain and the fact that anybody, anywhere is welcome. As you can see, in our bank, we have staff members of different religions. In our customer base also, we have Muslims and Christians. So we do not discriminate. What we look at is what you can bring on the table and we deal with that.

There seems to be an interest from the federal government side in embracing non-interest financing because there is a huge pool of funds out there to tap from. The federal government just issued a Sukuk to raise funds. How do you see this new development and is Jaiz Bank playing any role in this?

Yes, we have been in the forefront. We have been trying to make the government to understand that this form of financing is attractive to the public sector. It provides us an avenue to diversify the way the public infrastructure is developed. And the specific instrument, which is the Sukuk is used world over. In West Africa before now, Senegal had issued it, Gambia has done that, Togo and Ivory Coast have all issued sovereign Sukuk. The beauty of a Sukuk is that unlike a conventional bond that you takeout byways and means, spend it anyhow, the proceeds of Sukuk has to be dedicated to specific projects. For instance, the just concluded N100 billion Federal Government Sukuk is meant for the construction and building of roads across the country.

If those projects are not identified, you cannot raise money for 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 leading to so many abandoned projects. So, we are part of this from the inception.

Talking about reaching out, what are your plans for expansion? Also, what is your communication strategy now that you are a listed bank?
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 model of communication 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 using radio programmes that are aired regularly around the areas we are operating as a regional bank, which is the North west and North east. As we are now a national bank, we have to spread our activities and communication as well. What we are trying to do is to use a mix of radio, TVC, social media, and of cause print media. Anywhere we go, we make sure that we meet with the media community to have interaction with them and they help us to convey the message.

You have investors who have been with you over the years and the bottom-line for them is for you to make profit and declare dividends, what has been your performance and prospects in this regard?
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 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.

Most banks have niche. Does Jaiz Bank have a particular niche market?
By the circumstances of our birth, we have been doing proportionately more commercial banking than retail banking. But we are now moving towards retail banking. With the Sukuk, the infrastructure for us to support that strategy is being put in place. That is to say the urge to do commercial is going to reduce while we concentrate more on retail banking. So this is where we are driving at. We believe that is the frontier because obviously, there is a large potential customer base that we should target at the retail end and that also makes our operations safer and less prone to this seasonal economic circle that is happening and affecting major clients.

One of the issues is the challenging operating environment, how can government assist the banks to reach many unbanked Nigerians that are out there to enhance financial inclusion policy?

One of the most important interventions of government is to ensure that every Nigerian can be identified. This identity thing is very critical. The advantages are so enormous. But our lethargy as a nation to be able to execute it has been a big problem. If you can identify a person, it means you have done 50 per cent of due diligence. The next thing to look out for is whether you will be able to accommodate the level of financing he is asking for. 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 can be able to do some activity or businesses that the bank can support and the economy grows that way.

What is your last message to your stakeholders?

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 create 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 and to all our counter parties.

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 in the rank and file of financial institutions especially 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.