Despite the controversies that trailed the take-off of Jaiz Bank PLC in Nigeria, its Managing Director/Chief Executive, Hassan Usman, said the bank has not only overcome most of its infancy challenges, but has also made tremendous strides within its short period of existence which gives its investors the confidence that its model of banking has come to stay in Nigeria.
Mr. Usman spoke with PREMIUM TIMES’ Bassey Udo in his office in Abuja.
PT: Jaiz Bank came a few years ago with a new concept of banking in Nigeria. How is the experience so far?
USMAN: So far, so good. Remember, we started with a share capital of about N5billion in 2012. Today, our shareholders are all over the country and cut across all religious divides. When we did our initial public offer, IPO, in 2003, we had more than 20,000 shareholders. So, from N5 billion in 2012, our share capital has grown to about N15 billion today.
We had only three branches in 2012. Today, we have about 30 branches. We started with one customer. Today, we have over 100,000 active customers.
In our first year of operation, we had a deposit of less than N3.5 billion. Today, we have a deposit of over N60 billion. Our balance sheet has been growing. The major indices of our balance sheet have been growing at an average of about 30 per cent since 2012.
We believe that the product has proved itself to be sustainable. As a financial model, we are gaining acceptability. It is clear the model has come to stay.
We started as a regional bank. Today, we have national franchise, with branches in south-west and south-south parts of the country. We are opening more branches in other parts of the country away from our traditional locations.
On the whole, I think that while there are challenges, like any growing institution, we are very positive about our growth trajectory as well as sustainable operation through the concept.
It also confirms what has been happening in other parts of the world with this type of product –non-interest banking.
PT: What about the fears often expressed that Islamic banking was meant to serve a religious purpose or interest?
USMAN: No, that’s a wrong notion about Jaiz Bank represents. We are the face of a new concept in banking. One important information we will continue to emphasize is that this product is not a religious product. It is open and available to all, irrespective of their faith or religion. It is a mode of financing that tries to address human needs directly by providing goods and services on a payment basis different from conventional banking that we know.
Literarily, that is what non-interest or Islamic banking is doing anywhere in the world. It is about providing financing to people who cannot afford to buy directly with their own resources at a time.
So, rather than give money, we provide the services and goods people are looking for to meet their consumption needs or businesses. We have seen from our operations so far that all manner of persons do come to us and we do business with them. This, I believe, is what we have been doing.
PT: Jaiz Bank appears to be making so much progress within so short a time in existence. We learnt you’ve just got listed on the Nigerian Stock Exchange, NSE. What do hope to benefit from that exercise?
USMAN: I mentioned earlier that in 2003, we went to the market. Then the regulators were gracious enough to allow us do the initial public offer without a track record. We were new in the market. Part of the promise we made then was that after three, four five years of sustainable operations, we will list in the stock market.
Today, we are more than 20,000 shareholders. By any standards, we are making sustainable progress. Many of the people are our retail shareholders who have held our shares for at least ten years. So, we wanted to, first, live up to our promise, and secondly to create a market for them, if they needed liquidity to boost their shares.
Again, we are encouraged to go to the market, because we want the bank, at the early stage, to have the discipline that is associated with opening up the institution and being very transparent in our operations.
We don’t want to be exposed to the bad habits associated with the conventional banks. We know that when we do this we will be creating additional value to our stakeholders.
It’s to bring our services closer to the people and to ensure that everyone around the globe is able to access our platform to be a shareholder.
It will enhance our visibility and marketability, and for everyone around the world to see us as a serious organization that anybody can access our shares, which are open to all Nigerians, both internally and in the Diaspora.
PT: The story of Jaiz Bank cannot be all rosy without challenges you had to overcome. What were they?
USMAN: There were the start off challenges the bank had to grapple with. They were many. But, the most important was that of lack of awareness, not only among the public about the brand of banking we were practicing, but also among our stakeholders, including the regulators, the investing public, customers and the general public.
The good thing is that some of these awareness issues have, to a large extent, been overcome. Now people have come to terms that non-interest or Islamic banking is not about the creed or religion, but just a way of delivering financial services in a different way to accommodate or diversify the financial system.
However, there is still the residual issues about the specifics of the product. Even those who were clamouring for non-interest banking did not understand the full import of it.
Many thought it was like charity service. A great number of potential customers did not understand how this product was going to operate and how it differed from conventional banking.
In fact, those who were thinking that it would be like a charity organisation or semi-charity organisation, when they found out that they have to pay for the service, said they thought otherwise.
To some it was a bit of rude shock that they would have to pay for the service. But, the truth is that if customers don’t pay for the service, there would not be an organisation that would be sustainable.
So, we have a responsibility to always explain to these people that our model of banking is only another vehicle to deliver service, but the delivering channel or purpose of the organization remains the same. The truth is that Islamic bank is an organisation set up to make profit, sustain itself and support such profit for stakeholders, to enable them have value for their investment.
The other challenge has to do with the regulatory awareness. This too has largely been overcome. But, there are still few challenges that we are still living with. One of it is the creation of the enabling environment, particularly the provision of the infrastructure for non-interest banking, which is still at its very infancy stage.
For instance, we do not have the liquidity instruments to put our excess value, or manage our liquidity growth. Conventional banks take deposits from customers and immediately invest same into treasury bills, bonds, or give it overnight to other counter-parties in the financial system.
The non-interest bank does not have that infrastructure yet. Yes, the Minister of Finance promised last year for the first Sukuk in the first quarter of this year. It is still in the works. First quarter ended a few days ago. We have not gotten there yet. We still hope that, God willing, this will happen anytime soon. But, it is a big challenge for a financial institution such as ours.
Imagine, if you collect all the deposits, before you invested or given facility in conventional banking, it is not something you do with your eyes closed, just like that. It is a counter-party or individuals who is investing in an instrument that is already known or qualified or graded. If you meet Mr. A, you have to treat him differently from the way you treat Mr. B. You can’t give the money like that. This is the challenge we still continue to face.
The other challenge, which is still residual to the fact that we are very new to this environment, is that we still do not have many trained practitioners. The quality and quantity of trained manpower is still a big challenge.
But, there is no institution without its peculiar challenges. We are grappling with our own. The industry has very high returns on investment because of all these challenges. How successful you are is when you are able to bring those challenges to bear and overcome them.
PT: The Nigerian economy generally is grappling with the impact of foreign exchange crisis. The conventional banks are feeling the heat. What impact does this have on the operations of Islamic bank?
USMAN: The foreign exchange crisis is a global problem. As a financial institution, foreign exchange is important to us for two reasons: One, to make money from selling it, and two, for our counter-parties and customers who depend heavily on it to pay school fees, medical bills or travelling expenses for holiday, manufacturing or importation of heavy materials and equipment to expand their businesses.
In each of these needs, customers are being affected. If they do not get the foreign exchange allocation on time, the bank’s exposure to them would be affected. So, the foreign exchange problem that we have, especially in 2016, is inter-twined, and has really affected our operations.
I hope and pray that with the current interventions of the CBN, we will never see 2016 in our lives again. As a bank, we have our peculiarity, and I believe our age in the financial system was an advantage to us. Some of the products that conventional banks go to get those types of exposures, we do not go into them.
So, we do not have any shock positon in dollars, because we are not borrowing in dollars like the conventional banks. We are also not financing our projects in dollars. So, we do not have those exposures like the other of our sister institutions.
PT: One problem conventional banks are having has been the high incidence of non-performing loans. Is it the same story with non-interest bank?
USMAN: Again, our age is an advantage here. Most of the major problem areas that conventional banks venture into and encounter problems, we do not have such exposures, because of our size.
Even though we are part of this economy, we know that if we were in those sectors, we would be having the same problems like the conventional banks. But, because we are not heavily exposed to oil business financing (offshore and downstream). We don’t have significant exposure to those very difficult areas. Our balance sheet is heavy with the assets we created in the real estate area.
The worst case scenario is, like Nigeria has a deficit of about 17 million houses, most Nigerians are in need of a house. In the short to medium term, I don’t see that as a major issue for our bank, looking at the size.
In 2016, which was a really bad year, if you were doing business with counter-parties, you would have some delays in debt-servicing. But, we are not doing that in Nigeria. We are not financing businesses. I am sure customers were having issues in debt servicing. But we are within tolerable limits.
PT: What is happening with your plans to issue your first Sukuk?
USMAN: The history of Sukuk in Nigeria dates back to about 2014 when Osun State issued the first Sukuk. It was a sub-national Sukuk. It did not have the attraction, even though it was very successful, as it is still being traded. Because it is small, it is not available.
If one wants to buy 100 million of Osun state Sukuk now, it would be difficult. The rate of return was good. Everyone bought because of the return on investment, and they are paying, in spite of the difficulties the economy is facing.
The structure of the Sukuk was excellently made, with all the credit enhancement, which made default almost zero, even though it was sub-national Sukuk.
The next Sukuk we are expecting will be like the sub-urban, which will be the benchmark for the national bond or treasury bills.
From the Sukuk, the CBN can create a treasury bill that we can invest in. This is the responsibility of the Ministry of Finance, in conjunction with the Debt Management Office. We have passed the stage of their acceptability.
We are working on it. The Ministry of Finance promised us first quarter of this year. You know it is not always the case that these deadlines are met. They are at the stage of appointing parties. They are also looking for projects. I’m sure you know that Sukuk is not a paper instrument like bond. It has to be backed with specific asset. So, they are choosing the projects.
We keep telling the policy makers that Sukuk is superior to a bond, because there is no way you can divert the money. They would have to go straight to those specific projects, which is basis for which the Sukuk can generate income. So, people would have to invest the money in those projects.
As a special purpose vehicle, whose responsibility it is to take care of its investors, it is like a trust, they are responsible to take care of those who invested, to ensure that the project was done. It is from the project that one can generate returns for investors.
In this case, one is sure to finish the project, even if, like in a conventional bank situation, the money is not diverted. In a Sukuk, it would be ensured that the project is done, so that Sukuk holders would start to generate revenues therefrom. One can see and feel the project. And those who invest would know it is part of their money.
We hope the Ministry of Finance and the Debt Management Office, DMO, will fast track the process so that before the conclusion of the new quarter we will have the Sukuk in the market.
Sukuk is a little different from bond. It is more of an equity than debts. Sukuk holders are mobile shareholders in the project. It is important for the country to have sub-urban Sukuk, so that we can open up the country to investments from countries like the Middle East and all those countries that would not come in and invest in bond, because of their faith or other reasons.
PT: You said you hope we will never see 2016 again in our lives. What’s your outlook for 2017?
USMAN: I think 2017, from the beginning, looks much better than 2016. We see that 2017 is going to be much better. The activities we have so far recorded show that 2017 will be better than 2016. If some of the policies of the Central Bank of Nigeria, CBN, are maintained, in terms of availability of foreign exchange, as well as if government is spending on revamping and maintaining infrastructure, and if the power situation is gradually improved upon.
Again, if the international price for crude oil improves or is maintained at a minimum of $50 per barrel, I believe 2017 will not only be great, but a good year for the economy.