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 issu

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 noninterest 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.