Non-interest global assets to hit $3.8tr

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Nigeria’s financial sector is gradually diversifying from its streamlined orthodox banking to the non-interest field which parades huge capital for investors. The Managing Director, TAJBank Limited, Hamid Joda, the latest entrant into Islamic banking in this interview with Group Business Editor, SIMEON EBULU, says the bank will afford Nigerians the funding alternative they’ve been yearning for.

WHAT is the state of non-interest banking in the world today and what informed your decision to go into it?

The non-interest banking industry is currently one of the fastest growing segments of the financial services industry. The industry has global assets of more than $2.4 trillion and a forecast of 7.7 per cent compounded growth per year to reach $3.8 trillion by 2023.

The industry is growing rapidly in Malaysia where non-interest (Islamic) banking assets constitute almost 30 per cent of the entire banking industry, while Jordan and Pakistan have risen to rank among the top 10 countries for non-interest finance. As a matter of fact, London is also fast becoming the global hub of non-interest finance. If you consider all these factors you will agree with me that the non-interest banking sector is in an excellent position and witnessing steady and healthy growth.

If you look at recent developments in the non-interest banking industry in Nigeria, ranging from the successful Sukuk issuances by the Federal Government to the success recorded by current players in the industry coupled with the yearnings of the people for a better banking alternative, you will agree with me that the non-interest banking space has tremendous potential hence my decision and that of my co-founder Sherif Idi, along with other investors to venture into this sector.

Nigeria currently has about 27 banks. What space are you going to cover?

Yes there are about 27 banks in the industry, but we are a unique bank and we’re positioning ourselves in the ethical banking space which Nigerians have been yearning for. We believe there are huge untapped opportunities in the non-interest space. Our model also gives us the opportunity to engage in many business spheres, whether its partnership contracts, sales contracts, leasing, guarantees, ethical wealth management, international trade finance and a range of other offerings. Therefore, our niche is unique in the Nigerian banking market.

When an institution says it would do Islamic banking, is it precluded from doing business with people of other fate?

Our business model is Islamic banking which seeks to promote equity and fairness to all parties in any transaction or relationship. It is open to people of all fate. We do not discriminate against customers on the basis of fate. All customers regardless of their religious beliefs are treated equally and fairly with respect and dignity. Infact, TAJBank is an equal opportunity employer and we don’t discriminate on the basis of fate, tribe or gender in our recruitment process or even in how we treat our staff.

What would be your product offerings?

Our banking model gives us the opportunity to offer a variety of products and services to our customers. First, on the financing side, you have the partnership products where the bank can partner with a customer and go into a business with the aim of sharing the profit or the loss. Second, you have the sale based products, like the Murabaha which is a typical trading arrangement where the bank buys a product and sells to the customer at a mark-up, while the customer pays over a period of time. The cost price and mark-up are disclosed to the customer in a transparent manner.

You also have the lease products where the bank buys a product or service and leases same at a mark-up to the customer. Furthermore, we have the Kafalah products which give us the opportunity to offer bonds and guarantees on behalf of our customers. The trade finance product is also one that we offer and customers can do any kind of international trade finance transaction through the bank.

On the deposit side, we have the Mudarabah or partnership term deposit where customers place their funds with the bank while we use the deposit and share profit with customers based on a pre-agreed sharing ratio. We also have the Qard account which is a current account relationship that attracts zero account maintenance charges. We also have savings accounts variants. By and large, there are several other high value products that we offer our teeming customers.

The incidence of internet fraud is spreading across the globe. How can this vice be curtailed?

Banking today has evolved to become more or less an IT business and a very thin line exists between a bank and a Fintech company. Almost all transactions are internet based and conducted though handheld devices. On the back of this development, fraudsters are always on the prowl to exploit loopholes to penetrate a bank’s firewalls and wreak havoc. This has become a global phenomenon.

One of the remedies (against internet fraud) is investment in internet firewalls and other security devices that curtail the risk. However, the major problem is people risk which relates to acts of connivance or even negligence on the part of staff. To mitigate this risk, banks have to train and retrain staff and watch out for change in lifestyle of staff members because lifestyle changes could signal that a staff is involved in fraudulent activity.

Past experience with the nation’s banking system persuaded the CBN to foreclose family ownership of banks. What is the ownership structure of your bank?

The ownership of TAJBank is diverse. It is owned by Nigerians from all walks of life. The Bank is not family owned.

Do you intent to go public by taking TAJBanK to the capital market?

Yes we will be open to the public investing in TAJBank Limited. However, according to capital market regulations, a company must be in existence for a minimum of five years before listing on the stock exchange. As such it is still early for us to aim for stock market listing.

Nigeria is a large country with 36 states. How do you intend to reach out to your prospective customers?

As you are aware, our license is a regional one with coverage in the North East and North West regions of Nigeria. However, we intend to reach out to all customers in all the corners of Nigeria. It is against this backdrop that we made significant investments in technology to develop a robust agency banking framework, a digital wallet and also customer onboarding through mobile and internet banking channels, as well as a USSD code – *898# which can be used from anywhere in Nigeria. Wherever our customers reside in Nigeria they will be able to open an account and do business with TAJBank.

How are you intending to proceed and compete, given the existence of some big players?

Banking has dramatically changed over the last few years in the sense that today there is a thin line between a bank and a fintech company. Generally, banking is now an information technology business. We at TAJBank are not unmindful of this development hence our significant investment in information technology.

Today’s customers demand nothing less than good service and we are ready to offer them exceptional service. We believe there is a huge gap in service delivery in Nigeria hence our desire to raise the bar in terms of service delivery. This will distinguish us from the rest.

The banking industry used to be the toast of job seekers, both for its good pay and job security, but all that is changing now. What went wrong?

I think the banking industry is still very vibrant and has not lost its allure. The pay is generally competitive and a lot of job seekers are still keen on pursuing a career in the industry. However, owing to recent events including but not limited to the recent recession, a lot of banks have had to downsize their workforce. Hence the industry established a reputation for one with no job security. I am confident that as the economy gathers steam, banks will begin to not only employ Nigerian youths but retain the ones currently employed.

What is your take on accusations that banks are imposing hidden charges on customers for most transactions?

For us as an ethical bank we have no incentive to apply hidden charges because if we do we’ll reverse the income wrongly earned and either credit the customer or take it to charity depending on the circumstance. This will cause untold reputational damage to the bank as such it’s a path we don’t intend to thread.

How best can banks help the economy to grow without injuring customers deposits?

I think this can be achieved if banks work hard to develop safe lending models in high impact areas of the economy like agriculture which has long been neglected. We must commend the laudable initiatives of the CBN on the intervention schemes. For instance, we are currently witnessing a revolution in the rice subsector all attributable to the CBN schemes. What the Central Bank is doing is to provide credit risk guarantee of 50% of the exposure. This has given banks the comfort to lend in hitherto very risky areas.

Banks have been accused of not lending enough to the real sector. What do you think should be done in this respect?

One of the major problems of the real sector in Nigeria is infrastructure. This ranges from lack of basic ingredients for manufacturing including but not limited to power, good road infrastructure, rail network to transport heavy duty goods, insecurity etc. These factors contribute to high mortality of manufacturing companies in Nigeria hence the major reason why some banks are wary of lending to this sector. However, we are seeing a gradual resurgence in the sector especially when you consider recent developments in the rice milling industry. A lot of rice mills have been set up nationwide. With recent developments, I believe banks will begin to take a stronger look at the sector. The CBN has also made effort to ensure banks increase lending in the economy. This was done through the new policy on 65:35 LDR.

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