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Ethical banking: Eight years of broken myths

Eight years after its entry into Nigeria’s banking space, non- Interest banking (Islamic banking) pioneered by Jaiz Bank Plc., has been embraced as all creed bank by Nigerians, reports Abdulwahab Isa

Suspicion, fear and outright misgivings, which heralded its foray into banking space a few years ago have changed to embrace and acceptance. Non- interest banking, relatively new banking concept years back, is gaining traction eight years after its foray into Nigeria’s banking space.

Pioneered by Jaiz Bank Plc in 2012, religion phobia erroneously tagged with the concept hasn’t only vanished, the ethical based model banking as of today has been embraced as an all creed bank. Eight years down the line, Islamic banking has broken religion barrier. Non-interest banking transactions are based on tangible assets and real services. It’s an alternative form of banking based on a principle of non-interest, sharing of risk and rewards; equity, fairness and justice.

Ethical banking in view
Islamic finance is a financial system that is based on adherence to the Sharia or Islamic law. It offers services, products and instruments based on compliance to this divine law.
Sharia prohibits payment or acceptance of interest charges (riba) for the lending and accepting of money, as well as carrying out trade and other activities that provide goods or services considered contrary to its principles. Money in Islam is not regarded as an asset from which it is ethically permissible to earn a direct return. Money tends to be viewed purely as a medium of exchange. Interest can lead to injustice and exploitation in society.
The concept of non-interest banking is in two broad categories: Profit-and-loss-sharing (PLS), also called participatory modes, i.e., musharakah and mudarabah; and Purchase and hire of goods or assets and services on a fixed-return basis, i.e., murabaha, istisna, salam and leasing (ijarah).

Pioneer of ethical banking principles
Jaiz was incorporated in April 2003 as Special Purpose Vehicle (SPA) called Jaiz International Plc. Operating license was given to it on 1/11/2011. It commenced full operations in January 2012. Majority doubted its survival in Nigeria given the very delicate nature of religion composition. But the investors assured Nigerians that, is a bank for all, regardless of religion or faith. With initial registration proceeding requirements of regulatory bodies fulfilled, Jaiz Bank birthed in 2012.

The bank was founded on key principles: trust, professionalism and excellence to deliver innovative financial solutions and exceptional customer experience.
It started with a regional license obtained from the Central Bank of Nigeria to operate in the Northern part of the country. Within space of a short time, it transformed to a National Bank on the 12th of May 2016 with key presence in all the geopolitical zones of the country.

And eight years on the banking scene, Jaiz bank joined other genre of banks at the capital market. A publicly quoted firm, trading on the floor of the Nigerian Stock Exchange (NSE), the bank boosts of balance sheet size of N167.27 billion from N12 billion in 2012. Other critical parameters such as customer deposits, branch network and profitability have all been growing year-on-year since inception.
Unlike other financial institutions, the Jaiz bank broke-even in its third year of operation and graduated from a regional to a national bank. Branches increased from three to thirty-nine spread in most of the six-geopolitical regions in the country.

Last year, 2019, the non- interest banking coast expanded in Nigeria with entry of TAJ Bank, Nigeria’s second non-interest financial institution which commenced business from its Abuja head office.
The ethical banking concept not only dovetailed to other finance services, insurance, microfinance bank have embraced , integrated an aspect of ethical principles as part of their products. More and more financial institutions have open non interest finance service windows to cater for their clients.

Some corporate institutions adopted sharia complaint product as a tool for meeting their financial needs. The Federal Government- Debt Management Office (DMO) raised three tranches of sukuk bonds for financing of road infrastructure across the country. Osun state government some years ago raised sukuk bonds to some infrastructure gap of the state. More institutions have embraced sharia complaint products. These include Sterling bank, Taj banks, Lotus Capital, Noor Takaful, Cornerstone and Leadway Insurance Companies, Tijjara Micro finance bank and Stanbic IBTC which recently closed its islamic banking window.
On insurance sub-sector, NAICOM, the sector regulator has grated operating licenses to two takaful insurance firms, bringing to four the number of insurance firms offering takaful insurance.

Outlook
The performance of Jaiz bank plc, pioneer of ethical banking in Nigeria is yardstick for gauging, rating the overall fairing of this genre of bank.

In its recently released 2019 audited results for the period ended December 31st, 2019, Jaiz Bank declared a Profit After Tax (PAT) of N2.4 billion. The figure represents a massive leap of 193 per cent from N834.4 million realized in the corresponding period of 2018. In the report submitted to the Nigerian Stock Exchange (NSE), the Bank declared a 135 per cent growth in Profit Before Tax (PBT) for the period under review from N879.7 million as at December 31st 2018 to N2.1 billion as at December 31st 2019. Key extracts of the report showed that Gross Income grew by 80 per cent to N13.5 billion as at December 31st 2019 from N7.5 billion in the previous year, while the Bank’s Total Assets also grew to N167.27 billion from N108.46 billion. Attesting to the increasing public interest in Islamic finance products, the earning per share of the Bank surged up to 8.30 kobo per share as against 2.83 kobo per share in 2018, signifying an increase of 193%.

Commenting on the impressive performance, the Managing Director/Chief Executive Hassan Usman said “the major driving force was the deliberate efforts to satisfy our customers, who are evident in the significant growth in the deposit base and risk asset portfolio.

” During the year under review, the bank deepened its support for the MSME sector with targeted intervention to meet diverse needs of small-scale bourgeoning entrepreneurs. The bank also invested more on IT infrastructures, improved its E-banking channels that made it easier for customers who prefer to bank on the move than through the mundane visitations to banking halls.

The second player in ethical banking sector, TAJ which commenced operations months ago, is yet to round up business transactions for one year to make its report public.

Challenges
The journey isn’t entirely a soft pleasurable one, free of bump in eight years, no. Typical of every endeavor, non- interest banking encounters some challenges both in their minor and majors. While it may be pertinent to assume that non- interest banking as of today, is rooted and fully integrated in Nigeria banking space, awareness of its existence is still a far cry compare to traditional banking system. . In essence, the promoters of non- interest banking, front line managers at jaiz bank plc and others driving non- interest banking window as alternative banking need extra hard work to deepen its awareness.

The seemingly low awareness about opportunity, economic benefits inherent in non interest finance services amongst substantial segment of Nigeria populace deny a sizable number of citizens the opportunity to reap the benefit.

Managing Director/ CEO of Jaiz Bank Plc, Mallam Hassan Usman at a forum on non-interest banking last year in Abuja itemized other challenges of non- interest banking to include, dearth of man power.

Sharing his hand-on experience as CEO of first non- interest finance institution, Usman said: Being the only one of a kind within the Nigerian financial service eco-system over the past seven years, it has taught us a lot of lessons. Our experience over the years ranged from the good, the bad and something in a between.”

Some challenges of non interest banking pointed out by Jaiz bank MD range from dearth of manpower sufficiently skilled in islamic finance, a challenge he said confronts the bank from inception.
”To get round manpower jinx, “we started with mixture of experienced conventional bankers and fresh graduates.
“Some employees had so much passion for Islamic banking that they sacrificed higher pay elsewhere (i.e. took salary cut) to join the bank, some employees came with the wrong notion that the work environment of an Islamic bank should not be performance driven. Shariah should be lenient (accept mediocrity).
Paying the price as “first mover” through high employee turnover as a result of the entry of new operators into the market”, he said.

Last line
Eight years on, ethical banking principles pioneered by Jaiz Bank Plc has revolutionized Nigeria banking space. It has expanded the bank products available to banks’ customers to choose from. The modest success recorded by Jaiz in terms of depositors base, assets and branch network within eight years is a testament that non interest banking is an all creed bank.

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