Islamic banking
Non-Interest banking is an alternative financial service offering which is open to all irrespective of race or religion. It is a profitable growing global phenomenon practiced in nearly 70 countries across the world including the United Kingdom, Canada, United States of America, United Arab Emirate, Malaysia, China, Singapore, South Africa, Kenya and others. Global Banks like HSBC, Citibank, Barclays Bank also offer non-interest banking products and service. Its practice is based on the ethical principles of fairness, transparency and objectivity. Non-Interest banking offers almost all the services of conventional banks.
The difference is that non-interest Islamic banks do not give or receive interest nor finance anything that is potentially harmful and against certain religious practices like alcohol, tobacco and gambling. They also avoid speculation, extreme uncertainty and deceptive trades.
It is estimated that at least 40 per cent of Nigeria’s total population is a captive market for such non-Interest banking services. Many of these people are currently outside the banking sector as ethical banking services were yet to be available around their immediate environment. They are desirous of ethical banking services which provide for socially responsible investment outlets. Non-Interest banking is real-economy oriented and profit and loss sharing arrangement where the mode of financing is mostly on mark-up, rent, leasing and partnership basis.
Enter Jaiz Bank
Jaiz Bank PLC is a national bank and a quoted public company owned by over 26,000 shareholders spread over the six geo-political zones of Nigeria. The Bank’s balance sheet has grown from N12 billion in 2012 to about N62 billion, with asset financing of over N30 billion.
The premier Non-Interest Bank in Nigeria was established on November 11, 2011 on the foundation of 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 and its transformation to a National Bank on the of May 12, 2016 with key presence in all the geopolitical zones of the country.
According to Managing Director, of the bank, Mallam Hassan Usman the workings and offerings of the bank are available to all customers regardless of their religious beliefs and ethnicity.
The first class accounting graduate said though the bank operates based on Islamic tenets which are hinged on ethical and non-interest banking, the bank’s products are open to all Nigerians without religious bias. He further explained that the bank offers products like other commercial banks, but operates on the Islamic business principle of partnership, risk and profit sharing, unlike the interest based operation model of other commercial banks.
“We are the face of a new concept in banking. One important point we will continue to emphasise is that Jaiz Bank products are not religious products. They are open and available to all, irrespective of their faith or religion. We do everything other banks do and we are regulated by the same regulator; The Central Bank of Nigeria. The only thing that separates us from conventional banks is that there are ethical principles which we believe that bank and customers must meet before transacting business. For instance, Jaiz bank will in no way open an account or transact business with a beer-brewing company or a manufacturer that is into pig rearing or gambling business.”
On the bank’s partnership model, Usman explained “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 come to us and we do business with them. This, I believe, is what we have been doing.”
Usman joined Jaiz International in 2005 as a pioneer staff and was a key member of the team that led the process leading to the licensing of Jaiz Bank Plc in 2011. He served as General Manager- Business Development from January 2012 till April 2013 and was Executive Director in charge of Operations and Information Technology prior to his appointment as the Managing Director/CEO in June 2016.
The quoted public company trading on the floor of the Nigerian Stock Exchange (NSE) with a balance sheet size of N152 billion (as at September 31, 2019) from N12 billion in 2012. Financing assets also grew from over N30 billion in 2012 to N138.84 billion (as at September 31, 2019). As at the end of third quarters, Jaiz Bank made a Profit After Tax of N1.25 billion. Other critical parameters such as customer deposits, branch network and profitability have all been growing year-on-year since inception.
The bank makes profits in three different ways, firstly, is buying and selling; meaning it buys an asset and sells at a profit. Note that, Islamic Banks are the only institutions authorised to engage in trade.
Secondly, is through leasing. Under the leasing arrangement, the Bank can for instance, finance a factory’s need for equipment and machineries and then lease out same on rental basis.
Thirdly, is through partnership. Here, it can go into partnership with either an individual or corporate body on a joint venture which is based on a pre-agreed profit and loss sharing formula. Under this arrangement, both parties can jointly contribute capital to a business and then share profit or loss based on agreed ratios.
Islamic Banking is basically a banking system that is based on the principles of profit and loss sharing, and, significantly, the prohibition of the collection and payment of interest. In that sense, it is a true partnership between the bank and its clients where risk is shared according to mutually agreed ratios. For example, instead of providing a facility to finance import, an Islamic Bank will simply buy the product and sell to the importer at a mark-up. It can also go into partnership with a Real Estate developer, build houses, Industrial Estates, etc, and share in the profit according to an agreed proportion.
Financials
To highlight the strong appetite of Nigerians for ethical finance, Jaiz Bank unprecedentedly broke-even just in its third year of operation and graduated from a regional to a national bank with branches increasing from three at the start of operations in 2005, to 39 branches spread across most of the six-geopolitical regions in the country.
The bank recently released its 2019 audited results for the period ended December 31, 2019, declaring a Profit After Tax (PAT) of N2.4 billion. This represents a massive leap of 193 per cent from N834.4m realised 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 31, 2018 to N2.1 billion as at December 31, 2019. Key extracts of the report showed that Gross Income grew by 80 per cent to N13.5 billion as at December 31, 2019 from N7.5 billion in the previous year, while the Bank’s Total Assets also grew by 54 per cent to N167.27 billion from N108.46 billion. Attesting to the increasing public interest in Islamic finance products, earning per share surged up to 8.30 as against 2.83 kobo in 2018, signifying an increase of 193 per cent.
Commenting on the impressive performance, Usman said “the major driving force was the deliberate efforts to satisfy our customers, who were 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.
Meeting point with conventional banks
The business potential for a Non-Interest Bank in Nigeria is enormous as such an institution has long been awaited by a large population of Nigerians from all parts of the country. Jaiz Bank’s strategic business focus is mainly on retail banking although it offers corporate and commercial banking services. The Bank’s retail focus will enable it to service the majority of Nigerians who wish to do away with Riba (Usury) in their daily activities.
Banks can profit from the buying and selling of approved goods and services. The principal means of Islamic finance are based on trading, and it is essential that risk be involved in any trading activity, so banks and financial institutions will trade in sharia-compliant investments with the money deposited by customers, sharing the risks, and the profits between them.
Islamic banks are structured so that they retain a clearly differentiated status between shareholders’ capital and clients’ deposits in order to make sure profits are shared correctly.
Although they cannot charge interest, the banks can profit from helping customers to purchase a property using a ijara or murabaha scheme. With an ijara scheme the bank makes money by charging the customer rent; with a murabaha scheme, a price is agreed at the outset which is more than the market value. This profit is deemed to be a reward for the risk that is assumed by the bank.
Under the interest-based system, deposits are taken as loan from customers to the bank and a fixed return is guaranteed to depositors regardless of the performance of the institution. Islamic bank receives deposits to invest them on behalf of depositors and shareholders, and the profit is shared between depositors and shareholders.
Conventional banks give loans at a fixed rate without any risk on their part while under Islamic banking system; the bank shares the profits & losses from investment and bears the risk of investment.
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