Lotus Bank: Driving non-interest banking with technology

As non-interest banking gradually gains ground in Nigeria, CHIMA NWOKOJI examines service offerings of the newest licenced non-interest bank.

THE practice of a banking system that prohibits charging of interest but focuses on investment made in the private sector through interest-free financing may still sound new to some people. That system is built on Sharia principles, and the details of how securitisation and conventional insurance issues are handled using the Islamic banking model.

These are what the newest licensed operator, Lotus Bank represents. It is a Non-Interest Nigerian Bank deeply rooted in ethical banking and committed to ethical investing and ethical prosperity.

Although a few other operators are already playing this field in Nigeria, Lotus Bank, according to the promoters, is coming with a touch of technology and experience.

It comes with a commitment to deepening financial inclusion and broadening the array of non-interest products available to the banked, unbanked, and under-banked population.

Non-interest banking is gradually gaining a foothold in Nigeria as regulatory authorities push to broaden the landscape.

For instance, in 2015, the Central Bank of Nigeria (CBN) set up a centralised advisory body that oversees that interest-free banking products in the country conform to sharia principles.

This aided standardisation efforts and in 2016, the Nigeria Deposit Insurance Corporation introduced a Non-Interest Deposit Insurance Scheme for Islamic banks.

Furthermore, in 2017, the CBN also introduced two lender-of-last-resort instruments for the sector; and to support growth, Nigeria’s Securities and Exchange Commission has targeted for the non-interest capital market to contribute at least 25 percent to the overall capital market capitalisation by 2025, as part of their 2015-2025 Master Plan.

All these are meant to take Islamic banking, referred to as ‘non-interest banking’ in Nigeria, from its infancy to maturity.

According to Islamic Financial Services Board data, the total assets of the country’s two fully-fledged Islamic banks reached N214.8 billion ($564 million) at the end of first half 2020, or less than 1percent of total banking industry assets.

Fitch Ratings in January 2021 confirmed that the Islamic finance industry in Nigeria remains nascent and in its early stages of development, but there is potential for growth.

This view is based on Nigeria being the most populous country in Africa, with the fifth-largest Muslim population in the world, along with rising government support for the sector and large financing requirements.

Analysts, therefore, believe that there is still room for investors in the area of specialized non-interest banks to open shop in Nigeria. This explains why the CBN recently granted a non-interest banking licence to Lotus Bank Limited.

A critical component of the newest bank’s mission is the provision of innovative solutions that drive ethical prosperity for all stakeholders. It promises to run on robust digital solutions that provide customers with the convenience of unlimited access to niche services and products.

The sukuk market in Nigeria is in its infancy with its share of the global sukuk market at less than 0.5per cent, according to International Islamic Financial Market’s 2020 sukuk database. Promoters of LOTUS Bank has promised that innovative methods would be applied to increase Nigeria’s share of the global sukuk market.

At a recent seminar series organised by the Chartered Institute of Bankers (CIBN) and Lotus Capital, to sensitise the public on the benefits of Islamic finance & investment products, Prof. Monzer Kahf, Professor of Islamic Finance and Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey explained that, a conventional bond is a promise to repay a loan, Sukuk constitutes partial ownership in a debt (Sukuk Murabaha), asset (Sukuk Al Ijara), project (Sukuk Al Istisna), business (Sukuk Al Musharaka), or investment (Sukuk Al Istithmar)

Management and mission

LOTUS Bank seeks to pursue the mission of creating value and growth for all through digital innovation and best-in-class customer experience for Nigerians.

Non-interest banking is geared towards supporting the real sector and LOTUS Bank aims to improve financial inclusion in the country, applying transparent pricing models as it is the norm in non-interest banking.

The Bank is managed by a team of seasoned professionals and financial experts led by the Managing Director/Chief Executive Officer, Mrs Kafilat Araoye, who has over 25 years of commercial banking experience.

Araoye is quick to point out that LOTUS Bank’s focus and guiding principle is to deliver an alternative option to interest-based banking and to cater to the needs of not just the banked but also the under banked and unbanked population.

With 30 years into banking, Kafilat has expertise in virtually all areas of core banking, with emphasis on International and Domestic Operations, Payments, General Management, Business Development, Risk Management, Human Resources and Strategy.

Founded and chaired by Mrs Hajara Adeola, who is also the founder and managing director of Lotus Capital (the pioneers of non-interest finance in Nigeria), the bank said it was starting its operations on a solid foundation of experienced leadership and a strong advisory council of experts.

The Adeola dynasty is known in the corporate world as having the midas touch in terms of building strong institutions. A perfect example is the Guaranty Trust Bank which Mr. Fola Adeola co-founded with late Tayo Aderinokun and nurtured it to enviable height

Lotus Bank is the first non-interest bank to commence operations from South-west Nigeria with a focus to serve people of all faiths. With its flagship branch located at Victoria Island, Lagos, the bank will open its doors to customers from July 2021.

Prior to founding Lotus Capital, Hajara previously worked with Arthur Anderson Consulting (now Accenture).  She also was a Director at UBS Warburg, heading their London Islamic Finance Desk. Before joining UBS, she was a convertible bond research analyst at BNP Paribas, London, where her primary responsibility was to analyze, write, and publish daily and quarterly research on European convertible bonds. She also at a point was with ARM Investment Managers. Hajara is regarded as the top industry expert in Islamic fund management in Nigeria.

She holds a Master’s Degree in Finance from Durham University, where she specialized in Islamic Finance. She also holds an MBA in International Management from Exeter University and a Bachelor of Science Degree in Pharmacology from King’s College, London. All these experience and expertise will be brought to bear on Lotus Bank’s service delivery.

Value proposition for corporate, retail & SME

With partners whose focus is more on ethical relationships than transactions, Lotus Bank promises to offer a fresher way to bank.

Information obtained from its website read in part: “We are experienced and are passionate about helping you grow and prosper, which is why we’ve created non-interest solutions to satisfy your constantly evolving needs. Explore our products and see what we have to offer.

“We are structured to help your business prosper, so we’ve provided opportunities for businesses to thrive profitably. Take advantage of our range of flexible and non-interest funding options to support your business.

“Our trust in corporate businesses drives us to provide solutions that help them achieve their biggest goals. Take advantage of our suite of bespoke and ethical schemes designed to boost your progress.”

The bank notes bold and new ideas are a testament to the management’s desire to deliver a differentiated customer experience that supports Nigerian businesses and supplies shareholder value.

As a practice, the bank shares in the customer’s risks as well as profits via equity participation. It operates within the principles of Environmental, Social, and Governance (ESG) criteria through the embrace of environmentally and socially conscious practices.

ESG is a set of standards for a company’s operations that socially conscious investors use to screen potential investments.

Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

The Bank does not finance harmful items like guns, tobacco, alcohol, and gambling and does not finance or partner with businesses that are uncertain and involve speculation.

Non-interest banking products

In Equity-Based Contracts, the lender enters Partnership contracts with a fixed sharing ratio between the customer and the bank, based on capital contribution. There are Fee Based Contracts, Bonds & Guarantees.

According to the bank, it enters agency relations where the bank connects investors and customers/business seeking funds. It finances whereby it considers cost and margin . Others are: Agriculture Finance; Forward/Deferred Delivery Contract; Project Financing for Construction and Manufacturing; Lease Based Contracts and Part-fund purchase of assets over time.

In summary, the bank’s products and service offerings will include non-interest business financing, deposit products (current, savings and investment accounts) and personal financing.

Lotus Capital Limited as a springboard to Lotus Bank, is a full-service ethical investment management company specializing in Asset Management, Private Wealth Management, and Financial Advisory services. Lotus Capital is a pioneer in non-interest finance in Nigeria and duly registered with the Securities & Exchange Commission (SEC) as Fund Managers.

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