Ja’iz: The exciting future of non-interest banking

For so many reasons, Islamic Banking is growing around the world and growing fast in recent times. It is asserting itself as key player in the global financial system. For instance, in 2011, the Islamic banking worldwide assets grew by 19 percent to $1.3 trillion. Altogether, Islamic banking worldwide increased their profit making by 15 […]

For so many reasons, Islamic Banking is growing around the world and growing fast in recent times. It is asserting itself as key player in the global financial system. For instance, in 2011, the Islamic banking worldwide assets grew by 19 percent to $1.3 trillion. Altogether, Islamic banking worldwide increased their profit making by 15 percent during that period.
Resilience of the Islamic Banks during the credit crunch crises could also be pointed as another reason for not only growth (through increased patronage) but also the increased confidence in the system as viable alternative to the interest-based banking. The case has been made of, for example, the Islamic Bank of Britain which has been operating before the 2008 financial crises, and has attracted over 40,000 customers; HSBC Amanah, the Islamic finance subsidiary of HSBC, has been operating for over ten years in London, focusing mainly on institutional clients and business finance and Alburaq, the Islamic finance subsidiary of Arab Banking Corporation, has become the market leader for shari’ah compliant home finance in the United Kingdom. But none of these institutions has been affected by the global financial crisis.
Another reason could be the growth of the Muslim population and the increasing demand for Sharia compliant banking services. This is true in Western countries (like Britain where the Muslim population has reached about 2 million) as well as the Muslim countries. Growth within the Muslim population throughout the emerging markets of
Middle East and North Africa and Asia (MENA) are key drivers behind increasing demand for Islamic financial service.
If looked at from generally underpenetrated market position Islamic banking has considerable growth opportunities when compared to the more developed economies. The growth of Islamic Banks in the MENA sub-sector of the industry alone is projected to be worth $990bn by 2015, a significant growth story from its 2010 position of $416bn assets. And globally as mature markets press forward with banking reforms; alternative Islamic finance option will feature more prominently. So as the world bade farewell to universal banking model it welcomes non-interest banking one.
Sub-Saharan Africa offers a tempting growth opportunity for Islamic banking. The African states are joining the Islamic banking club. Post Gaddafi Libya is moving towards Sharia compliant banking, Tunisia is mulling Islamic banking regulations, while Kenya is emerging as Islamic Finance gateway of East Africa according to the 2011-2012 World Islamic Banking Competitiveness report. These are all in addition to the more experienced members—Egypt, Sudan and South Africa.  In 2011 Ja’iz Bank, Nigeria’s non-interest bank, opened shop. Several attempts to establish Islamic Bank in Nigeria in the past has met stiff resistance from religious quarters most of it based on ignorance or fear of the unknown or both.
But confidence in the viability of the non-interest banking model in Nigeria is growing by the day. Since it opened shop, Ja’iz has witnessed consistent growth in customer base, assets and branch network. This confidence is accentuated due to the fact that the bank opens its door to both Muslim and Non-Muslim (allaying the fear that Islamic Banking is for Muslims only). It is on record that the first and the third persons to access financing from the bank were of Christian faith and this is not by design.
From a humble start of three branches in 2011, today the bank operates from 10 branches and it is planning to double that number before the end of the year 2013. Jaiz Bank PLC makes profit from three different service offerings. Foremost is trading, which means the bank buys and sells items at a profit. The second method is leasing. This entails supporting entrepreneurs with insufficient capital to, say for example, acquire machinery and pay lease rental to the bank on mutually agreed terms and conditions. The third method is called partnership. If an entrepreneur cannot raise the entire needed fund for his or her business, the bank will come to the rescue through a partnership agreement. Under this arrangement, profit earned therefrom, are shared by both parties based on agreed sharing ratios. Also in the event of loss, it will be shared according to the level of capital contributed by each party.
To me, the prospect of Ja’iz model of Islamic banking lies in the third service offering. The prospect looks brighter if we realize that the loans sharks have long threatened the social and economic life of the Nigerian business community, especially the struggling Small and Medium Enterprises (SMEs). So, the sky is the limit for Ja’iz Bank to grow if it can provide financial assistance to the SMEs, as long as they are not acting like loan sharks too but are striving to protect the struggling entrepreneur from unfair loan contracts.
The future of Non-Interest banking in Nigeria is bright. Ja’iz as the pioneering non-interest based deposit money bank (DMB) is proving a good model to build and test the regulations regarding non-interest banking. For instance, the Central Bank of Nigeria (CBN) has launched Liquidity Management Instruments to assist non-interest banks to be able to manage their liquidity since they cannot put their funds in interest bearing treasury bills, while National Insurance Commission (NAICOM) is in the process of developing an Islamic cooperative kind of insurance called Takaful. 
Similarly, Security and Exchange Commission (SEC), Debt Management Office (DMO), Nigerian Deposit Insurance Corporation (NDIC) and Infrastructure Concessioning and Regulatory Commission are working on how to come up with non-interest based bonds for financing infrastructure.
The credit behind the success of the Ja’iz under this short period goes to its distinguished shareholders, the Board of Directors which is ably chaired by an astute Accountant cum banker in the person of Alhaji Umaru Mutallab, also erstwhile Chairman of First Bank of Nigeria, the regulators who believed in this form of alternative finance and of course, the Management teamed headed by Mr. Mustapha Bintube, a quintessential banker with several years of experience.
Ja’iz cannot afford to fail. It must be well managed for people to have faith in the new system. It must poster cooperation with the Central Bank (CBN) and other regulatory bodies like the Nigerian Deposit Insurance Corporation (NDIC) as it has already started. It must also leverage its association with established Islamic banks to adopt best practices. As Ja’iz leads the way it must sow the seed for other non-interest banks to grow and blossom in Nigeria and future looks excitingly promising.
Hassan can be reached at: [email protected]