The Managing Director, Jaiz Bank Plc, Hassan Usman, in this interview with IFEANYI ONUBA, speaks on the challenges of operating a non-interest bank in Nigeria
It’s been over five years since Jaiz Bank began operation as a full-fledged non-interest bank. How will you describe the journey so far?
We have made a lot of progress since we started operation. We continue to have a balance sheet size that is growing at a minimum of 20 per cent to 25 per cent year on year. Our customer base continues to increase; our branch network continues to expand. I think this time last year, we were about 27 branches. But now, we are 32 and very soon, before the end of the year, God willing, we will be around 40 branches. That is our expectation.
In terms of the reach, therefore, we are looking at doing more branches in the southern part of the country. Last year, we had only two branches in Lagos but we have added two more to make it four. We hope to add a few in the South-West, about two or three branches before the end of the year. In terms of balance sheet growth, it is growing at about 20 per cent per annum. For our size, it is not an excellent performance.
For the big banks, if they grow at five per cent, they are very happy but our growth at 20 per cent, we are not happy because we have not got to the saturation point that we should. Yes, the economy is biting and it could be a reason but we believe that we will do better as we have more presence in the Lagos area.
This is an area we want to leverage more in the coming months and in the coming years to ensure we grow faster than we are doing now. We are not shrinking but we are not growing at the rate we would love to grow.
Under the banking reforms, banks are not permitted to own insurance companies. Is Jaiz Insurance owned by Jaiz Bank?
We don’t have an insurance arm. Under the banking reforms, we cannot own a subsidiary. We have Jaiz Takaful. It’s just our name sake. They are not part of our organisation. It’s neither a subsidiary nor an associate. We don’t own shares in them.
But we have some historical attachment because some of our shareholders floated that company. They are gaining traction. They are all over the country creating awareness and getting new customers on board. That is an area we will see significant growth into the future.
The Nigerian economy has been going through challenging times. To what extent has this affected the operation of Jaiz Bank?
We are not being immune to the challenges of the economy. Just like every household and like every economic actor, we are also facing the same challenges the other actors in the Nigerian economy face.
The nature of our banking also can be impacted once our customers are affected, because we do either profit sharing or we sell to them and since we would be charging them, when they are unable to pay immediately, it will definitely affect our numbers.
We are devising ways and means to address those challenges. We want to ensure that the economic activities of our customers are not unduly affecting the level of our performance. Now, we have also tried during this period to increase the level of deposit significantly.
Our deposit has grown by about 20 per cent over the last one year and our remuneration to our depositors has increased even much more, because we were able to give our depositors almost twice of what we paid the previous period in terms of volume of pay out. Of course, this has also seen an increase in the underlying deposit from those who bring funds to us and get a share of the profit and from those just doing transaction.
You are yet to expand the operation of Jaiz Bank to the South-East. Is it that those from that region have not embraced the non-interest banking concept?
Branch expansion programme is very expensive. Again, you need to create synergy around your branches so that you reduce the overall cost of the branch operation.
If you have just one branch in South-South like we do, that is not very economical. What we are trying to do is to move to a region, get a level of threshold of activities and then you move in. When you set up a branch early, it can cannibalise your performance at the beginning because it takes a while for the branch to break even.
So, what we are doing to ensure effective utilisation of resources is to ensure that we put up a number of branches so that we can consolidate our operation. We know the market is there in the South-East waiting for us. We also interact with them through our channels. We bank people from that part of the country from our existing locations.
Recently, Jaiz Bank secured a $20m facility from Islamic Cooperation for Development to finance Small and Medium Enterprises. What is delaying the disbursement of that fund?
With respect to SME financing line from the Islamic Cooperation for Development, we have finished all the processes. We have lined up a number of customers who are desirous of benefitting from this facility and very soon, we will start to disburse to these customers. We believe that before the end of this year, we would have done most, if not all, of the disbursements of the $20m.
The banking sector is experiencing a high level of non-performing loans and this to some extent is limiting the ability of banks to lend to the real sector. To what extent is this affecting Jaiz Bank?
Non-performing loans remain a major issue in the banking industry. A lot of customers are affected because of the challenges in the economy. They normally will delay in payment. But let me explain how our banking operations, especially financing are; and then compare it to how the conventional banks operate.
If we give you a facility for a 90-day period, so we sell to you and the price is fixed, what a conventional bank will do is to give you an overdraft for the same amount. For us, after 90 days, we don’t have income; we can’t charge you anymore to get income.
But a conventional bank will continue to charge you to get income. If we have an NPL of five per cent; for that kind of customer in a conventional bank, it’ll be ten per cent because they will continue to take that income. We do not overblow our profitability. I’m not saying what they are doing is wrong; I’m just saying that because of the model of what we do, you are not going to have an overheating of the balance sheet.
If you have NPL, the level of provisioning you have to do will significantly be lower. I’ll say that the quality of income is likely to be higher. We don’t compound. NPL is a problem. When it comes to recovery, for us the collateral is not going to be too far from what we have given you because in the first place, we are not going to compound. Unless there is a real deterioration in the economy such that the value of the property is so down, what we have taken as collateral at the time of the facility is going to be very close to what we have as an outstanding in our balance sheet.
So, when it comes to recovery, we are more likely going to recover almost 100 per cent of what we gave out.
How does Jaiz recover outstanding loans in case of default? Do you go to court with your customers who fail to repay their loans?
We try not to go to court with our customers, as much as possible. All our agreements include an arbitration clause which says that you try as much as possible to get out of court ways. But if you are forced to go to court, then it becomes the last resort. But we really don’t want to go to court.
I’m not sure we have gone to court to recover anything. We might have been in court because the customer has taken us to court trying to pre-empt us but court is not our first resort.
The court process could be better improved because the court would give everybody a chance. While the court will like to dispense justice as quickly as possible, the lawyers in there will try to defend their own because that is their responsibility. So, the process is elongated unduly. I think all parties to a litigation could do better by not elongating the process.
The court sometimes are helpless if the parties to a case prolong matters as that is the only option for the defaulters to buy time and look for the money so that their collateral would not go in for it.
Is Jaiz Bank willing to play any role in helping government address infrastructure deficit in Nigeria?
That is a huge one for us at this time. We have seen government raise funds for infrastructural development like roads, through the Sukuk, which we participated actively in. But at individual level, we have not seen many of them coming to us for such.
What we have are normal business people coming to us for facility as they try to manufacture things; people trying to buy and sell, looking for money to buy seeds and pesticides and all that, buying cars, buying fertilizers, daily needs of people. We are open to people with credible transactions to work with our partners across the borders.
How effective is Sukuk Bond in addressing infrastructure challenges?
Advantages of Sukuk can be seen from two angles. First, it is a portfolio diversification for the Federal Government to look at sources in a different manner. Every government tries to diversify its financing sources. So, Sukuk is a variety in the portfolio.
Second, in my view, it is a more disciplined approach in financing infrastructure because it is for specific financing and it allows those who contributed to the funds to be remunerated. If you do a bond, the government can do ways and means and spend that money. Even if they said it’s for infrastructure, it’ll go into a pool and it can be spent and it can be misappropriated.
By nature, Sukuk’s proceeds are to develop infrastructure or anything that it was meant for. It is only when you are operating the infrastructure that you can now remunerate the owners of the funds. You can also not trade in the money until they become an asset because trading in money to add is not allowed under this system that we operate.
That is why a lot of discipline is required in setting it up. There are some guiding rules and principles that have to be respected, including the fact that this money has to be quarantined and used for those specific projects it was designed for.
It is very likely that under similar circumstances, funds generated from Sukuk issuance are more likely to benefit the economy and the nation than funds generated from bonds, especially in our own type of environment where the public finance discipline is not that enshrined in our system.
Copyright PUNCH.
All rights reserved. This material, and other digital content on this website, may not be reproduced, published, broadcast, rewritten or redistributed in whole or in part without prior express written permission from PUNCH.
Contact: [email protected]
