Successful Sukuk issuances increased awareness about non-interest banking
Hamid Joda is a banker with over 20 years banking experience covering Treasury, Business Development, Consumer/Retail Banking, Branch Banking and the Public Sector.
He began his career at Niger Insurance plc in 1999 before moving to City Express Bank Limited, Lagos, and the same year where he held the position of Senior Supervisor. He also worked at Continental Trust Bank Limited, Kano, as a Senior Analyst and at the defunct Oceanic Bank International Nigeria Limited. He was the pioneer Branch Manager of Fidelity Bank plc, Kano, from where he rose to the position of Area Manager in charge of the North East.
His extensive experience led him to First Inland Bank (Finbank plc) Abuja, as Group Head Retail Banking (North), where he later rose to become the Divisional Head, Retail Banking of the bank.
Joda was the Divisional Head, Public Sector, First City Monument Bank (FCMB) Limited. He holds a BSc in Business Administration (Banking & Finance) from the University of Maiduguri and an MBA from Bayero University, Kano. He is also a member of the Chartered Institute of Banking of Nigeria (CIBN), Joda is the founder of TAJBank Limited. He led the team to realise the vision of setting-up of the second non- interest bank in Nigeria. He is also the Chief Operating Officer of the bank.
Hamid Joda, founder/chief operating officer of TAJBank Limited, the latest non-interest bank in Nigeria. He is a banker with over 20 years banking experience covering Treasury, Business Development, Consumer/Retail Banking, Branch Banking and the Public Sector. In this interview with Osa Victor Obayagbona, Joda talks about how the North East and North West regions of Nigeria have the highest financial exclusion rates; what his bank is doing to change this, and that the financial sector regulator should continually introduce stiffer penalties against those flouting corporate governance in the Nigerian banking industry, among other industry issues. Excerpt:
Can you give us a brief history of your bank?
Our bank was licensed by the Central Bank of Nigeria on July 12, 2019, but the actual journey started around November 2015 when I and my co-founder, Sherif Idi, conceived the idea of setting up a non-interest bank. We went from conceiving the idea to capital raising, to documentation, to submission to the CBN and eventual grant of an approval-in-principle in August 2018, and subsequent grant of final licence in July 2019. It was a very tough journey that required mental fortitude but I am glad that we have weathered the storms and today we have opened the bank for business.
Under what licence do you operate and any plans on upgrading?
We are operating under a regional licence covering the North East and North West regions of Nigeria with headquarters in Abuja. We hope to raise more capital and qualify for a National License in less than two years of operation.
What are your plans for expansion and do you see yourself listing on the stock exchange; if so, when?
Expansion is actually top on our agenda. As I said earlier, we intend to acquire a National license in less than two years of operation and in compliance with CBN regulations guiding national banks we’ll expand to all states of the federation. However, we want to focus less on brick and mortar branches and invest more in Information Technology thereby reaching out to and serving our customers through robust IT tools because that is where the future of banking is headed.
What are the products and services you offer?
As I mentioned earlier, we are a non-interest bank and we are guided by ethical principles; there are restrictions on areas we can finance. For instance, we cannot finance arms and ammunition and other areas considered harmful to society. Like any other bank, we take deposits and finance customers among several other services we render.
First, on the financing side you have the partnership products where the bank can partner with a customer and go into a business with the aim of sharing the profit or the loss. Second, you have the sale based products like the Murabaha, which is a typical trading arrangement where the bank buys a product and sells to the customer at a mark-up while the customer pays over a period of time. The cost price and mark-up are disclosed to the customer in a transparent manner.
You also have the lease products where the bank buys a product or service and leases same at a mark-up to the customer. In addition, we have the Kafalah products, which give us the opportunity to offer bonds and guarantees on behalf of our esteemed customers. The trade finance product is also one that we offer and customers can do any kind of international trade finance transaction through the bank.
We also have a unique product called the Wakalah where the Bank acts as an agent on behalf its client to execute whatever legitimate mandate the customer may give the bank. This product is unique to non-interest banks only. Furthermore, on the deposit side we have the Mudarabah or partnership term deposit where customers place their funds with the bank while we use the deposit and share profit with customers based on a pre-agreed sharing ratio. We also have the Qard account which is a current account relationship that attracts zero account maintenance charges. We also have savings accounts variants. There are several other products we offer to our valued customers.
Are your services exclusively for Muslims?
Our services are open to everybody. We do not discriminate on the basis of religion. If you look at our bank today, there are people from all faiths and tribes currently working in the bank. We will never discriminate on the basis of tribe and religion and we invite all and sundry to do business with us.
Can you tell us about the trajectory of Islamic banking in Nigeria?
The trajectory of non-interest banking in Nigeria is very impressive. Today there are two stand-alone non-interest banks and two windows. I’m sure more players will come to the market soon. Asset size is also on the increase and I am confident that in the next 5 years non-interest banking assets will be within the 5-10% range in Nigeria.
In Malaysia, non-interest assets are almost 30% of the banking industry. Globally, Islamic banking is growing at more than 7% and even European countries like the United Kingdom have embraced this model of banking owing to its benefits to society. The successful Sukuk issuances by the Federal Government also increased awareness about the sector and put Nigeria on the map. The future of the industry is very bright.
What are the current challenges and opportunities in the industry?
As a growing industry, there are bound to be challenges. I think the biggest challenge of the industry today is the dearth of liquidity management instruments in the sector. There are several instruments including but not limited to bonds, treasury bills, open market operations, robust interbank market and a host of other instruments for the conventional banks, but for non-interest banks, beyond the FGN Sukuk, there are no other significant instruments to manage liquidity.
This is a major problem, and even though the CBN has developed some instruments, a lot more work needs to be done. With regard to opportunities, Nigeria is a huge market and people are yearning for non-interest banking because of the zero interest based financing model, adherence to fair practices and certainty in all transactions. In Nigeria today there are several growth sectors like agriculture, which is not receiving the desired attention by banks but we have several plans for the sector.
Even though there are not very many players in the Nigerian Islamic banking industry, what is your unique offering?
First of all, we are in the service business and we have observed a huge gap in service delivery, and as such we have devised methods to raise the bar in terms of service delivery to our customers. Secondly, the banking industry is currently being disrupted by technology. Today the difference between a bank and a technology firm is very thin. Some years back the winning model for Nigerian banks was investing massively in brick and mortar branch development. That model will not work anymore because customers no longer visit banks and the mobile phone is the new branch. We at TAJBank are not unmindful of this development hence our significant investment in information technology in order to keep up with the current and anticipated future trends.
What are the major milestones you have made so far?
We have recorded several milestones. We obtained an approval in principle from the Central Bank of Nigeria to set up TAJBank in August 2019. We proceeded to recruit tested industry professionals to set up the bank. All the hard work culminated in the issuance of a final licence by the CBN on July 12, 2019. We then had to deploy our core banking application, connect to SWIFT, develop our mobile and internet banking apps and a host of other work leading to opening our doors to the public on December 2, 2019. We are confident that we’ll record several significant milestones in future.
The CBN plans on raising banks’ capital base. How are you gearing up ahead of that?
Yes, we are gearing up very strongly. Recall that in the early part of the interview I told you of our plans to raise our capital to over N10 billion and qualify for a National Licence. We’ll continue to raise capital as business exigencies and regulatory directives demand.
In recent time, Nigeria has experienced increase in the number of banks and still many are unbanked. What do you hope to do differently to reduce the number of unbanked in Nigeria?
If you look at statistics, the North East and North West regions of Nigeria have the highest financial exclusion rates. In fact, research from Efina puts the financial exclusion rate in the upper 50’s. The CBN has put in a number of measures to address this problem, which include but not limited to the development of the agency banking network through SANEF. Looking at this challenge, and in an effort to solve this age long problem, we made financial inclusion part of our key strategic thrusts. We have developed some tools that we believe will go a long way in addressing this problem. Some of these initiatives include a robust agency banking model, a mobile wallet, our *898# USSD code, which makes it easy for the unbanked to open accounts and a host of other tools we are bringing to the market.
What legacy do you hope to leave in this sub sector of the Nigerian banking industry?
In terms of legacy. For me I think the best legacy to leave is to develop young Nigerians in the non-interest banking sector. Second is to bring non-interest finance into the mainstream of the financial services industry. Today, non-interest banking is perceived as banking for Muslims only and it still hasn’t gained mainstream acceptance. But it is actually for everyone irrespective of faith or belief, whether its employment or financing customers. If in the not too distant future it is accepted by everyone in Nigeria without questions as to whether it is for one segment of society then it is a big achievement.
What are your projections for the industry in the near-, short-, and long term?
If you look at it from a global standpoint, the industry currently has global assets of more than $2.4 trillion and a forecast of 7.7% compounded growth per year to reach $3.8 trillion by 2023. No other segment of the financial services industry is growing at this pace. In Nigeria, we now have two standalone banks and hopefully we will have more. NAICOM recently issued approvals-in-principle to 3 Takaful companies. There are several other Microfinance Banks. The industry is gaining global acceptance in major financial centres of the world including but not limited to London and Luxemborg, which have become global centres of Islamic finance. With the growing acceptance of this model, there is no doubt that the industry will record unprecedented growth in Nigeria.
Human Resources in the industry is a major issue; how do you hope to tackle this and the various insiders’ dealings common with banks?
There are so many challenges related to Human Resources in the industry today. Key among these issues is finding staff with the right technical skill, especially for IT related roles. This situation is not helped by the emigration crises we are currently facing as a Nation. We have lost some staff to other countries because they have migrated to Canada, Australia and other countries.
You also mentioned Insider dealings, which is also another major challenge. If you do an analysis of the incidences of fraud in the industry, you will realise that staff are involved in most of the cases. Apart from this, you have a lot of corporate governance lapses especially at the top.
There is no silver bullet that can solve these problems. Over the past few years, the regulator introduced very stiff penalties for corporate governance infractions and we have seen a steady improvement since then. Banks have no option but to continually strengthen internal controls and also keep an eye on lifestyle changes because it could signal that a staff is involved in fraudulent activity. On the other hand, the regulator must also continually introduce stiffer penalties for flouting corporate governance. This will serve as deterrent to others.
Why the interest in Islamic banking?
As I mentioned earlier, the non-interest banking industry is still evolving and currently witnessing rapid change globally. The industry has global assets of more than $2.4 trillion and a forecast of 7.7% compounded growth per year to reach $3.8 trillion by 2023. The industry is well developed in Malaysia where non-interest (Islamic) banking assets amount to almost 30% of their entire banking industry, which has total assets amounting to more than $500 billion. This gives you an idea of the size of the non-interest banking industry in that country. The sector is currently witnessing a global revolution. If you look at recent developments in the non-interest banking space in Nigeria, ranging from the successful Sukuk issuances by the Federal Government to the success recorded by current players in the industry coupled with the yearnings of the people for a better banking alternative you will agree with me that the non-interest banking space has tremendous potential, hence our interest in the sector.
What is your risk architecture/strategy or how do you hope to mitigate risks?
The advantage we have is that we don’t have legacy issues related to bad credits and the like. This has given us the opportunity to not only start on a clean slate but develop a robust risk strategy for the bank. We will be very disciplined and methodical in our financing strategy with a view to ensuring that we maintain the lowest provisioning level in the industry.
NPL, according to latest data, is down to 6.67% in Q3. Is it safe to say the economy is de-risking?
I don’t think the economy is de-risking because the fundamentals of the economy haven’t changed significantly. The risks that existed before now are still very prevalent today. I would say that banks have developed a more disciplined approach to lending. There are also regulatory moves aimed at ensuring banks reduce NPLs. For instance, the direct debit on borrowers’ accounts is a major move by the CBN to tackle recalcitrant borrowers.
How big is the Islamic banking industry in Nigeria today?
Islamic Banking is still in its infancy in Nigeria. We have only one stand-alone bank and two windows. In terms of asset size, the industry is not more than 2% of the entire banking industry unlike Malaysia where the industry is somewhere around 30%. However, I think there is potential for significant growth. As you are aware, the non-interest segment is the fastest growing in the financial services industry globally and I am confident that this growth will rub off on the Nigerian industry. Considering the yearnings of the people for an alternative, the industry is on the cusp of tremendous growth in Nigeria.
Where do you hope to take this bank in the next five years?
Our vision is to be among the top 10 banks in the banking industry in the next 5 years. The vision is achievable. More importantly, we want to focus on where the other banks are not focusing on. There are several opportunities in the market and we’re geared to take advantage of the opportunities.
I believe Nigerians from all walks of life will love this model because it preaches win-win scenario in business. All parties have to be treated fairly.
What is your assessment of the economy so far in the outgone year?
The year 2019 was not very eventful in terms of business. The economy grew slightly north of 2% while our population grew at north of 3%. It was an election year and as you would expect, major focus was on the election rather than the economy. In terms of the economy there was no major event. An event worth mentioning is the inauguration of the Presidential Economic Advisory team. We hope to feel their impact this year and beyond.
We are also happy with developments in agriculture sector, especially the rice value chain. There are several rice mills up and running in Nigeria today and this year we expect more than 20 more mills to come on stream. This is a testament to the tremendous success of the Anchor Borrower Programme of the CBN. The same support has been extended to cotton, and I believe we are on the cusp of a revival of our comatose textile mills. Despite the challenges, I am confident about the future of this country.