As competition intensifies in the banking industry, some conventional banks in Nigeria are veering into the provision of Shari’a-compliant banking products through “Islamic Windows”. In fact, one such lender recently announced that it plans to apply for a stand-alone Non-Interest Bank (NIB) license, writes TONY CHUKWUNYEM
Although the move generated quite some controversy, the Central Bank of Nigeria’s (CBN) release of guidelines for the operations of Non-Interest Banks (NIBs) in the country in 2011 and its argument that interest-free banking would play a critical role in boosting financial inclusion seemed to have succeeded in keeping critics quiet. Indeed, by 11 November 2011, the aprx bank had issued its first license to a lender-Jaiz Bank- to operate as a non-interest bank.
It also during that year issued licenses to two conventional banks- Stanbic IBTC and Sterling Bank- to operate a window of Islamic banking.
But while Jaiz Bank commenced operations with three branches in Abuja, Kaduna and Kano states on the 6 January, 2012 and has since upgraded from regional to national operating license, allowing it to expand throughout the country, it has, to date, remained Nigeria’s only full-fledged non-interest (Islamic bank). This has led to speculation in some quarters that momentum with respect to the growth of Islamic banking in these parts has stalled.
Critics pointed out that while Islamic finance is rapidly expanding outside Africa, tripling in size between 2007 and 2014 and now having total assets of around $1.9trillion, according to available data, the sector was not doing so well in Africa despite the continent having a Muslim population of above 250miilion and the largest number of financially excluded people worldwide.
Sterling Bank plan
However, indications that this situation could be about to change emerged a few days ago, when the outgoing Managing Director/Chief Executive Officer of Sterling Bank Plc, Mr. Yemi Adeola, revealed that the lender had plans to seek a license for a stand-alone Non-Interest Bank (NIB) as soon as possible.
Adeola, who disclosed this during a courtesy call by the bank and formal introduction of its MD/CEO designate, Mr. Abubakar Suleiman to the Nigeria Deposit Insurance Corporation (NDIC), said the decision was informed by the feasibility studies conducted by the lender, judging from the potential market and financial resources of customers expected to embrace NIB.
Interestingly, a week before this announcement, Sterling Bank had organized a one day public lecture themed: “Reducing Poverty and unemployment through Non-Interest Banking” which took place in the historic city of Kano.
According to the lender the lecture was part of its commitment to further deepen the awareness and public enlightenment of alternative finance or Non-Interest Banking (NIB) in Nigeria.
Shedding light on why the lecture was organised, the bank’s incoming CEO and Chief Host of the Lecture, Mr. Abubakar Suleiman, emphasised that the lender will continue to intensify efforts to sell its Alternative Finance offerings to customers and prospects while remaining a reference institution in the area of Non-Interest banking not only in Africa but globally.
In fact, Sterling Bank was in 2016 awarded the “Non-Interest Bank of the Year – Africa 2016”, for its Non-interest banking window, Sterling Alternative Finance by the “The European,” magazine at the publication’s Global Banking & Finance Awards held that year in London. Announcing the award, the bank noted that the Award was conferred on it, “based on its success story in the last three years coupled with its ability to use non interest banking contracts to structure transactions in the most unique manner.”
According to the lender, with about 200 branches offering non interest banking services, its coverage, which is widely considered one of the best in Africa, quality of staff, consultants and advisors such as Sheikh Abdulkader Thomas who belongs to several advisory boards globally also gave it an edge over competitors.
It stated: “Since 2013, we have achieved major milestones, which include a line of $30 million, from the Islamic Corporation for Development (ICD) and $25 million from the International Islamic Finance Trade Corporation (ITFC). Both institutions are members of the Islamic Development Bank (IDB).
In the same vein, the CBN has approved an array of innovative non-interest financial instruments for us in 2016, which will keep us ahead of industry performance.”
The ICD, a multilateral development financial institution, had in approving the facility for Sterling Bank, said it recognised the lender’s contribution to the growth of Islamic banking in Nigeria and Africa barely four years after it commenced operations. Industry watchers point out that Sterling Bank is making such a significant impact on the growth of Islamic banking in the country because the lender invested heavily in the material and human resources required to ensure that its non-interest banking operations attain the desired objective.
For instance, four years ago, the bank strategically selected Path Solutions’ iMAL enterprise Islamic banking and Investment system to support the launch of its non-interest banking window. In a statement at the time, the bank explained that the Path Solutions’ modular Islamic core banking system – iMAL will enable it to quickly introduce a diversified range of Islamic banking products and services and prepare its business for future growth.
Group head – Non-Interest Banking, Sterling Bank, Dr. Basheer Oshodi, stated then: “We have always strived to invest in state-of-the-art technology to provide our customers with cutting edge banking products and services.
Our decision to adopt a new core banking system for our new non-interest banking window is a significant step in this direction, as we firmly believe that a world-class technological infrastructure that could meet local regulatory and Sharia compliance requirements is integral to building customer confidence”.
He explained that Sterling Bank required a flexible and scalable system that could be integrated with ICS BANKS conventional banking solution and that could cover comprehensive areas such as Islamic Invest, Islamic Profit Calculation, Branch Automation and Administration, and SWIFT messaging. He also disclosed that as part of the overall selection process, Sterling Bank engaged leading independent global technology consulting firms to perform market research and evaluate and advise on latest technology.
According to him, during a rigorous three-month evaluation period, the bank considered several major IT providers with broad expertise in Islamic banking before signing the deal with Path Solutions for its iMAL enterprise Islamic banking and Investment system, which has proved to be the solution of choice for a large number of Islamic financial institutions in Africa.
SunTrust Bank Nigeria, ICD seal deal
Significantly, the number of banks in the country offering non-interest banking products was set to increase last year after SunTrust Bank Nigeria (SBN) and the ICD signed an agreement to establish a new non-interest banking window in Nigeria. Under the agreement, SunTrust Bank and Saudi-based ICD agreed to facilitate information and expertise exchange in order to setup a window that incorporates non-interest banking products and services in the country.
Commenting on the deal, the CEO/General Manager of ICD, Khaled Al-Aboodi, said: “We look forward to strengthening mutual efforts in establishing the non-interest window and move a step forward in achieving one of ICD’s main objectives to promote Islamic finance in our member countries.” In his remarks, SBN’s Managing Director/CEO, Muhammad Jibrin, said: “We realise the many benefits of our close collaboration.
By establishing the new window, we will diversify our banking offer and will attract investors not only from Nigeria but also from the Islamic Development Bank Group member countries, and we consider ICD as our strategic partner in those countries.” Aside from the lenders providing non- interest banking products, there are also several asset management and investment companies operating as Islamic finance entities in the country.
However, analysts argue that while Nigeria has a burgeoning market for Islamic financial products given the country’s over 70 million-strong Muslim population, non interest financial institutions in the country will not necessarily have an edge over their conventional, interest charging, counterparts.
As a financial analyst, Mr. Ben Ediohon, contended, “given the very high interest rates that the conventional banks charge, the non-interest banks clearly have an advantage. But they also face fundamental, structural difficulties. For instance, many projects are not bankable. Also, Islamic banks usually find it difficult offering long-term financing because their sources of funds are mainly short-term.”
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