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Banks embrace Islamic banking amid rising competition

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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.

 

Last line

 

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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Tincan Customs chief to implement 48-hour cargo clearance

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Customs Area Controller (CAC), Tin Can Island Port Command, Musa Baba Abdullahi has reiterated the command’s unshaken commitment to achieve 48hour cargo clearance from the port without compromising revenue collection and national security.

The customs chief said efforts are being put in place to maximise benefits of technology and build the command’s manpower to meet with the growing challenges of modern trade.

 

While addressing maritime journalists in his Apapa office, Musa identified swift dispute resolution as a key component to facilitate trade. He said the command has put in place a faster mechanism to address any area of disagreement in interpretations of guidelines for duty collection and other related matters.

 

He added that a committee put in place for disputes resolution meets as soon as any dispute arises to avoid port users incurring costs caused as a result of delays in resolving such disputes.

 

According to him, there is a quicker process of bringing issues to his attention and contacting the headquarters where necessary to avoid delays associated with such disagreements. He said the command has stepped up efforts at keeping officers and relevant stakeholders abreast with the use of technology for the purpose of customs operations.

 

The Controller disclosed that senior officers and licensed customs agents are being trained at the command’s Information Communication Technology (ICT) Centre on the latest Nigeria Customs Information System (NICIS 2) in batches.

 

Musa said the training and retraining of customs personnel and stakeholders will continue with a view to getting as many persons as possible knowledgeable in the workings of the system.

 

He also stressed the need for all stakeholders to increase their levels of compliance with rules and improve on their knowledge as ways of achieving seamless flow of trade thereby achieving faster clearance of goods from the port.

The Controller also advised the maritime media to uphold the ethics of their profession and be fair and truthful in all they do.

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Early rainfall to boost Nigeria’s cocoa mid-crop

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Nigeria’s mid-crop cocoa output for 2017/18 could rise by 15 per cent from last season, helped by a mix of rainfall and sunshine in the main growing regions which has helped the trees, President of Cocoa Association of Nigeria (CAN) Sayina Riman said in a recent interview with Bloomberg.

 

Drought cut last season’s mid-crop harvest by 40 per cent. The dry weather continued into the main crop of the new season.

 

Riman said the drought affected the trees, reducing output of between 300,000 tonnes and 320,000 tonnes projected at the beginning of the 2017/18 season.

 

He said that early rains in March and April have helped boost the mid-crop, which could see the season’s output close at around 290,000.
Riman farms on a 170 hectare cocoa plantation in Nigeria’s second-biggest region of Cross Rivers.

 

The cocoa season in Nigeria runs from October to September, with an October-to-February main crop and a smaller light or mid-crop that begins in April or May and runs through September.

 

“Despite the drought of last year which affected cocoa we believe we would be close to 290,000 tonnes for 2017/18 season,” Riman told Reuters.

 

The International Cocoa Organisation (ICCO), however, gives much lower estimates of Nigerian cocoa output. It forecast last season’s production at 225,000 tonnes.

 

Riman did not give a reason for the discrepancy. Nigerian government production figures are also significantly higher than ICCO estimates.

 

Nigeria has recently emerged from recession and a currency crisis which caused a chronic dollar shortage, forcing exporters to under-invoice their goods in order to use the foreign exchange black market to get premium for their hard currency.

 

The action caused the West African country slip to the sixth producer of cocoa in the world at the peak of the crisis. Riman said Nigeria was getting back to number four grower as exporters now use the official currency markets.

Riman said Nigeria was working on improving its bean quality especially with renewed demand from Europe.

 

However, bean count, a measure of the number of beans needed to produce 100 grams of cocoa, reached as high as 140 for the main crop.

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Rising Nigerian bonds drags yields down

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Nigeria’s local-currency bonds are on a roll, rising for the last eight days and driving their yields below Turkey’s for the first time in more than two years.

 

The average rate on Nigerian government bonds has fallen around 400 basis since an August-peak to 13 per cent. Yields are now 100 basis points below the Central Bank of Nigeria’s benchmark interest rate of 14 per cent, where its been held since July 2016.

Investors have piled into the naira market thanks to slowing inflation, a stable currency and rising Brent crude prices, which climbed about 25 per cent in the past six months to more than $70 a barrel. In contrast, they’ve turned bearish on Turkey, which has the worst-performing local bonds in emerging markets this year, because of accelerating inflation and loose monetary policy.

 

Central Bank Governor, Godwin Emefiele, may be tempted to commence his long-touted easing cycle and help revive the economy that has faltered since the 2014 oil crash. While that would reduce the attractiveness of naira assets, Nigerian yields are still high relative to other major emerging markets. Aside from Turkey, Argentina and Egypt’s bonds are the only ones to yield more in the Bloomberg Barclays EM Local Currency Index.

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