New shift for non-interest financing in Nigeria
The case for non-interest banking in Nigeria and the contributions of the non-bank financial institutions cannot be overemphasised. These have come to be acknowledged globally for their roles in facilitating businesses, especially the provision of much-needed finance.
For experts, beyond the identified low awareness of their activities, which must be vigorously reversed, the major players would need to create a niche for their operations, particularly with the pursuit and execution of big projects as a way of proving what they can offer to the finance world and economy.
But the leaders of thought drawn from non-interest banks, issuing houses, development finance institutions, insurance companies, and law firms, among others, have agreed to work together to deliver the big-ticket projects, starting with non-interest finance deals in the Nigerian market.
The decision was part of the key resolutions at the inaugural Non-Interest Finance Executive Forum, hosted by the Sterling Alternative Finance Group, in Lagos. It was themed: “Delivering large ticket and sophisticated deals through Non-Interest Finance.”
The Managing Director and Chief Executive Officer of Sterling Bank, Abubakar Suleiman, at the event, observed that despite the huge potentials inherent in Non-Interest Banking, the Nigerian economy has yet to tap into it to fund its huge infrastructure deficits.
Suleiman, who was represented by the bank’s Executive Director of Commercial Banking, Tunde Adeola, noted that since the advent of alternative finance in Nigeria, the Federal Government of Nigeria (FGN) had only used it twice, with particular reference to Sukuk.
He added that only the Osun State government has used the option to finance infrastructure among the sub-national governments to date.
The banker said a lot of work still needs to be done through collaboration among players in the Non-Interest Finance segment to deepen the market to handle large ticket transactions.
According to him, from a marketing perspective, it would be better to push the Non-Interest Financing option as ethical funding in a bid to make it appealing to all customers.
The Group Head, NIB, Sterling Alternative Finance, Dr. Basheer Oshodi, explained that the market for alternative finance is still in its infancy and struggling to grow as expected, adding that there is a need for asset expansion, easy flow of liquidity and risk appetite alignment among players in the industry.
He listed some of the contracts that could be used to finance asset classes in the Nigerian economy to include Musharaka and Mudarabah (equity-based); Wakala (service-based); Ijarah and Murabaha (debt-based).
The Group Head also expressed hope in the ability of operators to immediately pull together a large number of resources that would enable them to finance major assets as soon as documentation was completed.
He described Musharaka as an agreement between two or more partners to combine assets, services, obligations or liabilities for the purpose of making a profit while Mudarabah is a partnership in which one partner provides capital and the other provides labour and business expertise.
According to him, Wakala refers to a contract where a principal authorises or appoints an agent to do a well-defined legal action on his behalf, while Ijarah is to give a usufruct on the lease or provide services for defined rentals.
He explained that Murabaha is a sales contract where the buyer and the seller agree on the mark-up or cost-plus price for the item being sold.
Oshidi, pointed out that there is a need to set up a committee made up of professionals in different segments of the industry to come up with procedures and processes on how to scale the market.
But the Regional Manager, Jaiz Bank Plc, Alhassan Abdulkarim, in his presentation titled: “Liquidity Management of Non-Interest Financial Institution”, outlined how to create an inter-bank market for alternative finance so that operators in Non-Interest Banking could be able to lend money among themselves like what obtains in conventional banking.
According to him, such a measure will enhance liquidity among operators of Non-Interest Banking who sometimes do not have the liquidity to meet their customers’ demands because of the peculiarity of their investments.
Also, the Managing Director and Chief Executive Officer of Lotus Capital, Mrs. Hajara Adeola, harped on the need to address risks, documentation, and securitisation of assets, adding that Musharakah Sukuk can be used effectively to provide mass housing estates, while Ijarah Sukuk can be used to effectively finance road construction.
She stressed the need for standard contracts, adding that there was a need for operators to work with some major obligors in a bid to create a sustainable market for alternative finance in the country.
Adeola also called for the formation of an association of operators of NIB that would see to the development of drafts that can be used to execute deals.
Non-Interest Finance is based on the principles of profit and risk sharing, transparency in pricing, equitability, fairness and a business model that prohibits uncertainty.
InfraCredit provides a local currency guarantee, to enhance the credit quality of debt instruments issued to finance credit worthy infrastructure assets that conform to its eligibility criteria.
The World Bank reported recently that Non-Interest Finance was growing at an exponential rate in other parts of the world with total assets in the region of $2.2 trillion as at the end of 2018.