When Jaiz Bank Plc, the pioneer of ethical banking, opened its doors in 2012, not a few were confused about its mission, vision, and even its business model. The dilemma was exacerbated by the fact that this was occurring in a country where the mortality rate of new businesses is alarmingly high, due to systemic failures.
 
But 13 years down the lane, the pioneer non-interest bank in Nigeria has not only stabilised, it has also provided ethical services to governments, corporate citizens and individuals, while also making clear its mission of making life better through ethical financing.
 
As the years roll by with the outfit maintaining its leadership role in the sub-sector, this alternative model of financing has not only percolated in the country, but the foundation for its expansion has also been solidly laid, just as a novel and much-needed ethical funding for infrastructural development in the country has been entrenched.
 
While non-interest banking’s popularity as a substitute for traditional banking is gaining currency, the guiding concepts of this form of banking include risk-sharing, ethical finance and asset-backed transactions. As this banking variant encourages profit-sharing arrangements, it completely abhors and outlaws interest-based financing.
 
Nothing mirrors the acceptability and growth of non-interest banking in the polity better than the rising number of firms offering non-interest banking, also known as Islamic financing, as a result of its system being consistent with Sharia principles, applied through Islamic economics.
 
From the lone-ranging efforts of Jaiz Bank Plc, Lotus Bank Ltd, Taj Bank Ltd, Alt Bank, and most recently, the Summit Bank, among others, are now populating the non-interest banking space in the country, with some of them being either offshoots of traditional banks or spearheaded by their former chieftains.
 
The impressive growth rate of non-interest financial institutions has also seen a host of microfinance banks offering non-interest banking services.
 
Doubtless, the presence of these NIBs has contributed to the massive expansion of the banking industry, where the digital banks, microfinance banks, and commercial banks are strutting their stuff in their niche markets with the ultimate aim of expanding the financial economy through inclusion, ease of transactions, etc.
  
Interestingly, despite these Shariah-compliant banks breaking new frontiers with their modus operandi, a barrage of questions is still being asked of them, including whether non-interest finance is for Muslims only and whether non-Muslims work in Islamic banks.
  
Aida Oluwagbemiga, a researcher at Aloinett Advisors, focusing on international relations and African integration, and Abdulsalam Abduljelil Opeyemi, a Shari’ah Compliance Officer at Taj Bank Ltd, specialising in Islamic finance, put things into perspective.
 
In an article entitled “Non-interest Banking Explained: Spotlight on Nigeria,” they emphasised that non-interest banks are not exclusively for Muslims, and that non-interest finance is designed to bolster the economy by employing commercial practices that eliminate all forms of interest and unending debt burdens. Its core principles, including the prohibition of usury and fostering community welfare, are shared among all Abrahamic faiths, such as Judaism and Christianity.
 
On the eligibility of non-Muslims to work in an Islamic bank, they answered in the affirmative, thus: “Yes, NIFIs welcome professionals from diverse backgrounds who possess relevant banking experience, skill sets, or educational qualifications. Religious affiliation is not a prerequisite for employment in non-interest financial institutions worldwide.”
 
In shedding light on how NIFIs make a gain, the duo maintained that for non-interest banks, profitability is justified by a legal maxim known as al-ghunm bil-ghurmi wal-kharaju bid-dhaman– Risk goes with liability, and the right to profit is justifiable by assuming the risk of loss.
 
“Unlike conventional business models that primarily rely on interest-based transactions, non-interest banks generate income through a combination of fee-based and financing-based transactions. Islamic financial products are basically categorised into sale-based, lease-based, partnership-based, and fee-based contracts. The NIFIs offer financing to their customers basically using trade-based products such as Murabaha, particularly Murabaha-to-The Purchase-Orderer (MTPO or MPO), meaning ‘cost-plus.’

This product involves the bank as a financier, facilitating the acquisition of desired assets for customers through deferred payment plans. The bank purchases the asset at its actual cost, takes ownership, and then sells it to the customer at a price inclusive of a predetermined profit margin.

Thus, the NIFIs earn income through markup, rentals, profit sharing and fees or commission from sale-based, lease-based, partnership-based, and fee-based contracts, respectively. This approach allows non-interest banks to operate ethically while ensuring their financial stability and profitability.”
 
The warm embrace given by the non-interest banking and their modus operandi clearly underscores the imperative of Small and Medium Enterprises SMEs latching on to them to attract and ensure financial stability and profitability.
 
Small and Medium-scale Enterprises contribute approximately 48 per cent to Nigeria’s GDP, and they represent over 80 per cent of all businesses, as well as account for about 84 per cent of the country’s workforce.
 
Given the above scenario, non-interest financial institutions can significantly improve the fortunes of SMEs by offering a more flexible, ethical, and risk-sharing financial model that directly addresses their core challenges, in addition to dramatically lifting the fortunes of SMEs by replacing a rigid, debt-based model with a flexible, partnership-oriented one.
 
Furthermore, by sharing risk, focusing on project viability over collateral, and aligning the bank’s success with the SME’s success, they provide a more sustainable and supportive financial ecosystem for SMEs that are the backbone of most economies.
 
Since NIB is not just “banking without interest,” but a system built on risk-sharing, asset-backing, and ethical principles, its core ideals are perfectly suited for SME financing.
 
Additionally, with the Murabaha (Cost-Plus Sale) philosophy, the NIFIs buy the asset (e.g., machinery, inventory) the SME needs and sells it to them at a pre-agreed markup, payable in instalments. Also, since the asset itself is the security, it provides a clear, fixed cost structure without compounding interest. This, in essence, solves the collateral issue.
 
True risk-sharing, on the other hand, aligns the bank’s success with the SME’s success. Consequently, no debt is created if the business fails. This is indeed ideal for startups and projects.
 
It is amid this flurry of positives that Summit Bank joining the fray is good news not only to the SMEs, but to the generality of Nigerians, especially those who love the happenings in the NIB ecosystem.     
 
With the involvement of key ex-Zenith Bank executives in the formation and take-off of Summit Bank, many believe that the collection of “Jim Ovia’s boys” crowding the upper echelon of the new bank, delivering on their assignments, mandate, as well as shareholders’ and investors’ expectations, is almost assured.
 
For context, until last year, when he left to co-found Summit Bank, Mukhtar Adam was Zenith Bank’s CFO. He presently serves as Summit Bank’s Executive Director and Chief Operating Officer (ED/COO). It is his loyalty to that outfit that made many to allege that Zenith Bank could have a hand in the emergence of Summit Bank.
 
The Chairman of the bank, Umar Shuaib Ahmed, is also an ex-Zenith chieftain, who rose to the position of Executive Director, while the Managing Director, Sirajo Salisu, is a core NIB person.
 
While promising its clients nationwide digital and non-interest banking, the outfit, which says that it is “grounded in partnership, driven by reinvention,” added: “We innovate to elevate our partners and lead the industry forward,” while also calling on Nigerians to get premium financial solutions for personal and business needs.

“We deliver expert support and tailored services with unmatched professionalism. Enjoy interest-free and profit-sharing deposit accounts designed to align with your values while ensuring financial stability and growth.”
  
Right now, all eyes are on Summit Bank as it navigates the fledgling ethical banking ecosystem in an attempt to get to the zenith of non-interest banking and contribute its quota to digital and alternative banking solutions, trade and working capital financing, personal financing, as well as treasury and investment products.

Sunday is a Lagos-based media practitioner.