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Thursday, October 4, 2012


    Ja'iz Bank Nigeria plc, the first fully pledge Islamic bank in Nigeria, is planning to go to the market in order to rise eight billion Naira to be used for the expansion of the bank operation across the country. The announcement came during the ninth annual general meeting of the bank earlier in July, held in Abuja the Nigerian capital. Currently, Ja’iz bank operates three branches in Abuja, Kano, and Kaduna making the bank to be regional bank, according to the new CBN classification of the banking sector. With the plan expansion the bank will apply for national banking license to enable it open branches in other vibrant commercial cities of the country such as Lagos, Ibadan, Port Harcourt, Maiduguri, Sokoto and Enugu. According to the chairman of the bank Umar Mutallab (a former chairman of First Bank Nigeria plc) the placement will be divided into two segments, where one segment will be issues through the Islamic development bank (who is a long time partner in the development of the bank) and the other to the Nigerian public. But, it seems like Ja’iz Bank has already generated the required sum needed to apply for national license, going by the interview it Managing Director gave to journalist recently. In that interview Mohammed Bintube made it known that his bank has about N10 billion at that time, which made the bank to hit the national banking target. That number, according to the management of the bank, was realized through private placement. The bank promised to sell it shares not in public offering but private placements so as to make it hit the target of N13 billion the proceed of which is to be used for the expansion process of the Bank. Recently, there were a lot of criticisms of the style of management of the current leadership of the bank under Mr. Bintube, where it is argued that the bank is moving at a slow phase which is affecting it acceptability to the Nigerian public; and therefore it future survival. There were even some text messages going around asking for the Nigerian public (especially the Muslim population, to open accounts with the bank in order to assist the young institution in the face of competition from conventional banks). Though, in that interview the bank MD denied that the bank had ever send any such text and call on the public to ignore the text messages.

                                    Nigerian economy
    This article will look at the grow potentials of Islamic financial institutions in Nigeria; from there analyze the prospect of Ja’iz bank making it in Nigeria’s turbulent banking environment. According to the CIA world fact book 2012, about 50% of Nigeria population comprises of Muslims; that roughly put the population of the Muslims at about 85 million people. That number is more than the population of South Africa the largest economy on the continent. The Nigerian economy is the second largest economy on the continent after that of South Africa; and according to some estimates it is expected to surpass that of South Africa by next year. The 2011 gross domestic product (GDP) of the country is put at about $ 420 billion (at purchasing power parity, PPP) but when you calculated the GDP per head you still found out that Nigeria is a poor country when compare to it rivals on the continent. According to the recent inflation outlook from the Central bank of Nigeria, the inflation rate is now at about 12% still higher than that of South Africa 5% Or Ghana 9.5%. There is general death of infrastructures in the Nigerian economy; roads are in bad shapes, rail transportation dead, air transportation below potentials, power supply very poor. Though, there are recent improvements in term of power supply around the country, the hope is that it will be sustainable. The rate of unemployment is very high, higher than the official figure of 24% give by the authorities. The financial sector which is the focus of this article is yet to recover fully since the global financial crisis of 2008, where Nigerian authorities spent billions of Dollars in bail out money. The industry saw the setting up of Assets Management Company of Nigeria (AMCON) to buy toxic assets from the banks, merging of some other banks, and nationalization of others.  Currently, AMCON through CBN has to issue a list of bad debtors of the banking crisis era who refused to settle their outstanding with it; in which case CBN warns banks against issuing further credit to any one on the list. There is still shortage of credit in the economy compared with the period before the crisis; banks are reluctant to give out credit to the private sector. Because of that about 60% of banks lending in the economy is to the public sector; a kind of crowding out of the private sector. The contribution of the sector to the GDP has slow down since that crisis, where many blame the massive lost sustain by the banks and the tightening of regulatory procedure on the part of the Central bank.

         A look at operational and management structure of Ja’iz Bank
    Though, Ja’iz Bank started operation in January this year and received its licenses on November 11, 2011, the story about it establishment date back to 2003 when the first public offering of the shares of the proposed bank was made. Before it transformation into a fully fledged bank Ja’iz was a kind of special purpose vehicle (SPV) called Ja’iz international formed to help realized the dream of establishing Nigeria’s first Islamic Bank. But, it took almost a decade for that dream to become a reality, when the bank opens it doors to the public in January this year. The Bank is in partnership with Islamic bank Bangladesh (IBB) who is to help Ja’iz in term of technical and managerial know-how. The chief operating officer (COO) of Ja’iz Bank Md Setaur Rahman is a Bangladeshi who has over two decade of Islamic banking experience. The Managing Director of the bank who has been with the bank since it initiating period is Alhaji Mohammed Mustapha Bintube who started his core banking career with Commercial Bank (Credit Lyonnais) Nigeria and from there he moved to join FSB international bank where he retired as Executive Director in 2004 in order to join the management team of Ja’iz International. Other season bankers on the management board are Hassan Usman who is General Manager Investment Banking and Abdu Sa’id the General Manager Corporate services. The Shariah advisory committee of the bank is under the chairmanship of respected Islamic Economist and finance expert Professor Monzer Kahf who is recognized as one of the leading contributors to the field.   Other Islamic economists and Shariah scholars on the committee are Professor Mohammed Lawal Bashar of Department of Economics Usman Dan Fodio University Sokoto and Dr. Muhammad Alhaji Abubakar, a Shariah expert with faculty of law university of Maiduguri. 
      Currently, Ja’iz is set to finance Kano geographical information system (KANGIS) in a kind of public private partnership (PPP). Under the arrangement Ja’iz will provide the fund (about N500 million) for the setting up of the project and act as the lead collecting bank for KANGIS. In it drive toward boosting it revenue base, Kano state government hope to effectively develop it land administration like is found in such cities like Abuja and Lagos. Apart from this, it has already provided funds to many businesses including small and medium enterprises. But, the fact that Ja’iz is the first in this field couple with slow evolving financial infrastructures specifically required by Islamic banks, contributed in the slow phase of development of the bank; where some people accused the management of the bank of not developing it at faster rate like (for example) GTBank. But, this argument is wrong because conventional banks have been existing in Nigeria for over hundred years, while Islamic banking is not even one year in existence.  There is no way the bank can move pass the available ethical channels of investing it assets without contravening Islamic banking rules. But, the fact that the central Bank is very committed on developing the needed infrastructures for Islamic Banks allay any fear raised by these arguments. The rate at which the bank is growing at the moment is commendable taking into consideration the bank plan to expand into other part of the country at the end of this year. And, according to the MD, just three month into it current private offering all the shares are fully subscribed.


                  A brief overview of the Nigerian capital market
  Since the last global financial crisis which has affected Nigerian financial sector in many ways, the number of public offerings in Nigerian capital market has come down compare to pre-crisis period. Not only that even the Nigerian stock exchange in itself has been affected by the crisis leading to fall in the capitalization of the market of billion of dollars. For the few years before the global financial crisis of 2008, the Nigerian stock exchange was celebrated as one of the fastest growing exchange in the world. In the last one decade before the crisis the returns in the market moved up by 96%1. According to (Osaze, 2007), over 91% of the gross fixed capital formation in Nigeria was sourced from outside the capital market, making insignificant the contribution of the market to the funding of the Nigerian economy. The market value of publicly traded shares between 2009, 2010 and 2011 is as follows: $33.32 billion, $50.88 billion, and $39.27 billion, respectively (CIA World fact Book 2012). According to Ms Aruma Oteh DG Security and Exchange Commission, the Nigerian capital market is currently contributing about 20% of Nigeria’s GDP2. As at 2011, the stock of direct foreign investment in the country stood at $76.18 Billion3. At it peak in 2007 the market capitalization was the third biggest in Africa after that of South Africa and Egypt. Like many developing stock markets around the world, the Nigerian stock exchange is dominated by equity trading, accounting for some substantial number of transactions on the market floor. It is interesting to notice the link that exist between the performance of the Nigerian economy and the growth of the capital market, as the economy grow during the last one decade the market develop with it. Though, the market capsized as a result of the last global crisis it continues with it long term grow movement consistent with the potentiality of the Nigerian economy. With market capitalization of about N9.5 trillion (as at the middle of this year) the Nigerian capital market is still shallow, and many analysts believe that it will take the listing of a big sector like the telecommunication sector to increase the deepness of the market.

         Previous public offerings by Islamic financial institutions in Nigeria
  Apart from Ja’iz plc, other Islamic financial institution that is active in the market is lotus capital whose initial share offering was done in 2008. The Lotus initial public offering opened on February 25, 2008 and closed on April 2, 2008; with total of one billion ordinary shares at N1.00 per unit. According to the management of the fund, that IPO was successful as the offering was over subscribed; to tell you how eager the Nigerian public are for ethical finance such as the one provided by Islamic financial institutions. A year before that offering, lotus investment yielded returns of about 38.9% according to the management of the fund. According to Hajara Adeola4, the Managing Director of the fund, in the year 2008 and 2009 lotus capital is the best performing fund in Nigeria beating the Nigerian stock exchange all share index. But, the first initial public offering of any Islamic financial institution is that of Ja’iz international plc in 2003 when it tried to rise the N2.5 billion needed at that time to acquire licenses for commercial banking in Nigeria, before it was later inflated to N25 billion by the new Central bank governor of the time Charles Soludo, with the introduction of his controversial capitalization program. The IPO, like that of lotus capital later, was oversubscribed by the Nigerian public who are eager for such kind of banking arrangement. But, the bank could not start operation because of the sudden introduction of higher capital ratio by the Central bank. All the two public offerings of shares of Islamic financial institutions in Nigeria (so far) were oversubscribed; that is why many people, this writer inclusive, support CBN governor Sanusi Lamido plan to issue Nigeria first Islamic Bond (Sukuk). For more on the issue of the introduction of Sukuk into the Nigerian capital market you can read my article, title: ‘SUKUK AS AN ALTERNATIVE SOURCE OF FUND FOR NIGERIAN GOVERNMENT’ on my blog ( A more expanded version of this paper is included as a chapter in the book "Essentials of Islamic banking and finance in Nigeria" (2013) edited by Kabir Isa Dandago, Aliyu Dahiru Muhammed and Umar A. Oseni. Thus, from the two previous sales of Islamic companies’ shares, one can conclude that the future sale of Nigerian government first Sukuk bond to the public will be oversubscribed too.

                                 Islamic banking in the world
   Islamic finance around the world is now a trillion dollar industry; and is forecasted to reach $5 trillion in the next few years according Reuters news. For over four decades Islamic banking growth at a double digit rate making it to growth and adopt very fast as it moves to acquire larger market share. Islamic Banking is increasingly being recognized as a novel banking model with great potential to contribute to the growth and stability of the global finance. There are over three hundred Islamic banks operating around the world, from Indonesia to United State, South Africa to Germany. The rate at which Islamic finance is encroaching into Western and Eastern countries is highly commendable. The two major hubs of Islamic banking in the world are the Gulf Cooperation Countries (GCC) and South East Asia, these two region account for majority of the big Islamic Bank in the World. Other regions of the world where Islamic banking has witnessed growth like a wildfire includes the Indian subcontinent, Africa, and Europe; and it is still making incursion into new territories. According to Ernest and young (2011), the global combine assets of Islamic commercial banks is to cross $1.1 trillion mark by 2012, this is excluding other sector of the Islamic finance industry such as Sukuk, fund management, Insurance, etc. In Africa South of the Sahara, the potential of the system is enormous and it is spreading across the countries of the continent. For example, in South Africa, though, Muslims are a minority in the rain bow nation, Islamic banking has grown over the last decade. Islamic banking is growing in such countries as Kenya, Senegal, Ghana, and Guinea. Nigeria is a new entrant into the industry, though, the agitation for the adaptation of the system in the country started over twenty years ago. But, the fact that the country has a fast growing financial industry is a great plus for Islamic finance as it makes it debut in the country.
      The first fully pledge commercially oriented Islamic Bank  in the world started in UAE some time in 1975, though, other attempt at establishing an Islamic Bank were made in the past (in Egypt and Malaysia) none succeeded as this Dubai Islamic Bank. During the last global financial crisis in 2008, Islamic banks show resilience that has impressed everyone including it mainstream conventional critics; as it was not very much affected by the crisis like their conventional counterparts. The performance of Islamic funds in Malaysia in a 2007 study5 was found to be better than their conventional counterparts during a bearish period, while the reverse is the case during bullish period. In a 2010 working paper by IMF title, ‘the effect of the global crisis on Islamic and conventional banks: A comparative study’, the study observed that credit and assets grow in the Islamic banking industry during the period 2008-09 perform better than there conventional counterparts and contributed to financial and economic stability6.  At the root of the concept of Islamic banking is the removal of interest and its replacement with profit and lost sharing. This is in contrast with the conventional banking model that is built around the charging of interest without which the whole system collapses. This explains why some conventional economists, in the early years of Islamic banking, argued that the system will not work simply because interest is eliminated from the equation. The strategic alliance between bankers and Ulama (Shariah scholars) is one of the important factors that contributed to the rapid development of Islamic finance around the world7. It enabled the Islamic banking system to evolve a financing and deposit sourcing model that differs from the traditional models developed in the early Islamic economic literature. Therefore, enabling Islamic banks to compete with conventional banks in the same environment; today, the level of financial engineering in the Islamic banking industry (though, still below the level obtains in the conventional system) is impressive. 

   The entrance of Ja’iz bank into Nigeria’s banking landscape has opened a new vista in the history and development of financial sector in Nigeria, by for the first time in the history of the nation providing an alternative funding and saving channel that is different from conventional model that dominated the country since independence. With millions of people in Nigeria that are eager for this kind of banking system, the coming of Ja’iz is long over due. As the Islamic finance industry develop in other climes around the world with substantial population of Muslims in them it is logical that it does the same in Nigeria, taking into consideration the population of Muslims and the potentialities of the largest Black Country in the world. In the last eight months of this year, Nigeria is Africa’s largest receiver of foreign direct investment, ahead of South Africa generating about 20% of the continent total8. But, other things remain to be put in place to enable the nascent industry develop in the country. Two of such things as the chairman of Ja’iz Bank, Umar Mutallab observed during the bank recent annual meeting are taxation and liquidity management. But they are not the only ones, the whole financial super structure favours the conventional banks; and nobody want to do anything substantial to change the arrangement to what is obtainable in countries such Malaysia, because of the fear of the anger of those still oppose to the introduction of the novel scheme.

  1.  Osaze, E. B., (2007), “Capital Market: African & Global”, The Book House Company, Lagos, pp  21 
  2.     Daily Trust newspaper, September 28, 2012 
  3.     CIA World fact Book, 2012
  4.    Hajara, A. (2009), “Islamic Finance: the answer to financial inclusion in Nigeria”, A presentation at EFInA Conference July 2009 
  5.     Abdullah, F., Hassan, T., Mohamad, S. (2007), “Investigation of performance of Malaysian Islamic unit trust funds: Comparison with conventional unit trust funds”, Managerial Finance Vol. 33 No.2, 2007 pp 142-153
  6.       Hasan, M. and Dridi, J. (2010), “The effects of the Global financial crisis on Islamic and     conventional Banks: A Comparative Study”, IMF Working paper WP/10/201
  7.       Kahf, M. (2002), “Strategic Trends in the Islamic Banking and Finance Movement”, A paper presented at the Harvard Forum on Islamic Finance and banking, Harvard University, Cambridge, Boston, April 6-7 2002
  8.       Text of speech of president Good Luck Jonathan during Nigeria’s 52nd independence, October 1, 2012