Dr Sirajo Salisu, Managing Director/CEO Of Summit Bank Limited, a non-interest bank, in this interview said small businesses benefit more from transaction-based non-interest banking.
Talk to us about Summit Bank What is Summit Bank all about? Is it one of the new banks in town?
Summit Bank is a newly licensed non-interest bank We’re actually number five in that area. From JAIZ, TAJ, Lotus, Alternative, then you have Summit Bank.
I’m mentioning this so that people will easily remember that it’s an Islamic bank and it’s number five in the country in terms of licensing
What is the situation of non-interest banking in Nigeria?
Non-interest banking, or as it should be, Islamic banking, is a system of banking that is transaction-based
When I say transaction-based, it’s not a system of banking where you just go and borrow money directly Instead, we finance a transaction and share profit. When we talk about profit sharing, that is what also brings a lot of questions.
People will be thinking 50-50, 90-10, 95-5 or 50-50 is sharing It all depends on what was agreed. The issue of profit sharing is simply because it’s a transaction-based system of banking.
You cannot go to a non-interest bank and just say, “Give me a loan of N1 million” You take N1 million and next time maybe you pay N1.1 million. That is not the case.
But you have a transaction For example, you ask us to finance N1 million to buy a number of television sets. You buy and sell them, and this is what you get. This is how our profit is coming.
The use of a rate of interest is just an identification because businesses are so much used to paying profit on that basis
For example, there are a lot of people who do not understand how this works Just for clarity, if somebody wants to buy property, for example, and the property is valued at N20 million, Summit Bank finances the property at that rate. Once the property is held for three, four or five years and appreciates to, let’s say, N50 million, and it is sold, how would the profit be shared? Are you going to take out your N20 million and share the interest, or are you going to put everything together and share it?
You see, apart from just financing, if I use the word “loan” here, I’m only using it for people to understand
When you come to an Islamic bank to get financing, that is the loan we are talking about We have a duty to provide financial advisory services, just to advise you.
In this case, you buy a house for N20 million and you are just keeping it The money or the property we are charging you for, we are not an NGO; we are charging you.
If you keep this property for one, two, three, four or five years and it does not appreciate to the level of what we are going to charge you, we end up working for the bank That is also another way that we feel there is no justice in that type of transaction.
So we have a moral obligation to advise you that what you are going into, you are likely not to make a profit
However, if you buy a house for, let’s say, N20 million and we agree that we are going to share profit, whether 50-50 or whatever the agreement, if you sell, that is the sharing formula we are using
But if we want to simplify it, we say we are charging you and we are expecting 30% returns on our investment That is where you annualise it.
So it means we are expecting 30% When you use the word “per annum,” it could be for six months, two months or three months. But if you keep it until after one year, then you have annualised it.
So we are expecting 30% returns on it If you keep it again for another one year, can you now see the financial implication? If you keep it again for another year, that is three years, then you are just accumulating charges on it.
However, if you are buying today to sell and you share profit, that is where you are happy and we are happy
When we see that you are going into a transaction that you may not likely get the expected profit, that is where that moral obligation comes in We advise you and say, “Look, we are not doing it.”
If you are so adamant about it, since it is a transaction, after that advice, we still tell you that we are not interested
It is not that we are sending away the customer, but because non-interest banking is all about transaction-based banking If that transaction is going to be harmful to you, we feel we just have to advise you and prevent you from going into it.
How can small and medium enterprises benefit from non-interest banking?
The fact that it is a transaction-based type of banking, this is where the small players are supposed to benefit more
If truly you want to improve your own business, I come to you and you are doing, let’s say, food selling Let me use the example of a roadside food seller.
Early in the morning, we can give you money to buy all the ingredients you require By afternoon, your business is done. I’m happy, you are happy. That is going at that lowest level.
But when you go to the medium level, that is the usual MSME This is where we can support you, whether you are a startup, whether you are looking for expansion, or whether you are actually looking for how to grow in that business.
However, it’s not to scare people away, but unfortunately, most of the people who could have even come to you, seeing your commitment, using your character and based on your integrity, could get one or two people to guarantee you We are not even going to ask for collateral. That could have been the best.
But where you are operating in an environment where, when people get financial collateral, what comes to their mind from day one is, “How do I run away with this money?” That is where the problem is
Let’s look at how technology, which has been driving almost all the banks now, is being deployed at Summit Bank
At Summit Bank, we approach our business from two very wide perspectives: the traditional banking services, which are known to everyone, and the digital side of it
Meaning, we are a bank, but we want to use technology to reach out because that could be the easiest way for financial inclusion
So we are known for our digital platform, where you can open your account online You can do your transactions there. If you are a corporate organisation, you can do so through corporate internet banking.
Our mobile app is running very efficiently, so you can also do your banking transactions there You can also use our USSD to do most of the transactions, especially where the network seems not to be very good for you or in some of the rural areas.
So under these digital channels, we also try to reach out to as many customers as possible