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ISLAMIC FINANCE & CAPITAL MARKETS

Jaiz Bank: Islamic Lender Leads Top Earnings Performers

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By Julius Alagbe

With more than 70% growth in profit after tax, Jaiz Bank Plc. grew its balance sheet as the Islamic lender’s compliance with shariah policy balance key risks following a shift into corporate transactions in the last 12-months. Its unaudited financial statement for the first half of 2021 shows that total assets expanded to N244.386 billion from N233.596 billion at the beginning of the year. The growth in the bank’s statement of financial position was driven by its investment in Sukuk, Murabaha receivables, and investment in Ijara assets among others.

The Islamic lender’s shareholders fund declined to N17.027 billion from N17.845 billion after the bank paid N883.929 million dividend in the year. For Islam, sharia law refutes treating money as an asset that could generate interest but allow profit sharing for taking risks in productive activities.

As the Nigerian banking industry faces net interest margin decline, the sharia policy appears to be keeping Jaiz going with the bank’s earnings skyrocketing year on year.

However, a possible downside to the bank operation could be regulatory demand as Central Bank sets a 65% loan to deposit ratio target. But with less than N100 billion customers’ deposits as of the end of the first half, the risk to the income statement again appears low.

In the first half of the financial year 2020 report, Jaiz bank customers deposits printed at N74.580 billion before a record increase to N92.512 billion a year after.

Jaiz Bank would not give loans as it contradicts Islamic policy but could finance corporate and retail contracts on a profit-sharing basis. That could mean that deposit growth must be balanced with the number of contracts sponsored to match the prevailing loan to deposits policy.

According to their separate financial statement for the first half of the year, many banks fall behind the CBN target due to a low appetite for lending. The net interest margin has fallen below the pre-pandemic period.

The interest rate on loans and advances to customers have relatively dropped as the CBN moves to drive growth in the Nigerian economy but banks’ net interest margin has suffered a messy meltdown, keeping lending appetite low.

For Jaiz Bank, a low-interest rate environment could work in its favour as the cost of obtaining funds declined across the industry.

However, MarketForces Africa analysts spotted that profit from financing investment paid to Mudarabah account holders -a profit-sharing and loss bearing contract where someone supplies funding- jumped to N2.096 billion from N1.730 billion a year ago.

In 12-month, Jaiz Bank Plc grows earnings per share by more than 70%, an uncommon feat in the banking sector amidst Nigeria’s low-interest rate environment driven by the central bank monetary policy rate of 11.5%.

This has dried up yields in the fixed income market where Nigerian banks often play big as the government moves to reduce debt service costs burden and drive gross domestic product growth.

But Jaiz is not prone to the interest rate movement really as the Islamic banks earn from a share of profit on its contract financing activities.

“Sharia prohibits the payment or acceptance of interest charges or ‘riba’ on cash extended to customers or in trading activities. Islam does not really regard money as an asset from which it permissible to earn returns’, Islamic Finance scholar told MarketForces Africa.

Traded at 56 kobo, the Islamic lender market valuation settled at N16.5 billion on the local bourse for about 29.5 billion shares outstanding. Meanwhile, seven (7) shareholders account for 69.95% of the bank’s share outstanding as of the end of 2021 and this shareholding pattern appears to have been at the level in the last 12-month.

Other directors with marginal influence held 7.29% in addition while the bank maintained 22.76% as a free float in compliance with Nigerian Exchange’s requirement.

In its unaudited financial statement for the first half of 2021, Jaiz bank income from financed contracts increased to N7.175 billion, representing about a 58% jump from N4.550 billion in the first half of 2020.

The key driver of the increase was Murabaha profit from corporate deals (a sharia-compliant sales transaction used in trade and asset financing) which printed at N3.282 billion in the first six months in the year – about twice what the Islamic lender earned in the first half of 2020.

In the first six months in 2020, Jaiz Bank Murabaha from the corporate segment had settled at N1.637 billion. Murabaha from corporate accounted for 45% of the bank income from financed contracts, from about 36% record in the comparable period in 2020.

Meanwhile, the retail segment witnessed a slowdown in Murabaha related transactions. The bank asset financing in the segment returned N700 million as against N828 million delivered in the comparable period in 2020.

It appears the bank drive retail asset financing last year amidst the pandemic but a year after it has shifted focus to the corporate which accounts for a large chunk of the bank’s Murabaha profit. Again, Murabaha income from letter of credit financing jumped to about N150 million from N115 million last year.

Overall, total income from Murabaha transactions came saw more than 88% growth to N5.148 billion in the first half of 2021, from N2.732 billion 12-month ago.

Total profit from Ijara, a contract of sales of the right to use an asset for a period of time, transaction printed at N1.814 billion in the period. Expanded by 2%, at the end of the first half of 2020, Jaiz profit from the Ijara transaction had printed at N1.774 billion.

Jaiz bank recorded more than 45% growth in gross income in the period to N11.652 billion from N8.004 billion in the comparable period. The Islamic lender’s net income from financing and investing activities yielded N7.048 billion in the first half of 2021 from N5.364 billion.

The Islamic bank see total income expanded 42% to N8.861 billion, from N6.234 billion in the comparable period in 2020 as Nigeria’s economy rebounds. Its operating expenses thud printed higher, surged by more than 34% to N6.563 billion, from N4.887 billion in the comparable period amidst steep headline inflation rate and tightening regulatory demands.

However, Jaiz Bank delivered more than 70% earnings boost as profit after tax settled at N1.999 billion in the first half of the year, from N1.171 billion in the comparable period in 2020 yet with a positive outlook into the future – all things being equal.

This article was first published in the Market Forces Africa News Media


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ISLAMIC FINANCE & CAPITAL MARKETS

The Future of Financial Services Talent

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Cities like Dubai and Singapore have witnessed an influx of financial services professionals from more traditional global financial hubs

The Covid-19 pandemic led to the `Great Resignation’ as many professionals reconsidered elements of their careers, including career progression, compensation, corporate culture, training opportunities, working arrangements, and wellbeing. Employers who are receptive to these new expectations are more likely to attract and retain talent. Financial institutions recognise that they can access a wider pool of talent if they improve their career development programmes.

Since the pandemic, large financial institutions have been providing more career opportunities at new offices in cities such as Dubai, as a way to retain current employees and attract new highly skilled professionals. Dubai offers an enticing array of benefits for international talent, including its strategic location, easy immigration processes and a high quality of life that supports a wide array of lifestyles.

The “Future of Financial Services Talent” report, the third in a series covering recent trends in Dubai’s financial industry, is a collaborative effort between DIFC and LSEG Data & Analytics. It offers an overview of the financial services talent landscape and insights into the new expectations talent has from employers, which will influence management styles in the industry. Furthermore, the report outlines DIFC’s value proposition as a global hub that attracts world-class specialized talent.

Click here to access the full report: 


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ISLAMIC FINANCE & CAPITAL MARKETS

Malaysia As An Islamic Finance Hub: From Humble Seed to Global Sun

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Malaysia’s rise as the world’s premier Islamic finance hub is a compelling tale of vision, perseverance, and unwavering commitment to ethical principles. It’s a story not just of numbers and financial products, but of a nation transforming itself into a beacon of hope for a more equitable and sustainable financial future. Let’s delve into the key chapters of this remarkable journey:

Planting the Seeds: 1960s-1980s – A Spark Ignites

While the concept of Islamic finance predates modern history, its modern incarnation began in the 1960s. In Malaysia, the embers of change were first stoked in the 1980s with the establishment of Bank Islam, the nation’s first dedicated Islamic bank. This pioneering step, however, faced challenges like limited awareness and nascent regulations. The industry remained a small sapling, yearning for sunlight and nourishment.

Blossoming Under Policy Sun: 1990s-2000s – Government Nurturing Propels Growth

The 1990s witnessed a transformative downpour. Recognizing the economic and ethical potential of Islamic finance, the Malaysian government adopted a proactive approach. Landmark initiatives like the Islamic Banking Act of 1989 and the establishment of the International Centre for Education in Islamic Finance (INCEIF) provided the vital nutrients the industry needed to flourish.

With government backing, public trust blossomed. Innovative products like sukuk bonds and microfinance options catering to diverse needs emerged, painting the financial landscape with vibrant hues of Sharia-compliant solutions. By the early 2000s, Malaysia had transformed from a humble sapling to a thriving tree, attracting international investors and solidifying its position as a regional Islamic finance hub.

Beyond Banking: 2010s-Present – Diversification Unfurls New Branches

The past decade has seen the Malaysian Islamic finance ecosystem diversify beyond mere banking. Sharia-compliant insurance, capital markets, wealth management, and fintech solutions have taken root, creating a sprawling canopy of ethical financial activity. This diversification strengthened Malaysia’s position as a comprehensive one-stop shop for global investors seeking Sharia-compliant solutions.

Specifying Milestones:

  • 1983: Bank Islam, the first dedicated Islamic bank in Malaysia, established.
  • 1990: Islamic Banking Act of 1989 laid the legal foundation for the industry.
  • 1993: International Centre for Education in Islamic Finance (INCEIF) established, becoming a global leader in Islamic finance education.
  • 1998: International Islamic Financial Market (IIFM) launched, facilitating cross-border sukuk issuance.
  • 2004: Global Sukuk Challenge launched, driving innovation and growth in the sukuk market.
  • 2008: Financial Sector Blueprint 2009-2015 introduced initiatives to further develop the Islamic finance industry.
  • 2011: Securities Commission Malaysia (SC) established a dedicated Islamic Capital Market Unit.
  • 2016: Financial Services Act 2013 implemented, creating a single regulatory framework for all financial institutions, including Islamic finance providers.

Looking Ahead: A Future Rooted in Innovation and Ethics

Today, Malaysia’s Islamic finance industry boasts a robust infrastructure, a diverse product range, and a thriving ecosystem of players. It contributes significantly to the national economy, attracting foreign investment, creating jobs, and promoting financial inclusion. But Malaysia’s ambitions reach beyond its present borders.

The country is actively embracing technological advancements, with blockchain and big data being explored to enhance reach and efficiency. Research and development initiatives are paving the way for new Sharia-compliant instruments, ensuring Malaysia remains at the forefront of Islamic finance innovation.


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ISLAMIC FINANCE & CAPITAL MARKETS

Nigeria’s Finance Minister Advocates Shift to Islamic Finance for Economic Growth

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Nigeria’s Finance Minister and Coordinating Minister for the Economy, Wale Edun, addressed a gathering in Abuja, shedding light on the Federal Government’s decision to embrace Islamic Finance as an alternative economic model. Edun highlighted the pressing need to move away from “elevated high levels” of interest-based financing, stating that global financial dynamics can no longer sustain such practices.

Speaking at a program organized by the Security Exchange Commission (SEC) and the Islamic Financial Services Board (IFSB), Edun pointed out that both man-made and natural shocks have driven interest rates to unsustainable heights. He emphasized how these elevated rates have become a significant constraint on development, particularly due to the soaring cost of borrowing.

“The detrimental impact of high interest rates makes it impossible to access the funds needed for development, infrastructure, and even social services,” stated Minister Edun, underlining the severe consequences on vital sectors such as infrastructure, education, and healthcare.

In a notable shift towards alternative financing, Edun drew attention to a recent $30 million grant from the United Arab Emirates (UAE), dedicated to climate action and adaptation in Nigeria. What sets this grant apart is that it was funded through Islamic finance principles, signaling a change in the landscape of available resources.

“Funds these days are with those who practice Islamic finance. You better follow the money,” urged Edun, pointing to the increasing prominence of Islamic finance in global financial flows.

Edun stressed the importance of a deeper understanding and utilization of Islamic finance, labeling it “a veritable tool for financing development,” as endorsed by the IFSB (Islamic Financial Services Board). He emphasized the imperative of harnessing the potential of Islamic finance to fuel economic growth effectively.

“With Nigeria’s objective of achieving rapid, inclusive, and sustainable economic growth, it is crucial to learn from the IFSB and educate oneself to make optimal use of this financing tool,” said Edun.


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