Chris Agabi
11 January 2009
interview
Nigeria really needs to grow the real sector.
Approaches have evolved from both government and the organised private sector and they are still evolving. The newest among such is Islamic financing or non interest financing that Lotus Capital Limited is pioneering.
It is agreed, Islamic finance offers cheap funding options to corporates and governments. For instance, countries like Dubai have leveraged on the Islamic bonds (sukuk) to build massive infrastructure.
Mrs. Hajara Adeola, Managing Director/CEO Lotus Capital, an expert in Islamic financing, in this interview, says Nigeria stands to benefit from this finance genre. Excerpts:
What does Lotus Capital Limited represent?
Lotus Capital is the first ethical investment company in Nigeria registered with the Securities and Exchange Commission (SEC). We are investment advisers and we manage wealth for our clients. We have public funds namely our flagship fund called the Halal Funds. We also private funds management for high network individuals and we do corporate investments and financial advisory work.
What is unique about Lotus Capital is that everything we do and everything that we are is in line with Islamic law, Sharia and operates in the field known as Islamic finance. So our investment advice and everything we do is in line with Islamic rules. In a nutshell, we will not engage in interest-based transactions, be it borrowing or lending.
More importantly, we do not engage in any of the activities that are considered harmful to society. That includes businesses that involve gambling, alcohol, tobacco, pornography, arms and interest bearing activities like commercial banking.
We screen all investment options thoroughly to make sure they don't violate the Sharia tenets before investing in them. Our first level of screening is the qualitative screening where forbidden investment sectors are identified and screened out, like breweries and tobacco. We have the second screening called the quantitative screening where we go deeper into the finances of the company to look for activities that may not on the surface appear to contravene Islamic financing tenets. In the cause of the investigation, we find out if they have engaged in activities that constitute a significant breach in terms of profit margins and other activities that violate the investment philosophy that we have subscribed to.
Here, there are basically certain financial ratios that have been agreed upon internationally by the IOC Faith Academy. Based on the ratios, we analyse the financials of the company to see if them meet those ratios like the level of leverage. For instance any interest leverage of the company exceeding five percent is not accepted.
The final level is the fundamental research and analysis. This is where we value and analyse investment opportunities before we decide to invest in. We could invest in real estate and asset backed investments which are transaction-based investment on the Islamic financial contract.
You indicated that you provide financial advisory services to corporates and individuals. Could you tell us some of your clients and the kind of services you provide?
One of our core values is confidentiality so we don't divulge our clients' identities except they give us permission to. But it could be anything from somebody who has a portfolio and wants advice on it. It could be somebody that wants to start a business or engages in a new business venture and wants investment appraisal. So we do feasibility reports and business plans for them.
We also analyse investment opportunities for them and recommend whether they should invest in them. We can also help people package their capital structure, their financial statement and the business plan to be able raise money to do business.
Islamic financing is gaining patronage globally but is Nigeria ready for such a concept given our level of underdevelopment?
I think it is well overdue. Some of the challenges can be directly or indirectly tackled by Islamic financing. For example, we have just about 15 per cent of Nigerians who have bank accounts and engage in financial services. I am aware that in the Northern part of the country, a large number of people are unbanked because they are suspicious of banks because of the religious injunctions against interests.
But if the non interest options come on stream, more people will come into the system and you know what effect that would have on the informal sector.
In addition, because Islamic finance also believes that people partner to take risks in business to make profit, the system encourages small and medium scale entrepreneurs. This is primarily because in Islamic financing, you cannot put monies in fixed deposits but you can partner with people to create wealth through entrepreneurships. This creates jobs, which moves money around the economy and creates economic activities. It's been proved in economic principles that it is better system for economic development.
The limiting factors for us here are lack of awareness and skilled hands in this area. But this is an international problem, not many people are aware of this concept.
Another critical factor is the area of regulation and monitoring. You can't do business without some form of protection on the public and investor. That means the regulator would have to be carried along here.
I am impressed with what CBN and SEC have done in this regard. They have travelled wide to areas where this philosophy is practised and they are exposing themselves to Islamic financing. This will encourage the sector to grow. They are also open to suggestions and ideas on how the sector can grow.
Your flagship, the N1 billion Halal Funds public offer recorded an over subscription of over 278 per cent. With such huge funds at your disposal, what specifically would you be doing?
Our investment universe is made up of three asset classes. According to our prospectus, we invest in screened stocks like I earlier explained; we also invest in real estate and we invest in asset-backed investments. All this is Islamically acceptable.
Can a Christian also invest in Halal Funds or is it strictly for Muslims?
It is a common assumption that it is an Islamic affair but it is a misconception. If you look at what it stands for, it is not harmful to anybody. It is more about including those who have been excluded in the past. If you had a choice of investing in other funds and you couldn't, this is a fund that you can invest in.
I think what people are looking for primarily when they invest are returns on investment. They want their monies to grow and be safe. In addition, some people need to have the peace of mind that their investments are also in line with what they believe in, which is not limited to Muslims.
In the Halal Funds subscription, we saw a lot of non Muslims buying into it and I think that has proved the point. If you take it outside of Nigeria, the clients of the Islamic banks are not Muslims alone. In fact, from the HSBC experience in Malaysia, the Amana Finance has 70 per cent non Muslim clients.
Do you see any great threat from the global financial crunch on the growth of your business here and Islamic financing generally?
I think the financial meltdown more than anything else will promote Islamic financing. Because what we have seen is a better performance of Islamic funds and of Islamic banks based on the indices than conventional banks.
In a boom market, everybody does well and it is hard to tell what is working and what is not working because everything works. But in a bad market, you can decipher. Risk can also be factored. So anytime you are making money, someone else is taking the risks. The logic is to have a risk adjusted returns, a return that is not excessively risky which Islamic finance provides. I think what is happening globally is raising a lot of questions about whether more and more people should or shouldn't consider Islamic finance as an alternative.
Activities of Islamic financing have to some extent reduced the cost of some mortgages in the UK for instance or at least where such Islamic finance mortgage options exist. Back home, we have a housing crisis, so what are your plans for mortgage here in Nigeria?
Housing is something that we all need and it is a challenge in Nigeria that almost everyone faces. The challenges are more with legal security, title, transfer of title from one title to another because it is such a long, costly and risky process that even in conventional sense, it makes mortgages difficult in cost effective and practical manner. I think there is still a lot of work to be done in terms of creating the enabling environment.
What do Islamic financing and Lotus Capital hold for Nigeria in the near future?
Honestly, I call this industry the next frontier of finance. That is how large I see the prospects. I believe it is an exciting field and it has so much value addition for individuals and for the country. It could be applying the principles of Islamic financing to solving economic problems and infrastructure developments that we require here. I am extremely excited about it and it is the reason I will sell the concept to the whole world on January 15th in Lagos at the Muson Centre in a seminar.
I am bringing in speakers to come and tell us how the philosophy is practised and how to domesticate it here. Though we have collaborators, anybody who is interested in progressing the future of this country and raising our level of development and success should attend.
We have at least 140 million Nigerians and at least 90 million of them may be interested in this investment options based on projections. What products are you offering?
At Lotus Capital, it is going to be continuous innovations; alternative and fresh ideas, new ways of doing things and best quality. We hope to continue to be the vanguard of this field and the existing field to push the development of this country.
So why the choice of your speakers because we understand you have people like Professor Monzer Kahf and Neil D. Miller billed for talks?
They are the best you can find. Professor Monzer Kahf is a renowned Islamic finance scholar for at least 30 years. He is a publisher, writer, lecturer and an economist. He was a senior research economist at the Islamic Development Bank in Jeddah for 14 years. He ran the research department. He is an independent researcher and consultant. He is well versed in conventional finance, Islamic finance and the Sharia. He is an inspiring lecturer. He is also on the Sharia advisory board of Lotus Capital which guides all our investments.
Neil D. Miller on the other hand is the Partner, Global Head, Islamic Finance Norton Rose LLP and it is one of the leading firms in the UK doing wide range of Islamic finance. He is well versed. He has worked on international deals on Islamic finance. He is also on the expert committee advising the UK government on the Islamic fund that they intend to issue to help finance some of their infrastructure. He is bringing practical experiences and the challenges including regulatory knowledge options here. He is even a Christian and that is the story of Islamic financing where Christians are big professionals. We would also have discussion panels comprising of key Nigerian professionals.
Talking about using Islamic bonds or funds to finance infrastructure, are you currently financing infrastructural projects with monies you have raised?
No. Not at the moment. But we believe that is the way forward given the megacity projects across the country. Lagos for instance, is projected to have a population of 25 million by 2015, how would they finance the huge infrastructure to cater for that population. Islamic funds are perhaps the cheapest they can leverage on.
People, rightly or wrongly believe that in Islam, it is men's world and here you are a Muslim woman commanding this authority in an area that is seemingly an exclusive reserve for men, how are you faring?
That is a difficult question to answer because I don't know whether I should feel I am a man. One of the things that I have learnt is that people are very unemotional when it comes to their money. When it comes to money, business and wealth creation they just would want to get the job done and they want to give to the person they feel they can deliver on the job.
Even as a woman you earn your professional competence and financial competence overtime. I haven't had any problems anywhere in dealing with anybody in terms of whether I am a woman in Muslim society. During the Halal Funds, we had a road show and we travelled to the North. We met Muslim and religious leaders but I didn't have any problems interacting with them. I think what is important is, if you have something of value to offer, you would get audience.
Talking about competition, are you bothered that conventional banks and even micro finance banks are offering Islamic banking to clients? Wouldn't that affect your fortunes?
Competition is good for everybody. You just have to be good at what you do and you have to keep on improving on your service. I am not aware of too many people having it now and part of the reasons we are having this public seminar is to raise the level of awareness and competence in this market. The most important thing is for the services to be offered to people in the right way and people getting the right stuff and not some sort of packaging.
So we are more interested in the quality of what we are offering and that is what we focus on. We are inviting even competitors because that is what the seminar is all about so we can collectively build the industry.
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