IMPACT OF COVID-19 ON NON INTEREST BANKS AND SOLUTIONS
DATE: AUGUST 27, 2020
Basheer Oshodi Ph.D.CEO, TrustBanc Arthur
Non-Performing Loans and Levels of Inflation in Nigeria
0
5
10
15
20
25
30
35
40
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
NIGERIA LIR/NPL
LIR NPL
Source: Oshodi 2018
Official Exchange rate trends – Nig & SA
Predictable Surprises: The Disasters You Should Have Seen Coming
Source: Michael D. Watkins and Max H. Bazerman
Power is a capacity to “move with others”
Power depends on both NIFIs, Regulators & Customers
Appraisal
Operating Plans
Strategies Challenged with
Scenarios
Strategy Review
BoundaryConditions
Business Review
ScenariosAppraisalAspiration
Strategic priorities, issues and initiatives within IFSB rules
External expectations within overall Shariah compliance rules
Clear expectations for Murabaha, Istisna’ & Salam transactions
Clear expectations for fixed-rental Ijarah transactions
The Present for NIFI The Path for NIFIs The Future for NIFIs
Current realities (mental maps) for NIFIs Multiples Paths for NIFIs Alternative Future Images for NIFIs
FORECASTING
SCENARIOS
Multi-Acti
ve
PRE-COVID 19
Reactive
Post-COVID 19
Scenarios Planning in COVID era
Source: Derived from - Shell; Said Business School - University of Oxford 2020; Oshodi 2020
Agency (Wakala)
Liability Contracts Asset Contracts
Impact of COVID on non-interest finance transactions
Agency contract
Mark-up Sale (Murabaha)Build-to-order (Istisna’)
Future Sale (Salam)
Sale contracts
Joint Ownership (Musharakah)
Partnership (Mudarabah)
Diminishing Partnership(Diminishing Partnership
Lease (Ijarah wa iqtina)Forward lease
(Ijarah mawsufah fi zimmah)
Equi
ty fu
nds/
Tran
sact
iona
l fun
dIn
vest
men
t fu
nds
Joint Ownership (Musharakah/Capital)
Partnership(Mudarabah/Capital)
Lease contractsPartnership contracts
Interest-free loans (Qardh)
Safe-keeping (Wadia)
Partnership (Mudarabah)
Interest-free loans (Wakala)
Low impact
High impact
Source: TrustBanc Arthur
SPV 2
Buying non-performing/struggling assets from financial institutions in the COVID period
5a Restructure/securitize/replace assets to ensure performance (DM, Istisna, Ijarah, Musharakah)5b Identify other uses and cash flow for asset5c There will be no agreement to transfer to Bank NIB when property starts to perform
Bank NIB
4 Sells assets/company (maybe on deferred payment basis)
2 Appoints as agent to aggregate non-performing or struggling assets
SPV 1
1 Appoints agent to seek for asset buyers
6 Pays fee
3 Sells/lease assets
qThis allows performance of asset qAllows increase in industry asset qReduces non-performing asset classesqAllows Bank NIB to invest in the securitized assetqPrevents double Wa’d
Source: TrustBanc Arthur
AA
AA as Agent
Real EstateBroker 1
Real EstateBroker 2
1a TBA request for N10b from AA1b This is done through aggregated rental assets1c TBA instructs AA to purchase/lease real estate on its behalf
2 AA purchase or lease property on spot basis pricing from Real Estate Broker 1
3 Sell/lease asset to AA where AA takes constructive possession
4 AA sells/leases the assets to a customer on a deferred payment basis (Cost + Profit) or forward lease basis
5 TBA as owner of assets or with defined usufruct appoints AA as agent to sell/lease the asset to Real Estate Broker 2 on a spot basis
6 Spot price of N10b is released to AA
Tawarruq/Commodity Murabaha Structure for Private REIT
q This model is similar to the ICD modelq It allows us to fund income-generating assets with features of a private REITq We can start by funding private educational institutions, homes, officesq AA represents a company we have control of Source: TrustBanc Arthur
SPV 1/Coy 1 SPV 2/Coy 2
Housing EstateIndustrial Estate
Commercial Assets
1 Aggregates real estate rentals
2a Appoints SPV 1 to sub-let property from existing property owners or those with long or even short lease
2b Appoints SPV2 to lease/let from SPV1 and sub-lease/let to the property owners
5a Sub-let/lease assets less 1 dayto individual obligors/owners for say 10% discount
5b Asset/estate owners enjoy 10% discount on their existing lease
3 Lease asset less 3 days minimum
at say 30% discount
6 Makes a 15% fee from the transaction
TrustBanc REITs-like/Rental Model
4 Sub-let/lease less 2 days minimum for say 25% discount
Source: TrustBanc Arthur
CONSORTIUM of NIFIs SPVGUARANTOR
1
3a
4
8
7
-Appoints or creates an SPV-Sells/lease existing assets
Seek for Guarantee to strengthen the private sukuk
Gives BG/guarantee
Appoints TrustBanc as asset manager to raise funds
Provides funding For 2-3 years
Fund through agency contracts with 6 months returns/payment
INVESTORS
Open-ended)/Close-ended funds through TrustBanc Arthur Note/Sukuk
Mobilize funds on demand basis or in phases based on agreed underwriting standard
6
5
Ijarah mawsufah fi zimmah, Musharakah; Mudarabah and Wakala contracts
9/6/20 8
-Coordinates all stakeholders-Aggregate asset of same type
TRUSTEES
3b
2
Cash CollateralDeposit BG or security deposit and
title documents with Trustee
Source: TrustBanc Arthur
Contact:Basheer Oshodi [email protected]://trustbancgroup.com/trustbancarthur