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 Ph.D.Basheer.Oshodi@trustbancgroup.comhttps://trustbancgroup.com/trustbancarthur