Non-interest banking transaction-based system good for MSMEs – Summit Bank’s MD

Dr. Sirajo Salisu, Managing Director/CEO of Summit Bank Limited, an Islamic bank in Nigeria, discussed how the non-interest banking system benefits small and medium enterprises (MSMEs) during a recent interview. Summit Bank is the fifth licensed non-interest bank in the country after JAIZ, TAJ, Lotus, and Alternative.

In non-interest banking, also known as Islamic banking, transactions are based on profit-sharing rather than interest payments. Instead of providing a loan, the bank finances a transaction and shares in the profits generated. This system encourages small businesses to engage in transactions, as there is no need for collateral or guarantees.

Dr. Salisu explained the process of profit-sharing with an example of a television set business. If a bank finances the purchase of television sets for a small business, the business sells the sets and shares the profits with the bank according to an agreed-upon profit-sharing ratio. If the business does not achieve the expected profit, the bank advises the business to reconsider the transaction, as it may not be financially viable.

Small and medium enterprises can benefit from non-interest banking by receiving immediate funds for their transactions, without the need for collateral or guarantees. This allows MSMEs to quickly start their businesses and generate profits through transaction-based financing. However, the bank also emphasizes the moral obligation to advise businesses that may not generate the expected profit, ensuring that both parties are satisfied with the transaction.