Islamic banking 'offers flexible financing choices' to all clients

Dubai: Ebrahim Fayez Al Shamsi's mild manners and pensive demeanour almost hide the aggressive banker in him. Al Shamsi is the CEO of Emirates Islamic Bank (EIB), the fastest growing Islamic bank in UAE. He has 35 years of experience in various international, regional and local institutions.

EIB was launched in October 2004 following the conversion of a Middle East bank into a full-service Islamic bank offering a range of Sharia-compliant products.

Sitting in his office at Dubai Festival City, Al Shamsi spoke to Gulf News about the future of Islamic banking, the role of EIB within the Emirates NBD Group and the process of transforming EIB into a modern Islamic bank that caters to all classes of customers.

Gulf News: Do you have any specific advantage being a part of Emirates NBD?

Ebrahim Fayez Al Shamsi: Of course, being part of a big group gives us a lot of leverage in the local and the regional markets. We complement the group's services and operations as its Islamic banking arm.

Isn't being part of a conventional banking group contradictory to Islamic banking principles?

It is only ownership that is common between us and Emirates NBD. For all other purposes we are different banks working on a completely different set of banking principles catering to different customers.

Ownership does not matter in our business as long as we work within Islamic principles. We have different sets of products and services targeted at customers with different needs.

In that sense we have neither conflict of interests nor do our operations in any way contradict the purpose of our establishment. Customers don't come to us just because of their beliefs. The diversity of products, the comfort level and transparency also matters.

When Emirates NBD was formed, it was announced that one of the group's strategic objectives is to expand regionally; do you see EIB going regional in the near future?

Yes. We are looking at regional and international expansion. We have already initiated the process through a strategic stake in the Al Baraka Group. We are also looking at joint venture operations in some of the key Middle Eastern and Asian markets. We have already started the process in Syria.

We have been approached by some European countries with strong Muslim business communities to set up Islamic banking units. We are looking at these proposals seriously. The execution of these projects will be done either through joint ventures with local groups or other international partners.

But these things take time as the regulations in these countries are not geared to deal with Islamic banking operations. In addition, taxation is an issue as most Islamic financing deals involve asset trading such as sale and lease back.

Expansion

Are you looking at aggressive expansion within the UAE?

When we started we had nine branches. Today, we have 23 with five under construction. We plan to open 10 more branches, this year, taking our network to 40 early next year. In the context of such expansion, we face challenges in terms of human resources and infrastructure. We started with about 200 employees and presently employ about 1,000 people. The staff strength is set to grow further this year.

Our assets have grown 10 times since we started. Between 2004 and 2007, deposits have grown 10 times. Our equity has increased almost 1.5 times and profit about 10 times. These are record growth rates.

How successful are your initiatives to launch separate branches or branch areas for women?

They have been well-received by our women customers. The encouraging response has prompted us to start more such branches or special designated areas for women. The focus will be increasingly on residential areas where women can easily access our branch services.

Where do you think the Islamic banking growth is coming from? Is it retail or corporate banking that is driving the growth?

I think both. But corporate business has been witnessing phenomenal growth in the UAE in line with the country's massive economic growth. Of course, the retail business growth is also directly linked to the performance of the economy. The small and medium enterprises (SME) segment is also a key element in our retail business portfolio. In the corporate segment a lot of our business is linked to the real estate sector. We are very selective in our real estate exposure while we insist on customers' participation in both mortgage products and real estate financing.

Is the central bank regulation limiting real estate project financing up to 20 per cent of your deposits becoming a big constraint? Are you planning a real estate subsidiary?

Not really. As of now we intend to limit our real estate exposure to the ceilings set by the central bank. Yes, a few banks did launch such subsidiaries in the past, but we don't see the need for a subsidiary in the near future.

Are you looking forward to more wakala deals as the one you did with Amlak last year.

A wakala deal is where you invest your money with a partner in any specific projects and share the profits at a pre-agreed rate. We have signed a Dh800 million deal with Amlak. In these types of deals the underlying assets are clearly identified ahead of the deal. Whenever see such viable projects we are keen to do such large-scale deals. But there aren't many such transactions available in the market.

Are you planning to expand your fund management business?

We have our asset management group which caters to the whole Emirates NBD Group including EIB. The customers' demands are becoming more sophisticated. They ask for more investment products as the overall profit rate on the deposits is slowing.

We are trying to provide certain investment products that comply with Sharia principles. We were one of the first banks to have launched Sharia-compliant real estate funds.

New funds

Recently we launched the Danat India RIA Fund, which capitalises on the booming real estate market in India, presently one of the fastest growing economies in the world and a prime market for real estate investment.

The maximum offer of the Mudarabah Fund is Dh210 million. The bank is co-investing its own proprietary money in the fund to the tune of Dh60 million. We are fully geared to respond to the investment demands of our customer and our asset management team is there to assist us.

Is there any plan to go for an initial public offering in the near future?

It is for our owners, the Emirates NBD Group to decide. Whenever we need capital infusion they find the solution. Ultimately it is their decision if they want to sell the shares of the bank to raise additional funds. As far as we are concerned, our funding needs are adequately addressed by the group. Currently Tier 2 capital is one of our key sources of funding. Of course, IPO could be an option when our owners decide.

We have used sukuk in the past to meet some of our funding needs. We have that option depending on the market conditions. Currently, sukuk may not be the right option because of the higher pricing factor.

At the present level of business, what is the kind of capital infusion you are looking at this year and the next?

We are a fast-growing bank with our current asset size near Dh20 billion mark. According to central bank requirements we need to increase our capital to Dh1.5 billion from the current Dh800 million.

Has the Islamic banking market become crowded in the UAE with the launch of new banks or conversion of existing banks in addition to opening of Islamic windows by several conventional banks?

The Islamic banking in the UAE is currently regulated by conventional banking laws. In Bahrain, they have Islamic banking regulations. We are pushing for separate Islamic banking regulations in the country. There are two reasons for the rapid growth of the Islamic banking sector. One is linked to the religion and the other is purely commercial.

The religious reason is obvious as Muslims in general prefer to do business with Islamic banks. But from the business point of view, the growth in the sector is almost double the growth in the conventional segment. Profitability has been the major driving force behind the growth of Islamic banks.

In a way it is very unfair to compare conventional banks with Islamic banks. Conventional banking, on the asset side, is driven by a single product - loans - under different names.

Different needs

Islamic banks offer several options. Not every customer is looking for a loan to fund a project. There are some people who want partnerships, others want leasing and some may want a combination of financing deals. Islamic banking has the flexibility to offer all these options to customers and that is the reason it is becoming very popular among not only Muslims but all segments of society.

It would have been ideal if we had only a few large Islamic banks. Today, we have eight Islamic banks in the UAE, but Bahrain has more. Of course as more players enter the market, there could be opportunities for consolidation.

I think the Islamic windows of conventional banks will not last long because there is no reason for people to choose them when there are Islamic banks. People who believe in Islamic banking should do Islamic banking.