Islamic Finance
Islamic banking and finance is now one of the world’s fastest-growing economic sectors, with more than 400 Islamic banks and financial-services enterprises in more than 70 countries now managing assets totaling more than USD 1 trillion. Dubai has positioned itself as an international hub for Islamic finance, and local Islamic financial institutions are performing extremely well.
Dubai hub for fast-growing Islamic financial services
Dubai Islamic Bank (DIB), for example, which became the world’s first Islamic bank when it was founded in 1975, saw its net profits rise 31 percent to reach AED 556 million in the first quarter of 2008 alone, while its assets rose 24 percent over the same period to reach AED 85.1 billion. The bank, headed by Mohammed Al Shaibani, Chairman, is currently expanding significantly. Ayman Adel Kamal, DIB’s head of investments and real estate, explains, “DIB’s regional presence is well established, and now the bank is focusing on developing a greater international presence. We aim to be the number one Islamic financial-services institution in the world.”
Dubai Bank has record quarter
Another local leader, Dubai Bank, founded in 2002, became a Sharia-compliant financial institution in January 2007 and has grown rapidly ever since, reporting net profits of AED 131.5 million in first-quarter 2008, a 300 percent increase over the previous year. Dubai Bank has recently appointed a new management team, headed by non-executive chairman Fadel Al Ali, who is also Executive Chairman Operations of Dubai Holding. He brings a wealth of experience in banking and Sharia-compliant investments and will oversee the expansion of Dubai Bank in key global markets.
Dubai Bank’s CEO, Salaam Al Shaksy, explains the bank’s ambitious growth plans. He says, “We are Sharia-compliant but we practice banking, period. We will be a global bank with branches in Dubai and not a Dubai bank with branches abroad. Dubai Bank is firmly pursuing a sound growth strategy, and the coming few years will prove highly successful for this financial institution. We will raise the bar on the bank’s service and product deliverables.”
Amlak: region’s biggest public Islamic financial-services firm
Amlak Finance, founded in Dubai in 2000 as the first specialized home-finance provider in the local market, is now the largest publicly held Islamic finance company in the emirates. Amlak focuses on offering medium- to long-term Islamic-financing solutions for residential and commercial properties, as well as complete solutions for real-estate developers, escrow accounts for property investors (one of the first to offer such accounts), and other services.
Amlak introduced the first Sharia-compliant refinance product in the United Arab Emirates, and is now expanding throughout the region through strategic alliances. Nasser Al-Shaikh, Chairman, explains, “Just as Dubai has transformed itself over the years, Amlak has grown to become a mature and diversified, publicly listed Islamic financial institution. We are the market leaders, ranked number one in our field in the region.” He adds, “We had a great first quarter this year and are moving ahead even more strongly than anticipated.”
Al-Shaikh points out that Amlak has played a key role in advising local governments about mortgage policies, providing this service to the governments of Syria and Qatar as well as Dubai. He explains, “When we enter a market, we know we can be number one there, and therefore we share our expertise to help the country benefit from our know-how and technology so that it can improve its infrastructure and policies.” Commenting on Dubai’s success story, he says, “Dubai is succeeding because it is based on the collective efforts of the 200 nationalities living here and working in harmony.”
Trends in Islamic banking
Most Islamic financial institutions in Dubai and elsewhere in the Gulf region are expanding locally and internationally as well as increasing their product portfolios. New trends in Islamic financing options include more long-term investors, the creation of a liquid secondary market for Islamic instruments, enhanced risk-management tools, new mortgage and other retail products, strong interest in Islamic funds, and increasing interest in Takaful (Islamic insurance) products. Popular Islamic banking options include floating-interest-rate loans, joint ventures (Musharakah), and venture-capital funding (Mudaraba). In all these arrangements, profit and risk are equally shared.
Demand for Takaful products in the Middle East has grown particularly strongly, with investors seeking the transparency and security of such funds, as well as their adherence to Islamic values. Dubai-based Nexus recently launched a Unit-Linked Takaful and Savings Plan in partnership with Dubai Islamic Insurance and Reinsurance Company (AMAN) and Munich-based FWU Group. Mahmoud Nodjoumi, Nexus CEO, explains, “The Takaful market is becoming increasingly sophisticated in response to customer demand, providing an equivalent level of return to conventional financial products, as well as a high level of transparency and flexibility.”
Islamic project financing
Many Islamic financial institutions in Dubai and elsewhere are issuing Sukuks (Sharia-compliant bonds) to finance development projects, and the Dubai International Financial Exchange is now the world’s biggest exchange for Sukuks in listed value.
The Islamic investment equity-funds market is also a fast-growing niche, along with Islamic mortgage financing. As Edmund O’Sullivan, Chairman of the Middle East Economic Digest, comments, “Improvements in availability and quality of [Islamic financing] products will inevitably lead to greater integration of Islamic project finance in the Gulf countries and elsewhere.”
