Widely recognized as a global leader in Islamic finance, the assets in Bahrain’s Islamic banking sector have risen from $1.9 billion in 2000 to $25.1 billion in 2015, and account for around 13% of the kingdom’s total banking assets. Great experience in Sharia-compliant financing and investment make some of the kingdom’s major banking figures, such as Al Salam Bank-Bahrain, particularly appealing to the growing number of international clients looking for an expert partner in the sector, as Director & Group CEO Yousif Abdulla Taqi explains.
What is the growing role and the demand for Islamic finance around the world?
It is true that the Islamic finance industry is attracting increasing global attention. The size of the industry ever increasing and Ernst & Young’s finding are solid proof. In fact this remarkable growth is attributable to various factors, such as strong growth in the Gulf Cooperation Council countries and emerging markets in Asia, as well as an expansion into new markets in Europe, Australia, Brazil and China, amongst others. We see more and more conventional banks offering Islamic financing.
Sharia-compliant financing and investment products are open to all, Islamic or non-Islamic investors. In addition to the steady growth, investors are attracted to Islamic finance products for various reasons such as: diversification, ethical investments and asset-based investments.
What role does Bahrain play in the region and also globally as a leader in Islamic finance?
Bahrain is widely recognized as a global leader in Islamic finance. With international organizations such as International Islamic Financial Market (IIFM) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) located in Bahrain, we are at the forefront and point of reference for the sector around the world. Also it is important to remember, when some countries started introducing Islamic finance as an alternative to conventional banking, Bahrain has been practicing it for decades. The kingdom’s history in Islamic financing is a key component to our competitiveness, where we have a very strong educated human capital. Bahraini financial institutions have embraced the sector and over the years have managed to develop a strong pool of professionals that currently lead the sector.
Lastly, as an Islamic banking institution, we are behind the driving wheel for one of the rapid growing and important sectors in the country, where the Economic Development Board reported that the assets in Bahrain’s Islamic banking sector have risen from $1.9 billion in 2000 to $25.1 billion in 2015, and account for around 13% of the kingdom’s total banking assets.
All these factors help to cement the kingdom’s claim to being one of the premier Islamic finance hubs in the world.
Please discuss Al Salam’s key role within Bahrain’s Islamic finance eco-system in developing Bahrain’s Islamic finance
Al Salam Bank-Bahrain (ASBB) has a 6% market share of total Bahraini bank financing, and a similar market share of total Bahraini bank deposits. The bank’s portfolio comprises investments across various industries. New investments and acquisitions included a merger with the BMI bank, which set a benchmark on how a conventional bank can be merged successfully with an Islamic bank. The bank in recent years has also entered into a partnership in an upscale residential development in Mayfair London, Texas, and North Carolina, amongst others.
Over the last years we have grown from a very small institution to a large entity, and have attained our geographical diversification through our subsidiaries and associates. Our policy and vision is to be cautious, but at the same time seizing opportunities for growing in emerging markets.
2015 witnessed the ongoing execution of the merging Islamic with the conventional corporate banking systems, vis-à-vis the BMI Bank. What are the distinct advantages of the merger, of conventional with Islamic systems?
Switching from conventional ‘Western’ financial practices to Islamic banking gives distinct advantages to banks, with the change improving the liquidity and value of stocks. Islamic banking is consistent with the principles of Sharia, or Islamic law, which prohibits acceptance of interest or fees for loans of money.
The ‘credit crunch’ resulted in customers losing confidence in the conventional banking system used throughout the world. As a result, some Western financial institutions changed their infrastructure into Islamic banks following the crises, as Islamic banks were better equipped to deal with the aftermath than Western banks.
A recent study done by Birmingham University on the merger has found overwhelming evidence that a change in banking philosophy from Western to Islamic provides financial institutions with distinct advantages. The findings demonstrated a long-term improvement in the liquidity of ASBB as a result of adopting an Islamic banking approach with a universal business model.
How is the bank pioneering innovative Sharia-compliant product offerings?
We offer our diverse clients a comprehensive range of innovative and unique Sharia-compliant financial products and services utilizing the state-of-the-art technologies to meet various banking requirements. In addition to its retail banking services, which include Danat Savings Scheme, Wakala Deposits, financing solutions (personal/auto/property), credit cards, Banca-takaful insurance, amongst others, we also offer corporate banking and private banking that includes wealth management, investment banking, as well as treasury services.
How is the bank diversifying its product offerings and what are those key examples?
Our partnership with Takaful International added to our diversified retail product portfolio that will help to achieve our vision of providing our customers with a differentiated range of products from a leading insurer. A result of our new product development strategy within the retail segment, we are working towards ensuring that our products match and exceed our customers’ financial needs and expectations. Our customers will now get access to Sharia-compliant motor, property and travel insurance products at preferential pricing when applying at any of the Al Salam Bank-Bahrain branches.
We will continue to invest in our business recognizing the need for excellent customer service, a wide range of customer centric products and a strong network to support future growth.
We recently signed an agreement with Eagle Hills Diyar and Diyar Al Muharraq to set up an escrow account that makes Al Salam Bank-Bahrain as one of the first agent banks to establish an escrow account for the real estate development projects in the kingdom. The escrow account comes in line with our focused efforts to offer innovative products and services towards the real estate sector in the Kingdom of Bahrain, which forms as part of our ongoing commitment towards providing pioneering Sharia-compliant products and services tailored specifically to meet the changing needs of the citizens, the market place and the real estate sector. We are continuously seeking to facilitate the process for real estate developers and others who are pursuing licenses to carry out real estate projects that aim to strengthen the market and increase the confidence of the investors in the sector.
The bank has entered into various strategic agreements that facilitate Bahraini citizens with housing/property financing solutions. In line with our commitment as a socially responsible bank, we remain committed to supporting the Ministry of Housing and Eskan Bank initiatives towards strengthening the social housing needs of the citizens in the kingdom. The bank’s partnerships with the public and private sectors give us the opportunity to bring more unique Sharia-compliant products and services to our increasingly diverse customers.
How is the bank investing in technology but at the same time prioritizing customer-centric services?
It is true that technology is changing consumer dynamics, the more ‘financially competent and confident’ we are, the more likely we are to use digital services such as online banking, or a dedicated app on a mobile device for mobile banking or e-statements and online credit card payment amongst other e-banking channels. Al Salam Bank-Bahrain is very much dedicated to innovating by developing customer-centric models designed to deliver effective customer experiences, harnessing the power of digital in an integrated channel strategy, and shifting to a new culture of innovation that will drive growth and the competitive advantage of our banks.
We have also realized that even though technology is changing the way customers engage with insurers, personal interaction is still highly regarded. Personal interaction still remains as an important component of our strategy.
It is important to mention that customers are looking for value to be clearly demonstrated, reflecting a balance of price, product features and service tailored to their needs. They prefer to buy more products from companies they trust. Once they have made their choice and established a relationship with their financial provider, they expect the provider’s products and services to meet their expectations – and through their channel of choice. At Al Salam Bank, we recognize the value of the customer relationship and provide them with all possible channels to make banking more transparent, easier and make us even closer to our customers.
How is CSR part of Al Salam’s DNA?
We take social responsibility very seriously. In fact, when globally corporate banks started introducing social responsibility maybe 20-30 years ago, this was already part of the DNA for Islamic financial institutions decades ago.
If we compare Murabaha facilities against conventional facilities, we shall note for instance that in a Murabaha facility for a period of two years, if the customer defaults in the second year, the bank will not be able to charge the customer any amounts (profit) after the second year unless it is found out that the customer has intentionally defaulted and is trying to delay the payments despite that he has good capacity and means to pay the bank, in which case the amounts charged as profit will go to charity. However, in a conventional banking scenario, if the customer defaults, the bank can impose interest on the customer regardless of the customer’s means and capacity to pay the bank.