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Islamic banking: One of the fastest growing segments in financial world

Interview - February 24, 2015

Ms. Nevine Loutfy and Ms. Zeinab Hashem are the two women behind ADIB, Egypt's leading and award-winning Islamic Bank. After a hefty restructuring process in 2009, CEO Ms. Loutfy has overseen the bank's return to profits and expansion of market share.  In preparation for the upcoming Egypt Economic Development Conference, Ms. Hashem, CEO of ADIB Capital, explains the bank's optimism in channeling funds from private investors for energy and transport projects.


Moody’s and Fitch recently upgraded Egypt’s credit rating evidencing a newfound optimism in the country. The banks seem to be the anchor of all this progress and stability. How do you see the state of the current economy?

Ms. Nevine Loutfy: We are in the midst of an economic recovery. The confidence of the people returned based on the trust in the political and economical roadmap presented. The result of this can be seen with the growth of Foreign Direct Investment (FDI). It began with private investors, domestic and foreign, initiating many fact-finding missions. Of course, there are still challenges but we see growth in the stock exchange, banking sector, and an increase in revenues. We are expected to continue outperforming the market and increasing deposits.

The overall picture improved; SMEs grew and multinationals increased their investments and presence in the country. Recognizing the Egyptian pace, there is an absolute sense of optimism for the country’s future.

The upgrades from the agencies are not surprising. I was surprised by the negative ratings they had before because, for most of us in the finance sector, the economic outlook was quite the opposite. Now there is substantial trust in the future of Egypt as demonstrated by the various projects in process of being launched. Some of these focuses on housing for low & moderate income people and many will create job opportunities both of which are important elements of stability. The banks are also contributing by introducing long term residential mortgages as well as micro finance. 

This Investment summit needs to jumpstart the return of significant FDI into Egypt. The country is full of potential and opportunities but requires sound management.

Ms. Zeinab Hashem: We are currently recovering from the lag of the past few years. The summit needs to be the platform to overcome that drag.

Do you feel [the drag] is being overcome and the country is moving in the right direction?

Ms. Zeinab Hashem: The government is taking all necessary actions. The subsidies are being removed and real estate taxes are being collected. We have benefitted from the low oil prices and are dealing with the country’s deficit accordingly. The foreign exchange situation is being handled; we repaid money owed to Qatar, we have the expansion of the Suez Canal, and remittances have remained high. The Central Bank will return their handling of the banking sector, which should resolve the foreign currency liquidity challenge.  The projects coming through the conference are long term and I believe in 15 years we’ll be able to pay everything that is invested today. Money- wise, I’m optimistic.

Islamic banking is one of the fastest growing segments in the financial world and is expected to grow at a 20% rate for the next 5 years globally.  What are your expectations of Islamic Finance in Egypt?

Ms. Nevine Loutfy: Islamic Banking in Egypt represents 6% of the total market share today. We in ADIB Egypt spent 4 years restructuring our company to be able to gain a sizeable market share. Today, we are 9th in terms of consumer banking. For corporate finance, people had to learn the product and adapt to Islamic procedures and structures. I expect Islamic Banking will continue to grow; all three Islamic banks are pushing for growth in both the consumer and corporate sectors. Shari’a compliant banking has proved it can respond to financial requirements and trends.

In the past 6 years you completed the necessary restructuring and looking at the numbers, the net income of the bank was 245% more in Q1 of 2014 than during that same period the year before.  What do you attribute such impressive growth to?

Ms. Nevine Loutfy: When this bank was acquired, the Central Bank required sizable provisions per the acquisition agreement and agreed to have it provided for in 5 years. These provisions absorbed revenue so we showed a loss for the first few years, although we broke even in 2009 on the net revenue from funds. The next step was adding fees and deducting expenses to get to margin, which we were able to break even on a year later. The final stage came in 2012 when we decided to take on all the remaining provisions into a one- time final payment. Since then, we have become profitable. Our plans were executed in spite of the disruptions in 2011 that led to a shutdown of Banks a couple of times and the instability that followed. Today, we are very optimistic about the future of Egypt and the banking sector.

The consumer segment of Islamic Banking relies heavily on technology.  We constantly invest in technology and now we are third in the country in terms of new car finance origination. We are strong in that niche.

My experience has always made me regard ADIB as a big bank though it may not technically be so.  However, with 70 branches and 2100 people, we are large and plan to grow further.  It is up to us to prove it.

In terms of expectations of growth for the bank, where do you see it going?

Ms. Nevine Loutfy: I hope to see the bank with a total market share of approximately 4%, including the public banks that control half the market. We expect to be 35% of Commercial International Bank by 2019. We have been able to put the bank on the map and all of our awards show for it. We are the best Islamic Bank in Africa today.

Due to the recent global terrorism events there has been a backlash on Islam. Do you see any hindrance on Islamic Banking?

Ms. Nevine Loutfy: Unfortunately, Islam was hijacked by some terrorists. We are a religion of peace and the recent events do not represent the values of Islam. Regarding Islamic Banking, clients have opened up in the past few years and are now adapting better to the documentation and structures required in Shari’a compliant banking. In addition, Islamic Finance in some cases is preferred over conventional finance in the West because of its very structure protects investors. The Sukuk market is growing fast, much of the growth comes from the Western economies.

There has been much talk on the conference about the collaboration between the banks and the government to channel the expected investment.  What is the role of ADIB in the conference and in some of these large projects?

Ms. Zeinab Hashem: We were mandated to two projects. We recently acquired another three titles and 5 joint projects with investment banks, PriceWaterhouseCooper and Ernst & Young. These are mainly in transportation. The initial two were in electricity generation and in an oil refinery. We are expecting to close them by the conference. We have also received opportunities from the private sector and may present projects such as a wind farm and medical center in their slot.  However, we are currently still looking at the numbers.

We recognize the importance of the conference and that’s why we decided to become a Platinum sponsor.

What are your expectations for the conference?

Ms. Zeinab Hashem: I’m quite optimistic because we have already seen the interest of foreign investors to participate in the projects. If people deliver on their promises I think all our projects could be funded and developed.

In regards to investors funding the projects, what should be the source of the money? H.E the Minister of International Cooperation mentioned the focus should be on the exposure and promotion of Egypt.  What are your thoughts on this?

Ms. Nevine Loutfy: That is where you see the two sides complement one another. We need people who plan, deal with the exposure and promotional agenda paired with the people who execute on those plans with the technical knowledge. The Minister’s job is to put Egypt on the map and attract the investors.  We are the ones who secure the financing and help execute the projects.

Ms. Zeinab Hashem: Everyone needs to take care of his or her own agenda, government leaders are the driver and we are the mechanics. We are very proud to all be a part of the team in charge of promoting Egypt and securing a better future for our country.

Do you think the conference is more about the promotion of Egypt or the closing of deals?

Ms. Zeinab Hashem: The main purpose is presenting the new Investment Law. The idea is to inspire confidence in the investment environment, to unveil the vision of the country and then outline which projects will take us there.

Ms. Nevine Loutfy: The conference will showcase the complementary relation between the public and private sector. It is about showing support for government efforts such as the one-stop-shop, among others. They support us by offering the project and it’s up to us to close the deals. They set the scene and we act.

Regarding SMEs and micro finance, 5 years ago you needed to restructure that inefficient branch to make it work. What are your priorities in terms of SMEs?

Ms. Nevine Loutfy: We have always had micro finance in the bank but we needed to restructure it to make it work better. After re-targeting the markets and priorities, it was re-launched in November of 2013 and it was one of the segments that exceeded their plan last year.

There are still challenges for an efficient and solid structure of SME financing but I’m very proud that we have approved over EGP 800 million worth of lines of financing. We have utilization of close to 50% and all of this was achieved in less than two years. We have ambitious goals of growth for the next years.

With all these growth opportunities should come some challenges. What would you say are the main ones?

Ms. Nevine Loutfy: There are many constraints at the moment. Foreign currency availability is a major challenge. However, we trust that the Central Bank’s recent measures will ease the situation. The foreign currency circulation in the parallel market should be redirected to banks so that we have it readily available for our clients. With the upcoming influx of FDI we are expecting to have more foreign currency available for our customers.

One social challenge is the few events that shake up stability and may generate anxiety to potential foreign investors. The sentiment that is spread by the international media is a challenge mainly because it does not represent the reality in the country. There is a gap between the perception of Egypt and the reality we live day to day.