In this interview with The Worldfolio, Abdulhakeem Y. Alkhayyat explains how KFH-Bahrain is pioneering the introduction of compelling financial solutions in a fast-growing, high-demand Islamic banking industry
How do you see Islamic Finance evolving around the world and what will growth be dependent on?
Islamic finance has experienced continuous growth in the last 30 years. Year after year, there has been continuous expansion of total Islamic finance assets as well as a sophistication of products, together with an ever-growing number of countries, companies and institutions participating in the industry.
However, we work within an ecosystem; we are not an entity that can act in isolation. For a bank, you need a conducive environment in order to contribute and grow. Islamic banks can certainly contribute to the growth of many economies given that there is a strong regulatory environment, a willingness to accept Islamic Financial instruments and also a strong ease of doing business. The Islamic financial institutions of today evaluate risks extensively, so without a good legal framework these banks would be unable to participate in any mega projects.
The sector in Bahrain has already passed hurdles of regulations, whereas the rest of the world needs to catch up. I would say that growth for Islamic banks internationally will depend on three things: the first being the development of our human resources. Without education and knowledge, you cannot develop the sector further, we continuously need more training, professional certifications and more institutions that focus on key areas of Islamic finance. Second will be technology; the future of banking will be online. I envision that in 20 or 30 years’ deposits would be a thing of the past, so if you compete in the industry you have to do online banking. The regulations have to move fast in order to accommodate technology in the conventional banking and Islamic banking sector. Thirdly are regulations. Regulators have to be ahead of the game and understand the technology based activities so that they can adapt and be ready for growth. These three things are key elements that need to be present in order for growth to happen.
What are the key advantages of Islamic Banking system in comparison to Conventional?
One of the key objectives for Islamic Banking institutions is to be a key pillar to the development economies and be a key contributor to societies we live in, it is not purely about the money. A traditional bank makes revenue from borrowing money from its clients and then lending it with an interest rate. In Islamic banking, it works very different, we are not allowed to lend money purely based on interest rates.
For example, under conventional mortgages, in order to purchase a property, the customer borrows money and repays it with an additional amount over a period of time. The additional method by which the amount is against the Shari´a ruling of Islam. Under Islamic mortgage finance facility, an Islamic bank shares with the customer in purchasing his desired property. Accordingly, the customer and the bank become the joint owners of the property in proportion to their share. In order to own and use the entire property, the customer purchases the share of bank’s property over a period of time and also pays the rent for using the bank’s share of the property. Over a period of time, the customer manages to purchase the entire share of the bank in the property. What this means is that the whole risk is not levied only on the customer but is shared among the bank and the customer. If there is a property market crash then both parties will stand to lose, whereas the conventional bank will reclaim the property and demand the borrower to pay back full interest.
Therefore, when people keep money in an Islamic bank, they become sort of a share-holder of the bank's overall business and share profits. While Islamic banks should be able to take some risks (calculating it and ensuring that certain sector/ product/ assets can be productive) there also must be a tangible and real investment for one to be involved as an Islamic bank. Thus, opportunities such as infrastructure projects are more attractive and immediately go hand in hand with the theme or the model of Islamic banking.
Islamic Banks are very cautious and do calculate risks they are undertaking very extensively and when those elements are right – such as political stability growth trajectory and strong regulatory framework – the banks are known to undertake massive financing for large infrastructure projects such as, hospitals, schools, real estate and others.
Another important aspect that I need to mention is that we provide significantly more support to our clients, where it can be an advantageous for entrepreneurs. We are not here to make financial gains only, but work in partnership with our clients by giving specific guidance, when needed, on how to do business, invest properly with confidence and for the right projects. So, the products that both commercial and Islamic banks offer are similar, but the way we approach them is significantly different. I would say that it is very difficult for commercial banks to adhere to Islamic principles of making business, because you need to have oversight. With Islamic banks, we have the Shari’a Supervisory Boards to monitor the activities of the banks, making sure that ethical principles are followed and the correct arrangements between depositors and the shareholders are maintained. With a good and strong supervisory board, you have a bank that works within a good strategy and the fact that you work within the parameters of the Shari’a principles, becoming very productive.
Durrat Al Bahrain has become a standard of Luxury, a great example of a success story, and an icon when it comes to attracting tourists into the Kingdom. Kuwait Finance House Bahrain, as a joint shareholder with the Government of Bahrain, has played a significant role by bringing immense credibility and also the financial structures and support to ensure the financial modelling is carried out properly. How is Durrat Al Bahrain a benchmark for a private-public partnership?
The Durrat Al Bahrain project is a flagship project not only for KFH-Bahrain but also for the Bahraini government. It is, a world-class residential, leisure, commercial and tourist destination. The development is owned by Durrat Khaleej Al Bahrain Company, in which Bahrain Mumtalakat Holding Company and KFH-Bahrain each hold an equal stake. It is a perfect example of when a private institution and a public institution can execute a correct project together and their strategy and goals are aligned. We have successfully completed Durrat Al Bahrain, and are going towards a new phase where we are looking at the possibility of building a public beach and facilities for tourists. This not only a KFH initiative but a countrywide initiative supporting our government; but also, a project that makes financial sense.
At KFH we believe in transforming Bahrain’s landscape in a positive way, Durrat al Bahrain is not the only project that we are involved with, there is also Diyar Al Muharraq, where we recently opened the Dragon Mall with innovative and new Chinese product offerings. The mall is already operational and buzzing with people with an average monthly footfall exceeding 400,000. Diyar Al Muharraq development is unlike any other project of such a scale in the Kingdom and will have residents from every stratum of society. We are aiming to accommodate more than 100,000 people. We have seen a strong demand for the development where more than 50 per cent of the plots in the second phase of its 'Al Qamra Freehold Residential Project' were sold on the opening day of the project sales.
The model of Durrat al Bahrain and Diyar Al Muharraq in a sense is a benchmark and important for the government to promote more public-private partnerships. It is a model that can work somewhere else too and we would like to do this. In fact, with the right regulation we can always take it abroad. Just to name one example, the Nigerians are very interested in implementing Islamic banking in Nigeria and some other African states like Kenya and Uganda have found also that this model can help them raise money for their infrastructure projects, but the right eco system is needed in order to spread. We are not interested in working under a jurisdiction that lacks the right regulatory framework.
What is Kuwait Finance House-Bahrain’s global span and what is the future growth strategy?
Our Vision at KFH-Bahrain is that we believe that banking is not just about money. For us it is something that can improve people’s lives. Whether we are providing commercial and investment banking services or financial products for consumers, we start by understanding our customers and their needs. With an emphasis on innovation, we aim to provide cutting-edge Islamic banking solutions while staying faithful to Shari’a principles, with a view to enhancing the lives of our customers.
KFH-Bahrain is a wholly-owned subsidiary of KFH-Kuwait who manages its operations in the GCC, Asia, and Europe through over 310 branches. The Group offers services to clients in Kuwait, Bahrain, Turkey, Malaysia and Manheim in Germany. We enjoy a reputation as a performance-driven, results-oriented institution, combining global investment strategies with the provision of popular retail products and services. KFH-Bahrain has made major advances and experienced considerable growth in the last few years, allowing it to further develop its products and services and provide outstanding investment opportunities for its customers. Over the last years, we continued to diversify our financing portfolio by adding new high-quality clients and strengthening relationships with our existing clients. Our strategic plans supported the implementation of many economic development projects through Public Private Partnership (PPP) which made a positive impact in achieving success and strong results, confirming the bank’s leading role in Bahrain.
We increasingly deal with mobile, regional and global customers with local needs. The KFH Group with its growing presence in Kuwait, Turkey, Malaysia, Germany, Bahrain, Saudi Arabia and other countries with expertise in different asset classes is strategically equipped to cater to the needs of our diverse customer base. The Bank is strengthening and deepening linkages and synergies with its group subsidiaries and entities to meet our customers’ needs.
In terms of product offering at KFH, how are you innovating and providing new services for your clients?
A good example in terms of expanding our product portfolio is recently in August 2016, when we launched a new unique investment product, the ‘Wakala Investment Account’, which is designed according to the Islamic Shari’a principle of Al Wakala. The client earns a contractually agreed anticipated profit with this product in from an investment transaction which the Bank conducts for the client at no charge. The investment account is available to all Bahrainis and residents of all nationalities for a minimum investment amount of BD1,000 or USD10,000 for periods from one month to a full year. The investment is transacted through the Bank’s general portfolio, from which the Bank aims to achieve the anticipated profit and distribute this profit on a monthly basis.
We are committed to providing a variety of Islamic products to suit our customer’s needs and increase the choice of financial tools available to them.