Exceeding expectations

Jordan Islamic Bank is in the happy, and relatively unusual, position of not being affected by the global economic crisis. Katie Llanos-Small speaks to the chairman and vice-chairman about the institution’s astounding success, and how Islamic finance has resisted the downturn


Islamic banks are one of the few institutions which have been left unscathed by the financial meltdown, Adnan Ahmad Yousif, the chairman of the Jordan Islamic Bank, says. The crisis has pervaded every country and affected almost every industry. Yet, in contrast to the majority of banks around the world which suffered record losses last year, JIB experienced unprecedented growth in 2008.

Other Islamic banks find themselves in a similarly strong position, Yousif says. The reason, he says, is that by basing their businesses on Islamic principles, such banks have been protected from the crisis.

Islamic law, Sharia, dictates that interest not be charged, hence JIB does not deal in any interest-based securities, Yousif says. As a result, the bank has escaped the follow-on problems which are created by a revenue system based on charging interest.

But there is another reason why Islamic finance is defying the downturn, Yousif tells World Finance. Conventional banks in industrialised countries lack trust with their customers, he says. JIB’s strong relationship with its clients is one factor that has helped it weather the economic turmoil. 

Islamic banking has caught the eye of non-religious institutions, Yousif believes. They are intrigued by a system which is free of so many problems which seem to plague traditional banking: a need for liquidity, problems with bad debts, and the inevitability of writing-off part of their assets.

Stand-out success
JIB certainly makes an impressive poster-child for the Islamic banking system. If Islamic banking is doing well overall, JIB has a special edge. It stood out among its counterparts to win World Finance’s award for the best Islamic retail bank this year, after it posted record growth in 2008.

That year, JIB’s total profits were up 52 percent on the one previous, reflecting significant increases in its deposits, financing, assets and equity. Overall JIB’s financing activity grew 21 percent, and its ownership equity 20 percent, in the 2008 year.

Musa Shihadeh, the bank’s vice chairman and chief executive, says JIB is very pleased with its impressive achievements, but that its ambitions remain high.  Thanking god for JIB’s successes so far, Shihadeh says the bank will look at new opportunities to continue its stellar growth.

The bank, which offers retail, corporate and commercial banking services to private and public sector clients, has come a long way since its beginnings in 1978. When its first branch opened the following year, it held a modest capital of 2 million Jordanian Dinars. Ever since, it has grown steadily. In 2008, JIB lent for retail customers a total of 262 million Jordanian Dinars ($370 million) to its customers. Now, the bank  has 56 branches and 12 cash offices across Jordan, staffed with more than 1,600 employees. It has a local market share of around 11 percent, and Shihadeh says the bank hopes to increase its current number of 700,000 customer accounts in the future.

The principles for all of JIB’s dealings is Sharia law, and every contract is checked by the bank’s Sharia supervisory board. But it does not restrict its customer base solely to practising Muslims. JIB offers services to any Jordanian who accepts the principles of Islamic banking, regardless of their religion.

JIB sees itself as more than just another bank. JIB states its priorities as to offer not just banking services, but social services – “to serve our community as a whole”, explains Shihadeh. So on top of its traditional banking business, JIB offers Jordanians a number of extra social services, in the hope of assisting the country’s development.

One of the services is an interest-free loan for social purposes. Jordanians who need to borrow money for education, healthcare, or a wedding, for example, can apply for the bank’s Al Qard Al Hassan loan. Another is its joint insurance fund. Through this service, the bank’s clients jointly indemnify part of the damage that may be inflicted on any of them to pay his debt to the bank or part of it in some certain cases.

And then there is JIB’s Craftsmen programme. Through this system, the bank encourages young men and women who want to develop a career as entrepreneurs and a small producer, and supports their projects. The intention is to give something back to Jordanian society, Shihadeh explains. The bank hopes that the programme will help reduce unemployment and combat poverty in the kingdom.

JIB can display such generosity in its social programmes, even during the recession, in part thanks to its record growth during the tough times.

Last year Jordan was affected with world crisis. The international financial crisis has seen oil prices fall and foreign direct investment drop. As a result, there is less influx of money in the country.

But Shihadeh explains that JIB’s Sharia  applications have set it in good stead to weather the economic storm. For a start, the bank has a strong, loyal customer base. Shihadeh puts this down to the bank fostering solid relationships with its clients, based on mutual trust – a crucial element in banking.

Weathering the storm
In turn, the good relations with clients boost the bank’s reputation and generate more customers. Shihadeh says that Jordanians increasingly want to deal with JIB because it provides such a high level of customer satisfaction. It is a win-win situation, he believes.

“Our shareholders, customers, staff are very sincere and faithful to the bank,” Shihadeh explains.

But there are a number of other aspects of Islamic banking which have given JIB an advantage during the downturn.
The bank has high level of concern over liquidity and does not deal in bonds or other interest-based financial papers – two factors which help ensure the bank maintains a stable market position, Shihadeh says. Additionally, JIB has a policy not to open a credit line to customers. In line with Sharia law, instead of loaning cash to a customer, JIB buy a product on behalf of its client, who then repays the bank the full amount, plus an agreed profit margin. 

Grand plans
JIB aims to continue being a pioneer in Sharia-based banking services, Shihadeh says. That takes the bank beyond the hard and fast commerce of Western banking – it wants to continue supporting growth in the national economy and development in the community, he says.

JIB’s specific plans for the future are broad-ranging. The bank intends to continue expanding its presence throughout the country, opening more branches and extending its network of ATMs.

Within its branches, JIB wants to remain innovative but to keep steady on a sound ISLAMIC Application. The bank intends to develop and introduce new banking and communication technology for its services, at the same time as it strengthens and develops the bank’s institutional governance principles. JIB is also in the process of implementing Basel II recommendations – a framework of principles intended to bring stability to the international banking system. He says it is committed to continuing to bring its business in line with the requirements, which include stipulations on institutional disclosure and minimum capital holdings.

And it has grand plans for the products it offers. JIB wants to expand its financing programme for craftsmen, amplify its rent-to-own loan programme, and increase the number of muqaradah bonds issued. Muqaradah bonds are Sharia-compliant financial securities, whose holders share the profit or loss of the bonded business. They are the Jordanian equivalent of Sharia-compliant sukuk bonds, which are currently unavailable in the country.

For JIB, banking is more than mere business. It is a way of helping fellow Jordanians. The bank states its main mission is a commitment to consolidating the values of Sharia in all its activities to serve its community as a whole. It aims to lead the way in the Sharia banking world. And to always exceed its customers’ expectations.