What are the main challenges of Islamic banking – and for GFH currently?
I would say that there a number of principal challenges. The first is the need to create liquid capital markets for Islamic financing instruments such as Sukuk. This requires market makers with sizeable balance sheets to come forward to create liquid markets where bid and offer spreads are narrow and tradable. Secondly, the industry needs to develop a wider suite of acceptable ‘derivative’ products that allow banks and market participants to buy or sell exposure to assets with a risk profile that permits effective hedging or mitigation of risk. This will require banks to come forward to offer such products on an ‘over the counter’ basis or to create a liquid market with narrow spreads. Thirdly, there must be standardisation of structure and legal documentation for Islamic financing instruments. Finally, the industry must do more to promote the ethos of Islamic banking around the world so that misperceptions are avoided. The main challenge GFH faces is the one that all banks in the Gulf face when they are poised to grow and reach the next level. That is the lack of people in the labour market of the Gulf with the right investment banking and investment management experience. Accordingly, we have retained some of Europe’s top headhunters to help us in our search for the right talent. Recently, I have been greatly encouraged by the high quality of professional staff that have indicated a strong interest in joining GFH. Certainly our listing on the London Stock Exchange has done a lot to strengthen our image outside the GCC.
Given the turmoil of international markets, is GFH still looking hard at private equity and asset management?
Yes we are. We have a very strong niche in economic development infrastructure but our strategy is also to build up our asset management business and our European private equity and Gulf-based venture capital businesses as well. We see very good value creation opportunities in all of these businesses in the medium term. Recent volatility in the quoted securities markets has no direct bearing on these businesses in the longer term. Short term volatility comes and goes. Markets have a habit of retracing after a period of sustained rises. You only have to study price charts to see this happens all the time and is to some extent predictable. I am pleased to say that we have made good progress building our businesses with the completion of some high profile recruitments. Also, the Board of Directors of GFH have recently approved a suite of asset management products to be offered this year. As for our venture capital business, it is already making a substantial contribution to the bank’s profits.
What is your ongoing strategy for developing new Shariah compliant products and services? What are the key areas?
Our marketing strategy is client centric. This means that we seek to meet our client’s demand rather than allow the business to be product driven. Accordingly, we will continue to meet our clients’ very strong demand to invest in Shariah compliant economic infrastructure projects located in the rapidly developing economies of the GCC, MENA and Asian countries. In addition, we will continue to analyse our clients’ demand for products in venture capital, private equity and asset management.
Do you look at Europe as a potentially promising market for Islamic banking?
Certainly – and our listing on the LSE and the listing in London of our $200m Sukuk issue are testament to that. Our presence in London’s equity and debt capital markets has given us a great deal of exposure to the UK and Europe. The establishment of our new London office will be formally announced in a few weeks and this move reflects the opportunities we see in Europe for our asset management and private equity businesses. The British government is trying to position London as the European hub for Islamic banking so, logically, this is where we should be. More generally, my view is that Islamic investment banks are behaving much in the way the old European ‘merchant’ banks used to do. They enter into partnerships with their clients to create businesses and promote and participate directly in commerce and infrastructure. I believe that ethos will be in great demand in Europe and even the US.
Where do you feel Islamic banking should be investing to maximise returns?
The simple answer is wherever value can be identified or created. The GFH approach to investment is to create value. If you look at our activities you will see that a high proportion of our deals are in the nature of ‘start ups.’ However, we lock in value very early in our deals and that helps to reduce the risk we and our clients face in the deal. In terms of geography, we are still bullish on the GCC and the current wave of redevelopment but we prefer projects with specific economic drivers rather than speculative deals. There is value in India if you can find the right local partners. There is also good potential in North Africa but again that depends on delivering the right deal with the right local partners. I would avoid going long on mainstream American and European equity markets right now. In my view there remains a strong possibility of some further falls or sideways action. The GCC equity markets look stronger but I don’t think we have tested the highs sufficiently to say that they will continue to rise.
Some accuse Islamic banking of focusing too much on their own product rather than the needs of investors. What is your response?
I don’t think this is fair. It may be true of some banks but GFH’s strategy is based around the client – our most important business asset. We have introduced sophisticated customer relationship management systems to enhance our capability and ensure that our clients’ needs and preferences are recorded. We know that without our clients we have no business.
How dependent is the growth and success of Islamic banking on the effect of high oil prices?
The price of oil has a direct effect on the amount of liquidity available for investment. So the answer is yes there is a direct connection between oil and the growth of Islamic investment and financing in the Gulf countries. Having said that, the surpluses that have been created so far need to be invested. In practical terms a gradual and gentle fall in the price of oil will not have a dramatic effect on Islamic banking in the short to medium term.
How actively does your organisation promote women in the workforce?
Only talent and commitment to our business determine one’s place in GFH. We employ many women as well as many races. Our objective is to employ the greatest talent we can find, irrespective of gender, age, ethnicity or creed.
What do you say to critics that claim Islamic bankers do charge interest – something Islamic law specifically prohibits – though they conceal it through clever legal formulae?
Islamic banking is a relatively new sector and perhaps this leaves it open to misinterpretation. Of course the primary reason for its very existence is the need to provide Shariah compliant financial products and services to Muslim audiences. One of the guiding principles of Islamic finance is the complete prohibition of interest charges and GFH employ an extremely eminent board of scholars to make absolutely certain all our products and services comply with the Shariah. So I’d encourage those who are still of the view that Islamic bankers are applying interest charges to look a little closer at the intention behind the product.