A select few constituents of the Islamic banking industry have recently come to be considered equal and even superior at certain aspects to their conventional banking counterparts, due to a more expansive range of products and services. Leading industry players in particular have committed a great deal of time and resources to develop Islamic banking products that add value to their offerings, not least of which being Qatar Islamic Bank (QIB), which has set itself apart from the competition in this field.
First established in 1982, QIB is the first Islamic Bank in Qatar, and among the first ones globally. Today, QIB holds 35 percent of the country’s burgeoning Islamic sector, as well as nine percent of the overall banking market. The institution’s capital, as of the end of 2013, amounted to QR 2.36bn with assets of QR 77.4bn, and the bank will continue to spearhead progressive developments in this space provided its strategy remains relatively unchanged with regards to product innovation.
A new hedging mechanism
One of the most recent innovative Islamic banking products developed by QIB is a highly flexible sharia-compliant legal framework developed for the purpose of executing a wide range of sharia-compliant hedging transactions.
The mechanism is underpinned by a Wa’ad (promise) and a commodity trading structure, requiring QIB and a trading counter party to jointly sign master terms and conditions along with two master undertakings where each counter party undertakes to ‘purchase’ sharia-compliant commodities from each other under diagonally opposite conditions, along with an agency agreement where QIB is appointed to act as agent to buy or sell commodities on behalf of the trading counter party depending on which undertaking is exercised.
One of the most recent innovative products developed by QIB is a highly flexible sharia-compliant legal framework
The innovative platform can be used for hedging QIBs various market exposures and to structure innovative hedging solutions primarily for its corporate and wholesale clients. QIB will always hedge itself when offering client products in order to maintain a market neutral trading position.
The hedging mechanism is extremely flexible and will therefore be used to develop a diversified range of sharia-compliant risk management products, which in turn can be used to swap or vary exposures across all relevant asset classes such as currencies, profit rates, equities and commodities.
The mechanism was used to provide a sharia-compliant profit rate hedge for a project finance deal. The Islamic hedge was the first of its kind in Qatar. The hedge was linked to the Islamic portion of a $500m financing provided by QIB and a consortium of local Islamic and conventional banks to a major local corporate for the construction of a strategic national infrastructure project, a deal which was concluded in Q3 of 2013. QIBs hedging mechanism was selected as the basis for providing the Islamic hedge, and was used by all the Islamic banks involved in the finance deal due to its robustness and flexibility.
QIB plans to further develop the products in 2014 to be able to offer innovative structured investment solutions to eligible counter parties.
The implementation of cutting edge Islamic banking products and services has long formed an integral part of QIBs business strategy. As a result, the bank boasts one of the most complete product portfolios not just in Qatar, but in the world of Islamic banking, spanning from plain vanilla corporate financing, project finance, syndications, transactional banking, Takaful to personal finance, investments, and a variety of other banking products and services to meet the needs of the bank’s segmented client base both in corporate and personal banking.
This long standing focus on product innovation and portfolio expansion forms part of QIBs mission to be seen as a customer centric institution by those in the industry and the wider banking public. However, it would appear that the strategy also brings with it far greater profit bearing potential, with last year’s profit, equating to QR1.34bn and a growth rate of 7.6 percent. As is made clear in the case of QIB, product innovation is essential for the wider Islamic banking community if it is to boost its competitiveness further still and be considered equal in stature to its more traditional western counterparts.