Interview: Tirad Al-Mahmoud

To what extent has the development of comprehensive Islamic product offerings achieved parity with conventional offerings?

TIRAD AL-MAHMOUD: The effect of globalisation is pushing Islamic banks to innovate, as they are now competing fiercely with conventional banks. As a result they are now providing customers with a wider product offering and have not only achieved parity with many products offered by conventional banks, but have in fact outperformed them. This is particularly true in regards to consumer finance products.

The reality is that there is greater consumer protection due to the fact that at the heart of the Islamic banking system is an ethical system based on sharia values. Islamic banks do not engage in investments with excessive speculation or use financial instruments that can introduce a high element of risk to customers’ savings and assets. Because of the industry’s valueorientated ethics Islamic banking appeals to both Muslims and non-Muslims alike.

Generally speaking, sharia-compliant banks have targeted businesses that are connected to the real economy. These include trade, development, housing programmes, infrastructure and other assets that are part of the long-term economic development cycle. However, corporate clients may find Islamic banks to be somewhat less flexible because they are not amenable to speculation and dealing with derivatives, as investments must be backed by real assets. That being said, given the events of recent years, it would seem debt that is linked to real assets and the real economy would be a more appealing structure if we are serious about avoiding another financial crisis.

How do you respond to the claims that the industry has now reached its saturation point?

TIRAD: The Islamic banking industry has seen major growth in recent years, with 20 Islamic banks having increased their assets by an average of 16% annually over the past three years. However, the pace of growth has slowed down some as the industry approaches a level of maturity, which may mark the natural end of a growth cycle. What is important now is to look at what is needed to take Islamic banks to the next level. A point of maturity has been reached in some markets and this is why Islamic finance needs to reach out to a new market segment and continue to identify new innovations to help it grow further. In this sense, Islamic banks have a unique opportunity because they put ethics at the core of their mission.

Through focusing on substance and inclusiveness, Islamic banks can welcome clients from all communities. More specifically, the same attributes that made Islamic banking successful among retail clients can be applied to small and medium-sized enterprises as well, and this represents an opportunity for Islamic banks to expand their client base.

In what ways has the industry client base evolved and deepened to include greater exposure among the public and corporate sectors?

TIRAD: An important concept to understand is that Islamic finance represents a universal business model that is open to all. Its concepts are not complex and not difficult to understand.

As a consequence, Islamic finance can be easily adapted to the needs of industrial clients and this is reflected in the growth of corporate and public sector customers for Islamic banks. We believe that Islamic banks have a key role to play in assisting the UAE public sector to execute the government’s most important development strategies. Putting the necessary resources in place to understand the needs of corporate and public sector clients is an important factor at the current phase of development. As greater understanding related to the practicality of Islamic banking for industrial clients begins to take root and the necessary factors are put in place to ensure effective strategies for working with these growing clients, it is certain that this will serve to bring more actors on board.