Interview: Adnan Chilwan
To what extent will a federal Sharia Board ease doing business for Islamic banks in the UAE?
ADNAN CHILWAN: A federal Sharia Board is critical as an overseeing body. It will ensure alignment and adherence to sharia standards and will bring uniformity in the way Islamic banking is done today. Similar to other regulators such as the central bank, the board will help to introduce policies and regulations that are more oriented towards the workings of Islamic financial institutions. The board will work closely with other regulators to induct appropriate structures, particularly, those allowing for the management of liquidity for entities existing in this sector. Even though progress has been made in this area, Islamic banks are still subject to the usual conventional banking regulations, despite the inherent differences.
The federal Sharia Board will also play a major role in remapping international regulations, such as those coming in with Basel III, and in ensuring that Islamic institutions are not disadvantaged in any way. That said, I strongly advocate for individual Sharia Boards to continue as they ensure that innovation and the evolution of products and offerings are not hindered, and that competitive edge can be maintained.
How can Islamic banks look to attract a broader portfolio of small and medium-sized enterprises (SMEs), which account for 85% of the UAE’s GDP?
CHILWAN: As mentioned previously, innovation is key. We at DIB are already introducing products and structures that can help the SME segment with both liquidity management and funding needs. Hence, alternative products to overdraft, discount and other such mechanisms are definitely being looked at currently. Simpler yet comprehensive electronic banking platforms are also set to be introduced in the near future, allowing SME customers to be on top of their finances, and making banking not only easier and more convenient, but also significantly more cost-efficient.
What challenges do retail Islamic banks face when it comes to offering varied and competitive products to their customers?
CHILWAN: It is true that in the past, not enough products were available at Islamic banks and, therefore, cross-selling and penetration were low. This is definitely not the case anymore. Unlike just a few years ago, the current portfolio includes a comprehensive product suite in retail from car loans and personal loans to credit cards and mortgages – so virtually the same as any conventional bank. In the corporate and wholesale segments we have moved beyond financing to cash management, transactional banking, liquidity management and trade finance, options and derivatives, and capital markets products. Soon you could see sharia-compliant alternatives to receivables financing, discounting, and factoring, among other things. So I would say, watch this space.
What impact do you anticipate the increased sovereign debt issuances within the region having on the sukuk (Islamic bond) market?
CHILWAN: The Islamic capital markets, particularly sukuk, are growing at a phenomenal rate. A wide variety of different structures have already come up, including Tier 1 hybrid sukuk. Within a decade, sukuk has become a household name with global marketability. In fact, it has become the preferred mechanism for fund-raising compared to conventional bonds with a wider investor base, not just in home markets but also in larger non-Islamic financial centres around the world. No wonder European states like the UK, Germany and Luxembourg are watching this area closely. The governments and citizens asking for more sukuk issuances have definitely played a major role in this push, which has already led to significant sophistication and global understanding of legalities. I expect this trend to continue, with sukuk eventually outpacing the conventional alternatives globally.
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