Interview : Khamis Mohamed Buharoon
In what ways can the standardisation of Islamic finance boost its overall attractiveness?
KHAMIS MOHAMED BUHAROON: A body to oversee and regulate the Islamic banking and finance sector would definitely have a positive impact, as it would strengthen the consistency of how sharia-compliant products and services are offered to customers. It would also spearhead standardisation across the Islamic finance sector, engendering public trust and encouraging steady growth of competition between traditional banking products.
Presently, individual jurisdictions interpret sharia differently; there are variations in how Islamic finance products are structured. At the regional level, organisations like the Accounting and Auditing Organisation for the Islamic Financial Institutions and the Islamic Financial Services Board are doing well. Nationally, the Central Bank of the UAE (CBUAE) has created a higher sharia board, which will boost demand for sharia-compliant business, especially as both Muslims and non-Muslims continue to recognise the ethical values that underlie Islamic finance. The higher sharia board helps to ensure that all sharia-compliant banks in the emirate operate within the same rules and standards, where new products and services are approved along consistent guidelines and principles, and differences of opinion are judged by an overarching regulatory body.
In addition to standardisation we believe that a greater awareness and understanding of sharia-compliant products and services is also driving industry growth. Therefore, in order for the Islamic finance industry to reach its full potential, it is crucial to ensure that best practices continue to be consistently managed across geographies, products and services.
How can competition from international banks introduce sharia-compliant products?
BUHAROON: Although competition in the UAE banking sector is high, there is still room for Islamic banking to grow. Customers demand morally sound practices and low-risk alternatives, and Islamic banks are well suited to provide these services. I anticipate that demand for sharia-compliant banks and services will increase dramatically, outpacing conventional banks. International entrants will have to provide something new and commit significant resources in order to compete with well-established banks in the UAE.
Likewise, local players will need to focus on providing a competitive, innovative and high-quality customer experience in order to grow their market share.
How are banks aligning their portfolios to the needs of small and medium-sized enterprises (SMEs)?
BUHAROON: Due to the challenges that the SME segment experienced resulting from the low oil price environment in 2015 and 2016, banks have become more cautious about lending to SMEs, instead focusing on consolidating their financing portfolios.
Although remedial measures are important, it is equally as vital that banks don’t overcorrect by cancelling lines and eliminating credit opportunities. A delicate balance must be achieved in which banks develop close relationships with their clients, while building a comprehensive understanding of the business and the sector in which they operate. This is crucial so that clients are offered the right solutions to support them through the full economic cycle.
SMEs are considered a critical component of the economy, representing 60% of the UAE’s GDP and 86% of the nation’s workforce. We support the actions of the CBUAE and the UAE Banks Federation to provide support mechanisms for these businesses, ensuring that SMEs have the necessary legal and regulatory counsel to continue driving the economy, and that events fostering and nurturing SMEs continue to occur.
ADIB will continue to provide strong support to this sector. This support includes providing relationship managers who can advise SME customers and offer solutions catering to their specific financial needs.
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