Dubai Islamic Bank: Growth Through Collaboration
Saad Abdul Razak cuts an impressive figure as he outlines Dubai Islamic Bank’s (DIB’s) role as sole underwriter of credit facilities on an AE$3.59bn contract (US$ 0.977bn) for the Dubai Airport expansion. Saad is passionate yet pragmatic in his strategic vision of the bank as an institution that works not in isolation but one that works in close collaboration with the best partners around. That way lies growth.
DIB is the oldest Islamic bank in the world – it was founded in 1975. Over the past year the bank has barely been out of the headlines as it broaches new ground and develops new products and brings them to market. The result of this activity has been a set of profit results for 2004 that would make many other banks green with envy.
Razak: We at DIB have devoted enormous time and resources towards developing a clear strategic plan for the bank, which spans the next three years. Now, we could have looked at a five year horizon, but felt that while our overall direction could be set for a longer timeframe, we needed to set specific goals for the short to medium term, and that is exactly what we have done.
Being the first, and among the largest, Islamic bank in the world, and having already achieved industry leadership status across many areas in Islamic banking, we have now set our target on achieving national and regional leadership across the financial services sector over the next few years. In the past two to three years, we have been building our bench strength by recruiting top notch talent from major international and regional banks. We have been expanding, redesigning and repositioning our branches. We have been creating and strengthening our electronic channels. We have been building alliances with key partners and we have been strengthening our sales platforms and channels.
The early results of all the effort and investment is already evident in our changing market profile, in our financial performance, in our rapidly growing customer base and in the long list of headline transactions, both local and regional, that we have secured or implemented. However, as I have just mentioned, these are the early results. The real impact, I believe, will be seen this year and next.
We are fortunate that we are operating in not only a very dynamic geographical environment, which is the Cooperation Council for the Arab States of the Gulf (GCC) in general, and the United Arab Emirates (UAE) in particular, but we also have the good fortune of being in the segment of Islamic finance, which is one of the fastest growing segments in the region. This buoyancy has helped us see quicker results from our investments in the change process than we could have otherwise expected to see.
Razak: The increase in the number of Islamic financial institutions in UAE and across the region is just a vindication of our strong belief that institutions offering exclusively Shari’ah compliant products and services are, and will, create a real challenge to conventional institutions in the financial industry.
I regard the launch of new Islamic banks as a very healthy sign of growth and development of the financial sector in the region. If the outlook for the Islamic sector were not so buoyant, would we see so many new entrants? The high level of liquidity in the marketplace, the growing activity in local bourses and the thirst by local and regional investors looking for good financial instruments with solid financials and a healthy rate of return, are all signs of a buoyant financial market, and within that market, is a clear and growing segment which is looking for Shari’ah compliant offerings.
Islamic banking is not meant for Muslims only. It is a system of providing Shari’ah compliant services to all, and consequently the scope for growth in this sector is significant. The launch of new Islamic banks increases awareness and depth of the sector, and consequently would benefit the entire industry. Greater competition in this sector would facilitate more innovation and higher quality of service to customers. It will improve distribution channels, drive the development of new products and services and will help narrow any existing gaps between conventional and Islamic banks.
Razak: It is a great compliment for us when people tell us that we drive the future of Islamic banking, a practice that has huge significance not only within the region but even internationally. Today, we in Dubai Islamic Bank believe that we provide the look and feel of a globally competitive professional bank, be it in something as basic as the appeal of our branches or the responsiveness and service orientation of our people, the range of delivery channels and the flexibility and quality of our products.
There can be no question now that Islamic finance provides a very real and desirable alternative for the banking and funding needs of the region’s most prominent businesses and that it can offer a degree of flexibility comparable to any other financial products on offer. We feel that it is our responsibility to drive this across the whole banking industry. I believe we have risen to the challenge of the marketplace and we have demonstrated that we can deliver a high quality value proposition to our customers. We do not feel that it is a burden; we believe that it is our responsibility to drive the industry forward.
Razak: I believe the potential in retail banking is enormous and is not confined to the region. We are only at the beginning of the blossoming of Islamic finance in terms of the development of products and services, its reach and appeal and in terms of the size of funds being handled by the sector. Islamic finance is a trend that is gathering momentum worldwide.
Islamic finance has sparked a perception shift in retail banking and will undoubtedly continue to drive the direction of regional finance while challenging international conventions. Our retail focus will continue and the next few years will be very challenging for us but we are confident we can rise to the challenges. This attitude, I am sure, prevails throughout the sector.
Razak: There are always new challenges facing the sector that arise from the demands made by our customers. This encourages all the banks to have a comprehensive approach in planning for the future. This approach targets not just a single revenue stream or business unit but the integrated growth of the entire bank. At the Dubai Islamic Bank, we are working with such an integrated approach.
We will need to display an ever more inventive resourcefulness, determined commitment and creativity to meet these demands. My firm belief is that in the final analysis, only customer centric organisations will survive the battle for the customers’ hearts and minds. As a result, there is a great deal of pressure to look for and discover more creative ways to meet and exceed our customers’ expectations.
Razak: We have taken a large number of measures to meet Basle II requirements well before the deadline.
Basle II is asking for enhanced and sound risk management in banking institutions. Dubai Islamic Bank is tackling this matter from three different angles, revamping the existing processes of risk management to the one required by Basle II, establishing a comprehensive policies and guidelines in all areas and acquiring the necessary technology.
To meet the credit risk requirement of Basle II, we are revamping and enhancing the scope of the existing risk grading system to implement the FIRB (Foundation Internal Rating Based) approach in most of the financing activities and gradually move to Advance IRB. Additionally, DIB is developing a comprehensive Credit Policy Manual encompassing Corporate and Investment Banking to establish a risk conscious credit culture and corporate governance across the bank.
As for operational risk, Dubai Islamic Bank is developing a comprehensive operations manual, standard operating procedures and control checklists for all critical activities. The bank is also identifying areas of potential operational risks across the bank to recognize, record, and report all exceptions and operational losses. Therefore, our plan is to implement a standardised approach initially and gradually move to AMA (Advanced Measurement Approach).
Dubai Islamic Bank is revisiting the entire software system to incorporate changes wherever required to apply and enhance the risk management. We are in the process of establishing a comprehensive data warehousing facility to accumulate data that will be used for planning, forecasting and risk management.
Is Emiratisation easier for you than other banks because you are local and Islamic?
Razak: Dubai Islamic Bank has achieved a 40 per cent increase in the level of Emiratisation in 2004, one of the highest percentages in the banking industry in the UAE. I would like to clarify that being a local and Islamic bank is not the only reason for this achievement. In fact it is a result of the tremendous effort of the bank.
Dubai Islamic Bank has launched a number of initiatives, the most important of which is establishing aspecialised unit to drive nationalisation throughout the bank. We have set up a clear organisational structure to ensure it applies to all levels of staff including senior management posts.
Dubai Islamic Bank offers special training programmes for UAE nationals including the Iktasib Summer Training Programme for students. This programme saw 180 participants last year, some of whom were later recruited into the bank. Comprehensive in-house training is also offered to nationals to enable them to excel at their jobs.
Add to that, several job development programmes like Emarati and Tamayaz have also been put in place by the bank. The first is a six-month work experience scheme leading to employment with the bank. Tamayaz aims to attract high calibre nationals to a year-long course leading to senior positions.
In conclusion, I would like to state that we are not banking on our heritage. In fact the whole subject has been put to study and every step taken to achieve this nationalisation level has been pre-planned.
Now Dubai Islamic Bank is planning for the future. We signed an agreement with Higher College Technology (HCT) to sponsor students in banking and finance to prepare them to venture into the market after graduation. Dubai Islamic Bank is not only trying to increase the level of existing national employees but as a matter of fact, the bank is working on increasing the number of qualified potential employees that will enter the market in the near future.
Saad Abdul Razak was interviewed by Paul McNamara, managing editor of Banker Middle East