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Dubai Islamic Bank CEO Dr. Adnan Chilwan Discusses 'Treps Opting For Faith-Based Finance

Dubai Islamic Bank CEO Dr. Adnan Chilwan Discusses 'Treps Opting For Faith-Based Finance
Image credit: Dubai Islamic Bank (DIB)
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The principles of Islamic finance are rooted in fairness and transparency, and we are seeing that an increasing number of businesses are looking to work with banks that have these ethical business practices at their core,” explains CEO Dr. Adnan Chilwan, Dubai Islamic Bank (DIB). This, according to Dr. Chilwan, is one of the reasons that the Islamic finance sphere demonstrated “a greater degree of resilience when compared to conventional banks” during the most recent financial crisis. The bank also noticed an upswing of fresh clients, partly due to what he considers a shift in perception. “We saw that many governments, businesses and individuals now view it as a more genuine and fair way of banking. For SMEs in particular, Islamic banking provides safe and reliable access to finance, in addition to a variety of market-leading products and services.”

Appointed to the position of CEO last year, Dr. Chilwan is quick to note that DIB boasts four decades in the Islamic banking space, and that the institution is “the first Islamic bank in the world.” Nearly 20 years into his lengthy career in banking, the CEO is one of the biggest proponents of this particular type of faith-inspired finance, and he is certain that SMEs are gravitating their way for both market benefits and security: “DIB has built a reputation for constantly developing innovative products that are strictly Sharia-compliant and protect our customers whilst helping them fulfill their growth plans.” Growth plans that Dr. Chilwan says promote values in common with Islamic finance like openness and opportunity for all. While not all SMEs are going to opt for faith-based finance options, studies indicate both greater interest and investment into the space, and not just in the GCC.

Dubai Islamic Bank (DIB)

Q+A: Is Islamic Finance A Fit For Your Business?

How do Islamic banking practices encourage and foster entrepreneurship?
With a philosophy rooted in fairness and transparency, Islamic banking encourages practices that promote the betterment of the community. To this end, the entrepreneurial spirit has the same values that are espoused by Islamic banks.

By providing access to these ethical financial services, we encourage the growth of SMEs in the country that not only provide valuable jobs, but have an important impact in creating a more sustainable economy. DIB in particular works on a personalized level with entrepreneurs and small businesses to understand how we can best support them and foster growth. With a constantly evolving offering, high finance amounts and rapid approvals, we offer business finance solutions that unlock invaluable opportunities for SMEs.

Are SMES that gravitate toward DIB concerned primarily with faith or do you have clients look at the options strictly from a business perspective?
Since its inception, DIB has launched innovative Sharia-compliant banking services that compete on an equal footing with products from conventional lenders. With this reputation as a pioneer in the industry and our well-established commitment to providing ethical banking services, SMEs in the market are increasingly choosing to bank with us. In fact, if we look at the industry on a broader level, there is a growing demand for Islamic banking services across the MENA region, with a recent survey from the International Finance Corporation (IFC) revealing that over 32% of the overall SME population is eager for access to Islamic finance, according to the Islamic Banking Opportunities across Small and Medium Enterprises in MENA report. Consequently, it is evident that businesses are not necessarily looking at Islamic banking for religious reasons, rather, they are also seeing its benefits from an economic perspective.

What sort of services does DIB notice entrepreneurs opting for? Is working capital the mainstay?
While providing access to working capital finance is a key component of our offering for SMEs, the bank has a range of other services that have been developed to cater to the needs of all the companies in this sector. In addition to capital expenditure finance, contracting and fleet finance, as well as flexible repayment options, we have invested in dedicated relationship advisors that are able to advise small businesses based on a thorough understanding of their financial capabilities and ambitions. We have also allocated a large degree of our product development focus and expertise to ensure we are continually innovating and diversifying our services to provide a customer experience that goes well beyond the norm.

Islamic Banking Market Overview. Source: Islamic Banking Opportunities Across Small And Medium Enterprises in MENA, International Finance Corporation

How long has DIB made the SME sphere a priority?
The SME sector is clearly important to the sustainable development of the UAE, contributing to 60% of its non-oil GDP and 86% of private sector employment. As the engines of the local economy, these small businesses and startups are critical in promoting innovation and economic growth, and given its importance, we have invested in developing a unique array of Sharia-complaint products to meet their needs. Given our emphasis on supporting Dubai’s long-term ambitions, we strongly believe that fostering the growth of these SMEs is our responsibility. Indicative of our success, we have seen that consumer and SME-lending together now form the largest business for the bank, and DIB boasts one of the widest networks in the country. In fact, since the financial crisis our core and our client base has nearly doubled, highlighting our widely-recognized ability to help SMEs enter the next phase of their growth journey.

What services and products are SME clients using? In 2013, how much of your business was with SMEs?
DIB recently launched a comprehensive SME offering targeted towards this critical and growing sector in the country. The revamped and comprehensive product and services suite primarily focuses around the liquidity management and working capital finance needs of the customers across this segment. Although still in a relatively nascent stage, there has been aggressive push during 2014 to improve volumes from existing customers as well as to focus on acquiring new ones. This business segment offers a huge upside for the bank as we are barely scratching the surface with overall lending just above the 2% mark (up from under 1.7% in 2013) of the bank’s total loan book, and trade finance moving into double digits at just over 10% compared to under 8% last year. Not only do we see a massive growth potential with this new initiative, but we also see positive impact on the overall yields as the margins in this segment are akin to consumer finance and hence quite lucrative.

Taking into consideration that the Islamic banking space is highly competitive, what initiatives has DIB put into place to continue to attract new SME clients?
Over the last few years we have seen a greater push in the Islamic banking space, as an increasing number of conventional lenders are recognizing the value and the demand for Sharia-compliant banking services. Due to this growth, banks in the space have been pushed to invest in innovation and in the delivery of high-quality services. We have led the way in this regard through the development of a diverse suite of Sharia-compliant products. Our SME Business Solutions Initiative provides entrepreneurs and small business owners with to a broad range of customized solutions that have been designed to support their needs and growth ambitions. In addition to business accounts services, cash management tools, and trade and treasury products, as well as business credit cards, we have also recognized the growing demand for access to digital banking in this space. Our electronic banking platforms have been designed to meet these needs and have allowed us to engage customers more effectively through these technological propositions. These initiatives have distinguished DIB in the market and are evidence of our well-established reputation as the most progressive Islamic bank in the industry.

DIB is to acquire “a 40% stake” in Indonesian Financial Institution PT Bank Panin Syariah. How does DIB compare to other GCC-based Islamic banks in terms of growth?
We have been able to pursue further growth internationally thanks to the strong position the bank is in today. With a robust balance sheet, strong capital position and ample liquidity, DIB is now well- positioned to embark on a new growth strategy that will also allow us to take advantage of the positive macro-economic climate. Part of this approach involves supporting our expansion in the UAE through inorganic growth abroad. DIB’s recent investment in the Indonesian lender PT Bank Panin Syariah is indicative of this strategy of taking our well-established expertise in Islamic banking to other markets and partnering with institutions that have valuable local knowledge. We are also looking at promising opportunities in Kenya that will further build on our successful operations in important markets like Pakistan, Jordan, Bosnia, and Sudan. We are also seeing a trend across the industry as a number of conventional and Islamic lenders have looked to grow their businesses through acquisitions. The general positive economic climate in most parts of the GCC, particularly the UAE, is fuelling these sentiments.

The label “conventional banking” is commonly used when contrasted with “Islamic banking”. From a sociological perspective do you feel that the term is appropriate?
Islamic banking is a relatively new concept when compared with the age-old and established traditional or “conventional” banking business. Although, only around 40 years-old, it has made huge gains and continues to surpass the growth of the conventional sector, at least in the core markets. Various terms are being used for Islamic banking as well, such as “participation banking” [and] “ethical banking” amongst others, but that obviously would not make the non-Islamic banks unethical. Hence, I do not see Islamic banks being viewed as unconventional just because the non-Islamic players are referred to as “conventional”. We, at DIB, have positioned ourselves as a bank for all and though Islamic banking is in our DNA, we do not limit ourselves to just a portion of the market or customer base. We know that we have the products, services, capabilities and the reach to target every single prospect looking for banking services and not just the core Islamic niche and that has been the secret of our success so far in any market we operate in.