At Its Core

ADIB is a pioneer of Islamic banking in the UAE. How do you assess how you have developed business in compliance with governing ethics?

I wanted to develop the bank and open it up to a much larger market. We looked at what it was we had going for us and how could work for everybody, beyond just being a community bank for Muslims by Muslims. We wanted to be everybody’s bank, and we decided that our ethical standards would be the key value that we offer to everybody, including all stakeholders, clients, and customers. Islamic banking is, at its core, an ethical way of banking. The aim of it is, first and foremost, to be just and fair, as well as sustainable and safe, while being profitable at the same time. In advanced economies, consumer protection is a major issue with dozens of laws involved, with each country having its own laws. The core of sharia-based banking is protecting the consumer, protecting the stakeholder, and protecting the environment. Consumers all around the world want the same thing, namely what is good for them. Everybody around the world has the same principles; they want the feel-good factor and they want to buy from those who are ethical. We have conducted a lot of research and interviewed more than 5,000 people on five different continents to help do this. We have worked with MacKenzie Group and Boston Consulting Group to come up with a universal value proposition that works for everyone. It has come down to a few basic aspects, all of which can be summarized in one word: ethics.

Looking at the current economic situation in the UAE, with other banks looking to the bond and loan markets to have access to capital and maintain liquidity, how do you think this could be an opportune situation for ADIB and other Islamic banks?

ADIB, like other financial institutions, is engaged in the investment banking space. We are engaged in the Islamic bond market, or sukuks, and we arrange, issue, and invest in sukuks. There are opportunities out there to invest in more sukuks. I believe sukuks are more efficient and more beneficial than conventional bonds because they rely on the presence of real assets, whereas bonds don’t necessarily require assets in the equation. Therefore, for investors it is safer to be in a sukuk than in a conventional bond. If, for example, an airline issues a sukuk, it is a prerequisite that the aircraft is part of the deal. If there is ever a default, at least the sukuk holders still have the aircraft. But in the bond market, although a similar asset-based bond is possible, it is not a prerequisite. In Islamic banking it is a prerequisite, which is why investors prefer this—it is safer.

Islamic banking has become a huge part of the international banking sector in recent years. How do you perceive the future of Islamic banking?

Islamic banking has indeed become recognized as a viable mode of finance. Former French minister and current IMF Managing Director Christine Lagarde has been quoted on numerous occasions saying Islamic banks bring better stability to the global financial system than conventional banks do. She is a proponent of Islamic finance because she believes it is better in terms of systemic risk in the global financial system. She is not saying this solely from the shareholders’ point of view, but from the point of view of the depositors, the regulators, and the shareholders. She is talking about the entire system. Islamic banks, in general, tend to be less risky and less speculative. They take risk, but it is natural risk, because they are primarily driven by the real economy of trade, manufacturing, and construction, not just the financial economy.

Christine Lagarde has said that Islamic banks need to develop sharia-compliant liquidity management tools for the banks to adequately assess and address risks. What are your thoughts on this?

She is absolutely right. Normally, banks are supposed to maintain a level of true liquidity on their balance sheets. It usually is a percentage of its overall balance sheet, usually around 10% or 20%. That true liquidity could be money that is deposited at the central bank or money invested in short-term marketable money instruments such as certificates of deposit issued by the central bank or treasury bills. Those are available, but primarily conventional.

How has the regulator Al Etihad Credit Bureau (AECB) influenced lending and borrowing specifically for ADIB?

We are among the pioneers who participated in the credit bureau, having fully participated from its earliest stages. We believe the credit bureau is a prerequisite for any stable and successful financial market. It will enhance transparency in the future, it will establish the credit-worthiness of a borrower applying for credit, and it will bring a greater element of safety into the system. We are a great believer in it and we want to see more of it. We work closely with AECB for the retail business. All our consumer transactions run through the AECB.

How has ADIB tailored its services toward developing the SME sector?

We are among the top three biggest banks for SMEs, and we are successful in that segment. Our value proposition is wide-ranging. We work with the whole gamut in the SME segment. Of all the products we offer, we have an excellent list of liability management and cash management products, and we have a number of great financing products, including real estate finance, auto finance, warehouse finance, and inventory finance, for example.

The Islamic finance sector continues to grow in the country, expected to be worth $260 billion by 2019. What portion of that do you believe that ADIB will account for?

Domestically, we aim to be the largest retail bank by 2020. Not just the largest Islamic retail bank, but also the largest bank overall.