Islamic Banking & Finance: Developing new markets beyond Malaysia

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AMANIE Business Consulting is probably the most international Islamic finance company in Malaysia offering shariah as well as Islamic banking and finance consultancy, in no fewer than 10 markets around the world.

Its founder, president and CEO Datuk Dr Mohd Daud Bakar, one of the most prominent shariah scholars in Malaysia, tells The Edge what it takes to go global in Islamic finance.

“At Amanie, our focus all the way has been on new markets. Of course, we can go to big markets like Bahrain, Kuwait or London, but they’re not hungry. You take a country like Ireland or Morocco, they are hungry for what we have to offer.”

The company currently has offices in Kuala Lumpur, Dubai, Australia, South Korea, Oman, Ireland, Luxembourg, Egypt, Kazakhstan and Tunisia. It is looking to open its 11th office in Morocco by October.

Daud is chairman of the Shariah Advisory Council at Bank Negara Malaysia and the Securities Commission Malaysia, as well as Labuan Financial Services Authority’s Shariah Supervisory Council. He has just returned from Kabul, Afghanistan.

A few wealthy families from Europe, the US and Brazil were pumping a few hundred million dollars to develop Afghanistan. The money was supposed to be for the development of small and medium enterprises, hospitals and agriculture. After all, they reasoned, you couldn’t fight the militants and bring some measure of order to a country, where the people were jobless and their bellies empty.

To funnel the money to the economy most productively, they required an overarching structure; and research revealed that the Afghans would not accept commercial banking. What they wanted was a proper Islamic banking and finance system in the country. Amanie, along with other consultancies, was invited to submit a proposal and it managed to secure a mandate from the donors.

That, however, was only the first hurdle. The job would be with Afghanistan’s central bank, which insisted that Daud fly to Kabul to present his case. If they were going to be working together, he had to display enough gumption to make the treacherous trip, that would have been an immediate deal breaker for most others.

“I had to think about it many times. But then I said, ‘You book me the security and I’ll come’. That doesn’t guarantee everything, but at least it would mean that some precautionary measures have been taken. So I flew to Kabul,” he says.

The Afghan central bank was looking for someone who could tell them about Islamic banking products, standard operating procedures (SOPs), policies on mortgages and credit risk management. “They didn’t have any system for mortgages in the past because people didn’t go to the bank to borrow money to buy houses. They just saved up their money. So they needed new expertise to come in and help them put up the structure,” says Daud.

By working with the central bank rather than a commercial bank, Amanie would be taking a short cut. “Once the central bank is happy with the system, it can give it to any bank that wants it on any day. We are cutting the process short because if you advise a commercial bank, only one bank will benefit.”

It helped that even before he landed on Afghan soil, he was already very familiar with these central bankers. “We used to meet at airports and other places, so I knew them already. We had a friendly discussion and presented our case and they made us feel very welcome. Not many people are willing to go to Kabul and they appreciated the fact that we went and presented to them for three hours.”

And that is what makes Amanie different. Daud likes to recount a trip to Libya. Trouble erupted while he was there, and the shariah scholar had to be smuggled out via back roads. His partner in that market was familiar with the militia who were guarding the alternative routes, thus he was allowed to pass through and made it to the airport to fly to Tunisia before heading to Dubai.

Daud is a keen advocate of Malaysian Islamic finance players going into Kabul. “Afghanistan is a virgin market. Everything is new, fresh and full of potential, but you have to take some risks. If you believe in the market, there are many banks that are for sale or open to having new shareholders, and they are not expensive. You can put some money, capture some interest there and then go in big later. You will make money eventually if you are willing to do the groundwork now.”

This is his central philosophy. It is also why Amanie has managed to penetrate so many different markets and get deals from all around the world, whereas some of the local Islamic banks have yet to go regional.

Amanie started with shariah advisory services in 2005, offering consultancy for structured products and services in Islamic banking and finance. “Along the way, we developed many other core competencies. Now, we are not only doing shariah work but also Islamic finance consultancy, for example, legal frameworks for Islamic banking and finance in new markets like Kabul.”

Amanie is also looking at areas such as Islamic mortgage policies and Islamic mortgage securitisation. “We are moving from shariah advisory to Islamic finance advisory, covering legal issues, risk management, IT, policies, regulations and so on,” says Daud.

The company has also teamed up with renowned partners from around the world to go into new areas, such as IT and private equity. Daud is restless, so the company is constantly moving and expanding. When asked where he is based, one of his directors quipped, tongue-in-cheek, “… the airport”.

Next stop, Morocco. “Morocco is the most stable and most advanced country in terms of Islamic finance regulations in the Middle East and North Africa region. It is the only country in North Africa that has issued two pieces of legislation to facilitate Islamic finance.”

Banks from the US, Europe and the Gulf are applying for licences to operate there. But Malaysian banks have been conspicuous by their absence.

“It’s beyond their radar. They have a very much Southeast Asian mentality, and I’m not even talking Asian, but Southeast Asian,” Daud laments.
And it’s not like they would not be welcome in these markets. Daud says he receives many calls from friends and colleagues in those markets asking him to bring Malaysian banks and investors over.

“Every single visit, they say, ‘Bring Malaysian investors, we like Malaysian investors, not just in banking but also for things like water treatment or hospitals’. These people really appreciate us because we have the money, capacity and track record. But we are doing nothing about it.”

It would take a shift in mentality to start going after new markets. “You have to take risks because you believe in the future of the market. It may take some time but eventually, you will get there. Look at how China invested in Africa for years and the US is only now looking to go in because it has been left behind,” says Daud.

So what needs to change? “Firstly, we need proper intelligence on new emerging markets. We [Amanie] wanted to go Brunei and we had to scramble to get information on simple things like how many banks there were there and what their capacity was. And this is just Brunei. What more in new markets?”

Secondly, he says, Malaysian banks should tweak their textbooks when it comes to risk management. “It’s no longer relevant. They should be more like the Western banks, more entrepreneurial.”

And then, there is relationship building, the most important piece of the puzzle. Daud says Malaysian officials and companies should change their approach to these markets.

“They typically make three-day visits and only one of those days is actually spent networking, that too, at whatever official event they are attending. Whereas we have meetings scheduled from breakfast to supper every day. We meet people every single hour. We prefer that part of our trip doesn’t take place over the weekend so that every single day is productive.

“We meet bankers, CEOs, CFOs, central bankers, politicians, muftis, scholars, professors. You have to engage with the relevant sectors in new markets at all levels,” he says.

Those going on business should shake off the tourist mentality. “We are not going there for holiday, we are going there to export our capabilities, sell our products and people. And the people there are keen. They want to buy our products, tap our knowledge and experience.

“There is potential, but we are not entrepreneurial enough to go there. And I’m not just talking about the bankers. What about the infrastructure companies, the ones who build airports or highways? We have a good name and we have capital. We should be going there, taking risks and bringing our Islamic finance products with us. This is the only way we can develop our markets beyond Malaysia.”

This story first appeared in The Edge weekly edition of Sept 01-07, 2014.