Noor Islamic Bank Dubai UAE

Arecent report by financial research firm, Moody’s Investors Service, values the Islamic finance industry worldwide at around US$700 billion. This figure is expected to increase as more funds, investors and financial institutions turn towards Islamic finance to grow the value of their portfolios and stay within the remit of an ethical business model – Shari’ah style.

One reason for the sector’s expanding popularity, is its moral basis rooted in compliance with the tenets of Sharia Law, as Islamic finance prohibits usury for instance, which is the collection and payment of interest upon which standard western banking methods are based. Neither does it invest in businesses that are considered ‘haraam’, meaning contrary to Islamic law.

Such principles also offer advantages over conventional banking systems, observes Hussain Al Qemzi, Group CEO, Noor Islamic Bank, a seasoned banker with over 26 years of experience .

“One of the main reasons for the popularity of Islamic banking is that it provides a relatively low-risk investment option for both consumers and corporate customers,” he feels. “Investors have strong faith in Islamic alternatives, which have proven to be credible, steady and socially responsible – both regionally and globally. As a result, more conventional banks are entering the Islamic finance arena by introducing Shari’ah compliant products and services.

“Also, while the conventional banking system is currently in turmoil due to the credit crunch, Islamic finance continues to perform strongly as it does not rely on leveraged debt”, he explains.

Nevertheless, some analysts believe that local banks remain vulnerable to a fall in UAE property prices, estimated as the world’s second most expensive after London. Furthermore, leveraged or otherwise, debt in the GCC is on the rise with escalating inflation, as GCC currencies remain pegged to a weak dollar. What implications does this have to the UAE dirham peg and to the health of the UAE banking industry?

“We are not harmed by the credit crunch as the banking sector in both the UAE and wider GCC has proved to be stable and steady, which is an incentive to us at this stage,” Al Qemzi explains. “It is only up to Central Bank to decide on the dirham status. As for Noor Islamic Bank, we are a UAE bank and our holdings are in UAE dirham.”

Noor Islamic Bank was launched in December 2006. But it wasn’t until January 2008 that it opened its doors for business. “The 12 months after the launch were not only spent formulating our strategic vision,” explains Al Qemzi, “but also our products, services, processes, value proposition and human talent. “At the time of launch, we had around 350 employees from different nationalities and regions. This number is now growing as we build our talent pool to address the needs of our customers.”

Services include the entire spectrum of both consumer and corporate banking. The Bank also has a dedicated team that caters for smallto- medium sized businesses - a fast growing sector as free zone opportunities increase within the region.

The Bank also recently hosted a delegation of 23 MBA students from top US business schools as part of its ‘community outreach programme’ to attract global talent. A fitting move for an institution with the long-term ambition to be the world’s leading global Islamic Bank.

“In global markets you have established conventional banks that offer Islamic products, and you have local Islamic banks. Noor Islamic Bank is the first global Islamic bank,” maintains Al Qemzi. “At present we are operating from eight locations across the UAE. During the next five years, we not only intend to increase our geographical scope across the Middle East, but also plan to operate in Europe and the Far East.”

Looking to the future

Despite suggestions otherwise, the UAE banking sector still offers room for growth, believes Al Qemzi. “Some analysts say that the sector is overbanked, but I think that that opportunities still exist for institutions that want to be innovative,” he offers. “At the same time, the UAE government is keen to see consolidation within the industry, in order for local banks to complete evenly with larger international financial institutions. The recent merger between Emirates Bank and National Bank of Dubai is a case in point, as it has created one of the largest financial institutions in the region.

“For ourselves, we are looking forward to growing our business. At Noor Islamic Bank, our focus is to go beyond preconceived conceptions of what Islamic banks are currently, to defining what an Islamic bank can be.”

Ijara

Ijara is a form of leasing. It involves a contract where the bank buys and then leases an item – perhaps a consumer durable, for example – to a customer for a specified rental over a specific period. The duration of the lease, as well as the basis for rental, are set and agreed in advance. Islamic Bank of Britain retains ownership of the item throughout the arrangement and takes back the item at the end.

Ijara-wa-iktana

Ijara-wa-iktana is similar to Ijara, except that included in the contract is a promise from the customer to buy the equipment at the end of the lease period, at a pre-agreed price. Rentals paid during the period of the lease constitute part of the purchase price. Often, as a result, the final sale will be for a token sum.

Ijara with diminishing Musharaka

The principle of Ijara with diminishing Musharaka can be used for home-buying services. Diminishing Musharaka means that we reduce our equity in an asset with any additional capital payment you make, over and above your rental payments. Your ownership in the asset increases and ours decreases by a similar amount each time you make an additional capital payment. Ultimately, we transfer ownership of the asset entirely over to you.

Mudaraba

Mudaraba refers to an investment on your behalf by a more skilled person. It takes the form of a contract between two parties, one who provides the funds and the other who provides the expertise and who agree to the division of any profits made in advance. In other words, Islamic Bank of Britain would make Sharia’a compliant investments and share the profits with the customer, in effect charging for the time and effort. If no profit is made, the loss is borne by the customer and Islamic Bank of Britain takes no fee.

Mudarib

In a Mudaraba contract, the expert who manages the investment is known as a Mudarib.

Murabaha

Murabaha is a contract for purchase and resale and allows the customer to make purchases without having to take out a loan and pay interest. Islamic Bank of Britain purchases the goods for the customer, and re-sells them to the customer on a deferred basis, adding an agreed profit margin. The customer then pays the sale price for the goods over instalments, effectively obtaining credit without paying interest.

Musharaka

Musharaka means partnership. It involves you placing your capital with another person and both sharing the risk and reward. The difference between Musharaka arrangements and normal banking is that you can set any kind of profit sharing ratio, but losses must be proportionate to the amount invested.

Qard

A Qard is a loan, free of profit. We use this arrangement for our Current Accounts. In essence, it means that your Current Account is a loan to the bank, which is used by the bank for investment and other purposes. Obviously it has to be paid back to you, in full, on demand.

Riba

Riba means interest, which is prohibited in Islamic law. Any risk-free or guaranteed interest on a loan is considered to be usury.