Tuesday 14, August 2018 by Islamic Business & Finance

Increasing Islamic banking’s global linkage

 

Mohamed Rafique Merican, CEO, Maybank Islamic speaks exclusively with Islamic Business & Finance about his plans for the firm in the GCC and beyond.

Are you working to expand Maybank Islamic into Dubai?
It’s something that we’re considering. I think for us it makes sense. We have one branch in the Middle East, it’s under our conventional bank, and that has been around for several years. Bahrain was for us to get familiar with the region and to establish relationships. We’ve found that, over the last five to 10 years, if you want to have a presence in the GCC, Dubai is the better option. If you decide to expand beyond Dubai, then other locations will come into play.

We are looking at various location possibilities depending on the licence that we secure and the business we intend to do. For us we’re quite clear what business we intend to do. We’re looking at wholesale banking from a Sukuk space or a syndicated loan space, as well as linking ASEAN and the GCC when it comes to Islamic trade facilities.

What are your goals with Islamic trade facilities?
We want to increase the linkage. Trade finance is about linking business and trade. There’s always been one pillar which is Islamic finance. The other is the global Halal economy—food, lifestyle, travel, pharmaceuticals, and more. That is also growing quite strongly. Islamic finance is also growing quite well, but the linkage between the two is still relatively small.

Only 1.5 per cent of global trade is being done with Shari’ah-compliant trade facilities. That’s very small when you consider the global population of Muslims—which is about 24 per cent. The food is Halal, but the usage of Islamic trade facilities is very low. The opportunity is enormous, so we want to link it, which will aid the global Halal economy as well as allow global Islamic finance players, including Takaful, to come into that space.

How do you plan to link the rest of the world?
When it comes to trade, you must have data points. For example, where does the GCC source food? Where do the travellers come from? Then, how do you provide the linkage? There is an opportunity for Halal players to grow and become more prominent. There is opportunity all over the world.

Halal means safe and clean—it should be universal! It’s about best practises in how you treat animals. As Islamic finance starts to achieve growth, we need to expand it beyond just transactions. We need to be in the Halal space. Beyond that, we need consistency with ESG (environmental, social and governance) principles—sustainability, being a part of the community, and more. There are a lot of parallels between those elements and how Sukuk should be done.

Why do you think there needs to be a greater link between the GCC and ASEAN?
We also feel that, in terms of investor pockets in the GCC and ASEAN, both regions are expected to achieve growth quite strongly. ASEAN probably has a five to six GDP growth rate and the GCC will probably not be too far away. I think the potential for development in this region in terms of infrastructure and rising affluence are large, and there will be more private consumption and spending. The way we look at it is, if there’s going to be investor pools, we want to look for good quality investments with yield.

The yields in the GCC are quite attractive. There is a good demand for infrastructure in ASEAN as well, and we are pursuing investments there as well. We would like a wider network of investment opportunities. With the rising affluence of ASEAN and the GCC, I don’t see any reason why investment should not flow between the two reasons.

What timeline are you looking at for expanding into the UAE?
If we can get the approval before the year is out, then we hope that we will be operational early in 2019.

Have you faced challenges in being established in the UAE?
Dubai is a global financial centre. I think they will eventually sort out any processes that stand in the way of a financial institution wanting to be based here.

What is your pipeline in the region?
We have done some transactions in the region whether through institutions and have relationships here, it’s just about strengthening those relationships and starting to build the business from there.

What is your outlook for Sukuk?
In the capital market Sukuk space, the supply continues to be below where the demand levels are by 25 to 30 per cent, and that will continue for at least the next four to five years. The preference to issue Sukuk as opposed to conventional loans has been quite pronounced, unless of course you want to tap larger US dollar-based investors. By and large if there’s acceptance for Sukuk, and the liquidity for Sukuk investors is quite sizable, there will be that gap for the next four to five years.

We need to work a bit more in awareness and standardisation. When it comes to syndicated lending, there has been demand for various projects in this region, and we need to see what sort of credits we’re comfortable with before we start to look at exposures here. We do have exposures in Bahrain.

What do you find notable about the moves that global banks are making?
Global banks are starting to withdraw from markets where they don’t have a strong advantage. Having a footprint alone is not necessarily consistent with where banking is headed. When you talk about capital requirements, risk, and governance, banking from a global perspective will start to change. I’ve heard some major European banks are considering whether they want to remain in the United States, for example.

What are your goals as a group for 2018?
We have a 2020 aspiration to be one of the leading global Islamic banks. Currently, we are fifth by assets. We are the only non-GCC bank in the top 10. Our aspirations for 2020, if we want to be one of the leading Islamic banks globally, is to be strong in four areas.

First, it is financial, which is capital, liquidity and profitability. We need to ourselves be at that point, financially-speaking. Second, in terms of global presence, we need to expand. We do have presence in Singapore, Indonesia, Malaysia, Hong Kong for transactions, New York for one of two deals, London, and Bahrain we have transactions. I think the intention is to have a presence in Dubai, as this is where the other centre of Islamic finance would be. Beyond that we need to look at where would make sense for us, as we need to have that presence as well. Third, we need to take on product innovation and development. You need to take on that role. Otherwise, if you focus purely on the business end, it will limit the kind of potential and growth you can have for Islamic finance. Someone needs to take that role.

We want to establish a centre of excellence. We want to drive thought leadership. We want to see what the potential of Islamic finance is, talk about why investors should consider Sukuk. We want to be out there to communicate. Hopefully by 2020, all of these elements will start to show results. Product development and innovation are things in which Islamic banks need to be more active, and in terms of philosophical thought leadership, banks and financial institutions need to be more active.

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