Stella Cox CBE, the Managing Director, DDCAP Limited
What are your views on the global Islamic finance industry?
Overall our market sentiment is very positive. The industry continues to develop its core values proposition as its global footprint expands and it is now making some extraordinary connections that will enable its participants to further elevate its global impact in years to come.
Having offices in the UK, Dubai and Kuala Lumpur, what are the distinct features of each market? And where do you see opportunities?
DDCAP Group was established over twenty years ago, but we have been cautious about our global expansion and our overseas presences have been selected strategically, driven by our clients’ requirements of us as well as by market dynamics.
When we opened for business in the 1990s, we considered that London was the global financial centre most suited to Islamic banks and financial institutions needing to deploy wholesale liquidity and seeking eligible investment assets.
Through the capability and capacity of London’s markets, we were able to deliver our clients access to diversified assets, broaden their counterparties and identify sources of reciprocal liquidity for them which, at that point, was one of the principal challenges faced by Islamic banking institutions.
That capacity hasn’t changed, in fact it has grown and London remains our headquarters, but since then the industry has expanded its reach and other key centres and hubs for Islamic finance have emerged, presenting opportunity to us and offering capacity that interests us, as well as being extremely important to our clients.
DDCAP opened in the Dubai International Financial Centre (DIFC) in 2008. Following the turn of 2000, there was significant repatriation of Shari'ah compliant capital to the Middle East in response to a number of different situations.
The capital inflows caused regional Islamic banks to engage and interact with their conventional neighbours much more proactively than before and DDCAP was called upon by regulatory authorities, as well as by our clients, to contribute and play a role in the origination of transactional templates and implementation of post trade procedures appropriate for local and regional market application.
Subsequently clients asked us to provide further transactional services which resulted in the development of the trade execution capabilities that DDCAP is well known for. At that time, DDCAP had already embarked upon building its automated technology for Islamic interbank and capital market requirement, which is the Platform we subsequently branded ETHOS AFP™.
The build and delivery of ETHOS AFP™ was possible due to the exceptional engagement we had with our pilot group of client banks and their esteemed Shari'ah advisors, all of whom were from the UAE.
The combination of these and other, regional factors convinced us that the time was right to extend our representation into the DIFC. We made our application and received our approval. Thereafter, we established our first overseas office in Dubai, and we have never regretted that decision.
At a similar point in time, we were also invited by Bank Negara Malaysia, the Malaysian central bank, to join a steering group that was formed in response to the Malaysian financial authorities granting permissions to Islamic banks from the GCC to do business locally.
It became apparent, following discussions within the interbank community, that there were certain differences in transactional preferences and procedures that needed to be considered and resolved to the satisfaction of the market, in order to ensure a consistent approach to doing business that would enable the integration of the newly authorised banks into the marketplace.
It was DDCAP’s privilege to be invited into that process and, in the ensuing years, we have developed strong relationships with institutional clients in Malaysia and elsewhere in Southeast Asia. We have also been impressed by the various industry leadership initiatives that have been embarked upon by the Malaysian financial regulators.
Particularly relevant to DDCAP’s corporate and business culture have been the efforts of the Securities Commission to embed sustainable and responsible financial practice codes within Malaysia’s Shari'ah compliant capital markets and securities regulations. Since then, Bank Negara’s commitment to the development and launch of its Values Based Intermediation strategy with its Islamic banks.
Quite reasonably, our own clients started to ask us to open an office in Kuala Lumpur to better support them locally. As a consequence of this, and of our market experience gained over more than a decade, we decided to make an application to open an office in Kuala Lumpur and in 2018 we received approval to do so.
How would you describe your pipeline for 2020?
We see amazing opportunities, still, in each market where we have physical presence, underpinned by DDCAP’s corporate undertaking to adopt a sustainable and responsible approach to doing business and by our intention to evolve still further as an Islamic fintech.
We demonstrated our commitment to the latter most recently with our strategic investment in IslamicMarkets.com. Although we had been very actively searching for a while, this marked our first, direct investment in a third-party fintech initiative.
IslamicMarkets is already an incredible business that works across our industry footprint and, with 250,000 users, is now the most widely used online information, financial intelligence and learning platform in the Islamic economy. For 2020 we plan some further announcements, but we will keep our powder dry on some of those for a little longer!
In terms of others, we are considering the ongoing expansion of our international network. We are also excited that our full range of services, in particular the ever-increasing capacity and functionality of ETHOS AFP™, are well placed to support our institutional clients and counterparties during what is clearly proving to be a time of significant new opportunity for them.
We expect to announce other joint offerings as we did last year when, through ETHOS AFP™, DDCAP partnered with Refinitiv to provide a fully integrated treasury trading workflow for Shari’ah-compliant transactions.
Otherwise we will obviously be working very closely with IslamicMarkets and proactively seeking to make further, technology focused investments within the wider halal economy.
What would you say is the biggest challenge hampering the growth of Islamic finance as a segment of the financial services industry?
I have been heard to say that we are hampered by our own impatience and frustrations, as we strive to build a robust and sizeable global financial industry sector. We sometimes forget that, as an industry segment, contemporary Islamic finance is still less than fifty years old.
Often, we talk about the negative impact of the lack of consensus in our approach to our industry standard setting. Many of our market practitioners and observers believe that this continues to impede our business efficiency and restricts our ability to be consistent in originating and documenting transactional templates.
Establishing operational procedures and achieving uniform Shari’ah validation which, in turn, has a detrimental effect on market confidence and our ability to innovate and scale. We still have our issues to address and remedy, we certainly can’t be complacent, and we will still experience exceptional situations but, in my view, the progress that we have made in recent years has been significant and we are most times in agreement about what is and isn’t permissible and about how we aspire to transact.
What are your projections on the Islamic finance industry next year?
The global financial services industry is moving at an incredible pace and we need to ensure that our leadership is attuned to the nature and, particularly, to the significance of the changes that are pervading through global financial practice.
There is no turning back and we are experiencing an ongoing call to make changes to the construction of the global financial industry architecture, to its legislation and, increasingly, to its regulation. Financing and investment preferences are being revised, we are reconsidering how we set targets for financial return, how we evaluate and manage risk and how we capture data.
Product and asset origination is now driven so firmly by market demand, by consumers as well as institutions, that the market is obliged to listen. The global call for the financial system to evolve and contribute fully to supporting a more equitable, sustainable and prosperous world for all is causing a new breed of financial institutions to emerge, its leaders having realigned perspectives and its businesses developing and offering technologies that challenge and sometimes disrupt traditional practice and perspective.
Islamic finance is well placed to play a role at the forefront of these changes but as an industry sector, we need to be proactive, not reactive, and we need to be nimble and flexible in adapting to them.
In common within the faith-based drivers of Shari’ah-compliant finance, responsible finance is about doing the right thing, even when it’s not the easiest thing to do, and the time to do that is now. DDCAP has been evolving our own approach to ensure our ongoing commitment to sustainable and responsible practices through the product and services offered by our Group companies for some years.
It is now apparent that our aspiration to connect the Islamic financial market responsibly is shared with a great number of our stakeholders, amongst them our shareholders, clients and counterparties.
Although we are still working through how we, in Islamic finance, can collaborate with practitioners from other SRI subsets to establish a common approach to business that upholds our shared values, we have succeeded already in originating transactional templates that demonstrate that, as an industry, we have moved beyond theory into practice.
Islamic banks are signatories now to the recently launched Principles for Responsible Banking and other firms from the Shari’ah-compliant financial market, DDCAP amongst them, are signatories to Principles for Responsible Investment.
Our capital markets are supporting green issues that have started to move beyond sovereign and quasi sovereign issuance to the corporate market. Our industry architecture organisations are developing responsible standards aligned with global best practice and identifying impact focused benchmarks that will enable institutions and firms from the Islamic financial sector to contribute fully to the global financial initiative to create that fairer, more equitable world.
What are you most excited about and which would you say are the most promising markets?
DDCAP is very excited about the relevance of certain of the industry’s core thematics to our own offerings and capabilities. We have discussed already the potential that the Islamic financial community has to offer in terms of prioritising a responsible and sustainable approach to financial sector business for broader global impact and, outside of markets activity, this is incredibly apparent within Islamic fintech.
In ETHOS AFP™, DDCAP created an enabling platform with global reach but we are intrigued and also inspired by a number of the disrupters and by our industry’s increasingly deep reserve of entrepreneurial technologists! I’m privileged to sit on the UK Islamic Fintech Panel, a private sector initiative endorsed by our government, whose efforts in 2019 have already brought several rounds of strategic funding to exciting young, British businesses.
My DDCAP colleagues and I are enthused by the new and fresh perspectives being brought to the Islamic financial industry and its practices and I have already touched on some of those developments in both private and public sector, as well those relevant to the formation of our architecture.
We see momentum and demand for Shari’ah-compliant financial practice growing rapidly in Central Asia and Africa but the demands across numerous of our emerging markets simply cannot be satisfied by traditional banking services in isolation and new technologies will be an essential element of ensuring full access to them and providing an evolved financial offering to consumers.
Having moved our industry beyond its initial emergence, through its early years and into a financial subset whose capability is both recognised and respected by its global peers, it is clear that many of our market professionals envisage a realignment, for best effect, of what has been achieved during the past forty years so that we are well placed now to open new industry frontiers and extend our footprint in preparation for the next fifty years