First Dawood Islamic Bank - A Shariah compliant financial institution

Interviewer: Congratulations for receiving the license and commencement certificate from State Bank of Pakistan for setting up First Dawood Islamic Bank. The first question which comes to mind is , what brought you to Pakistan in the first place. You are, as far as I know the only non-Pakistani CEO of any bank in Pakistan.
Answer: First of all I must say that I loved the challenge, we had previously lived in India and I of course knew that Pakistan is not like India, but the experience helped us to quickly decide as a family that we would be very comfortable living in Pakistan.
From a professional point of view, I had always felt that Islamic Finance in the West and up to a certain part also in the Arab world and Malaysia, focuses to much on Investment Banking, too much on big ticket transactions and here was an opportunity presented to me to set up and run a holistic retail cum commercial Shariah compliant Islamic Financial Institution.
You know, the fact that Islamic Finance so far only comprises of about 3 percent of the total banking assets, suggest that there is a tremendous opportunity to offer a wide range of Shariah compliant products and services to a very big and disbursed market.
From a religious point of view I felt that as a Muslim and as a banker I had no other choice than to help to establish a riba free environment in a country having a population of more than 160 million. And obviously I share with many others a very positive economic outlook for Pakistan.
Interviewer: Can we briefly talk about the shareholders of the Bank. Who are the main investors in the bank.
THE CORE SPONSORS OF THE BANK ARE:
The First Dawood Group, represents a branch of the reputable Dawood family, which is one of the largest business groups in Pakistan, our Chairman Rafique Dawood is also Chairman of the first Dawood Group which include first Dawood Investment Bank, BRR Guardian Mudaraba and Dawood Capital Management.
The Islamic Corporation for the Development of the Private Sector (ICD). This is a wholly owned subsidiary of Islamic Development Bank, Jeddah. Then we have Unicorn Investment Bank, a Shari'ah compliant investment bank based in Bahrain. There is also Al Safat Investment Company, a Kuwaiti Investment Shareholding company with investments in all industry sectors, portfolios and asset management.
Gargash Enterprises (LLC), Dubai, a private limited company, which is the sole authorised distributor for Mercedes-Benz for Dubai.
And besides these core sponsors, other foreign sponsors include Mr Azam Essof Kolia, Singapore and Shaikh Abdullah Mohammad Al-Romaizan, Saudi Arabia and Gulf Cap a Dubai.
Interviewer: There are already 5 fully fledged Islamic banks operating in Pakistan. How do you distinguish your Bank from others in terms of innovative products and services?
Answer: From the very beginning we saw that there is a great necessity to be innovative yet in terms of Shariah authentic. We have also taken cognisance of course of a prevailing skepticism mostly in the media which feels that the existing Islamic products are not providing the religious needs of the business community. We listened also very carefully to the Governor of State bank of Pakistan and she very clearly emphasises that Islamic Finance must be innovative and must fully serve all the segments population of the country.
We will be shortly rolling out a concept which will exactly address these issues. It is my responsibility as a commercial banker, as a Muslim and as the CEO of First Dawood Islamic Bank to understand the requirements of the business community , the requirements of the consumers and implement the appropriate products and services. And I am of course not alone , we have a very senior , experienced and dedicated team of Islamic banking professionals. So we combine basically international best practices in terms of product development, in terms of services, IT, customer centricity and excellent local expertise at all levels within the institution.
Interviewer: Can you be a bit more specific. What are your new and innovative products and services ?
Answer: First of all we will be launching a post shipment export finance product which provides finance to exporters at the time of export of goods from Pakistan. This will be a Shariah compliant solution which will replace the conventional banking foreign bills purchase product. This product is being highly demanded by those exporters who want to avail Shari'ah compliant total solution as substitute for conventional banking foreign bills purchase product. And it is important to mention that there is magnitude of exporters who far have not availed of the conventional product as they do not want to use a non halal product. The focus here is again to serve the underserved and to convince more people to bank under the umbrella of Islamic Finance.
We will also launch services based financing product for which we see great demand and we have also structured long term projects financing through a very innovative version of Diminishing Musharakah concept of Shari'ah.
In order to achieve that we focused from the very beginning on hiring a strong and experienced team of professionals to structure and arrange products for our corporate customers and retail customers.
Interviewer: You will be starting with a limited number of branches, how will you facilitate the requirements of Importers & Exporters in smaller cities?
Answer: In addition to our branch network, which will of course grow over the next months, we will establish a network of service centers throughout Pakistan to facilitate Importer and Exporter in big cities as well as in small cities all over Pakistan. These service centers will allow us to very efficiently transact trade finance business, advise our corporate customers and offer investment advisory services to retail clients.
The keyword is again customer centricity, not only for corporate clients but also for retail clients. Interviewer: Now we all know that liquidity management is a challenge for Islamic banks all over the world. Is your bank coming up with any solution to answer this challenge?
Answer: Again , from the very beginning we tried also to focus on this issue and in the meantime we have presented to the Islamic banking task force officials of State Bank of Pakistan our solutions and these proposals allow clean interbank transactions even for over the night placements. The structure is of course Shariah compliant and not only our own Shariah advisor but Shariah advisors of other banks confirm the compliance of this product.
Furthermore, we have also presented to State Bank a practical solution for the substitute of conventional banking repo transaction and with a practical solution for the issuance of Shari'ah compliant Govt. guaranteed securities as a substitute for T-Bills. So you can see that we are trying to position ourselves as a very proactive treasury focused institution .
Interviewer: Let us come back to the basics of Islamic Banking. Conventional Banks earn profit by buying and selling money as a commodity, which is not permitted in Islam. How do Islamic banks earn their profit ?
Answer: Conventional banking is based on lending of money against a promise of repayment, secured sometimes by collateral. Until the amount is repaid, the borrower keeps paying interest on the borrowed amount, from which the conventional banks earn their profit. Conversely, Islamic banking is based on the underlying principle of trade. In Islam money cannot be bought and sold and any return thereon is prohibited, eg any return of Rs 10/- on the principle amount of Rs 100/- borrowed by the customer is pure interest, hence RIBA Every transaction involves the buying / selling of a tangible asset, with transfer of ownership and physical possession of the underlying asset.
Once an asset, which must be a Shariah compliant commodity, is identified as the basis of the transaction, buying and selling terms and conditions are decided between the Islamic bank and its customer. The Islamic bank earns its profit in the transaction as a difference between the buying and selling price. There is no element of Riba, and customers and the bank are both satisfied with the transaction from a religious point of view. The Quran allows trade and hence profit but prohibits interest. I think this is a very clear statement..
There are of course borderline products and every bank must decide for itself how to manage the question of Shariah compliance. Interviewer: What is your plan to attract the younger generation of Pakistan?
Answer: This is a very important question, because if you look at past and present ad campaigns of conventional as well as Islamic Financial Institutions you will not find that any bank has focused on this most important segment of the population. This might be a very subjective observation. Nevertheless we will as an industry have to try to attract young people to Islamic Finance. Nothing is more important than to guide the country's future professionals to the offerings of Islamic Finance. And within our institution we will very soon roll out services and products designed to cater for their needs.
INTERVIEWER: HOW DO YOU SEE THE FUTURE OF ISLAMIC FINANCE IN PAKISTAN?
I think as long as we are able to overcome the sometimes prevailing skepticism and convince clients that what we have to offer is not only Shariah compliant but also authentic in its spirit than we have a very bright future in this industry.
Some of us have great hopes for this system of fair, profit and risk sharing banking, and we also believe that non-Muslims will be equally as attracted to this form of banking .
The vision for all Islamic banks in emerging markets is to go beyond simply replicating conventional banking products. Even if the world does not change from an interest-based to an equity-profit based economy for global commerce and finance, the future of Islamic banking presents Muslims with an opportunity to demonstrate the power of their values.
But Islamic banks will have to care that they also invest in the communities they serve, profit being an important but not the only determining factor in choosing products and services offered to the population.
And we have to ask ourselves which path we want to follow: a liberal or non-interventionist approach, whereby Islamic values are seen as compatible with modern secular institutions and law within certain limits, or a conservative traditionalist approach, where the expressed goal is to produce a true Islamic society and subsequent monetary system.
I believe in today's global economy and even more importantly in Pakistan the vast majority of Muslims fall within a gradient of tolerance between these two paths.
As we Islamic banks will have to expand our portfolio of services to address the financial needs of all customers, one thing is clear: the next ten years will be an exciting time for Islamic banking in Pakistan.