June 23 - 29, 2008

The financial engineering needed to unroll innovative Shariah-compliant financial products in the overwhelming atmosphere of conventional system and recommended by the State Bank to Islamic Banking Institutions alike is albeit introducing congenial Islamic financial solutions such as pension saving funds, Sukook funds, etc. in the Pakistan's financial market, which is acquiescing religious-based financial intermediation, it requires strict approach to discern between Halal (Riba-free) and Haram in deigning transactions to target the customers, and thus not only adapting to the prevailing conventional structure but also adhering to the fundamental Islamic economic principles.

In an economy predominated by the conventional system, progress of Islamic financial industry can only be judged through the extent with which it persists on the Islamic principles, said Syed Tariq Husain, CEO, Emirates Global Islamic Bank Limited.

Having 28 years of diversified local and international banker experience, he said during an interview with PAGE, "level of degrees can measure the purity that is underlying the Shariah-based financial transactions in the predominated conventional financial structure. But, the fundamental is to make this transaction completely Riba-free.

"However, success is based on high quality services," he emphasized. He says according to his estimate, in Pakistan approximately 15 to 20 percent bankable population is not banking because of having no reach to Islamic banking institutions. He said IBIs were expanding at a rapid growth rate of 60 to 70 percent per annum. At present, in spite of that not portioning a significant share in the total assets of banks in Pakistan, he says, "Islamic banks will touch 12% figure from present 4.3% by 2012. Given the current size of the industry this is a leap jump.

The market in the country is responsive enough and has good perception about banking and finance in comparison to other regional markets, said he, saying, "business opportunities are lucrative in Pakistan and profitability high because of high spreads. Awareness about Islamic banking is increasing gradually."

Syed Husain is the first CEO of EGIBL. He said coming into Pakistan was a difficult decision due to group's first venture into the financial sector. The decision was stirred up by the former Pakistan's premier Shaukat Aziz. EGIBL has partnering shares of Emirates financial holdings, which is also collaborating for Karachi Financial Tower, and Al-Rajhi group.

Realizing the tough competition exerted by the conventional financial institutions, State Bank has seen rural areas potential markets for Islamic products. Accordingly, IFIs have expedited efforts to expand the outreach of its products in underserved and rural areas. Concurrently, Islamic banks are also opening their branches in far-flung localities. Syed Husain told EGIBL started its operation with six branches in February 2007 and expanded the banking network to 25 branches, of that three are in rural areas. EGIBL had opened 25 branches in thirteen cities across the country till June 2008. He says visibility of bank's services is increasing day by day. Its market capitalization has increased to Rs. 5 billion. Syed Husain has been serving the Islamic financial industry for almost 10 years. He has been instrumental in establishing Takaful Pakistan and an Islamic European Property Fund. EGIBL has also strategic equity investment in Takaful Pakistan.

He said risk management was a core for the bank prior to insert any new product in line. He told the bank is the first in the country to finance Rs. 2 billion Sukuk bond on Musharka basis. Similarly, in investment banking it has launched "Musawamah" that, according to him, is an ideal Islamic deal in which risk and reward are shared between the financier and the client. Such first financing has been executed for DHA country club, he said adding liquidity and profitability risks would be shared between EGIBL and sales agent.

About profit and lose extrapolation at the initial stage of the agreement, he told aggressive assessment prefixes at the initial stage, maintaining despite IBIs" choosiness in forming an agreement, "we share the risk of business more than conventional banks do." For example, in Shariah-compliant system service charge does not increase with time-period but always remains fixed. Yet, penalty is levied on contra-agreement practice. Any accruing penalty is funded to the charity. "The service charge is determined in accordance with risk level along with KIBOR benchmark.

He expressed his content over the precautionary and risk management measures that are taken by the bank. He said EGIBL was the first bank in Pakistan to have deployed Oracle Siebel Consumer Relationship Management solution. Exactly after one year of its establishment, it launched its full service call centre too. Moving on the trajectory of financial engineering, it has also introduced two new consumer products. One relates to consumer travel service, namely Rahnuma and other to consumer home finance, Al-Bait.

He says up to now the bank has bagged around 10,000 depositors and it has numerous avenues to invest the liquidity. He said investing liquidity was not a problem for EGIBL. Islamic financial industry in Pakistan has loads of opportunities. "The success of Islamic banking institutions depends on the focus, innovativeness, and planning," he underscored. If banks fully concentrate on their operations, IBIs would carve a distinguished position on the map of the financial market. He does not consider standalone branches and window operations of conventional banks as business rival group. He says Islamic banking requires unalloyed involvement, "by depending 99 percent on conventional banking and 0.1 percent on Shariah-compliant, bank could not focus on and resolve to complexities of banking operation".

Syed Tariq Husain has started his banking career with ANZ Grindlays in 1987 as senior auditor and later he rose to the position of country treasure and strategic planning manager. In 1997, he was appointed as head of Global Islamic Finance and Director Global Structured Finance by ANZ Investment Bank, London to develop Islamic investment banking. He also engaged in developing Islamic finance, private equity, and real estates while working with Dubai Investment Group. He qualified chartered accountancy from Pakistan, Canada, England, and Wales. He also finished his MBA from York University, Canada.