Feb 18 - 24, 2008

The CEO of the Dawood Islamic Bank, Mr. Nikolaus Schwarz in an interview with PAGE magazine talked about the growth of the DIB in the last ten months and the impact of the Islamic Finance with regard to the overall economic growth.

Mr. Nikolaus Schwarz joined DIB from its very inception, before that he was working with Deutsche Bank and Commerz bank for more than twenty two years, almost exclusively in Asia and the Middle East in conventional as well as in Islamic Finance.

He said, "For me, as a Muslim and as a banker, coming to Pakistan and setting up a new Islamic bank, which would totally adhere to Shariah and would offer world class products and services to all its customers, was an exciting opportunity. We have an excellent team on board and the success we had in the last 10 months was very rewarding."

PAGE: Firstly tell me a bit about the DIB, when was it established, what was the basic idea behind its establishment, and what was the paid up capital at the time of its establishment?

NS: Dawood Islamic Bank was established in April 2007 and the main driver for the establishment was the Chairman of the First Dawood Group, Mr Rafique Dawood. The other two main shareholders are apart from the First Dawood Group, ICD (a 100% subsidiary of the Islamic Development Bank in Jeddah) and Unicorn Investment Bank in Bahrain. We started with a capital of PKR 3.0 billion and have now increased the paid up capital to PKR 4.0 billion. From the very beginning we focused on becoming the first choice for corporate and consumers looking for authentic but innovative and reliable Shariah compliant products and services. Our mission is to provide truly competitive, innovative, Shariah compliant solutions, which can compete on every level with conventional financial tools. We are all very clear in our mind that Islamic Finance is the right to bank. This is why we have branded our products Al Mustaqeem - the straight way. As far as I am concerned it is the only way for a Muslim.

PAGE: This first year was very crucial for DIB having other competitors around. How do you see this growth with reference to its market reach and customer base? How DIB is different from other Islamic Banks giving same Shariah compliant products?

NS: 1. From the day one of our operations we have focused on the development of innovative and customer friendly Shariah compliant products and services. Islamic financial institutions need to come to the market with innovative Shariah compliant products and services, which can successfully compete with the products of conventional banks.

2. In 2007 we showed the market for the first time in Pakistan the following products: a Shariah compliant version of conventional banking Running Finance or overdraft facility, Shariah compliant version of conventional banking local bills discounting and a Shariah compliant version of conventional banking foreign bills discounting. These products have attracted a lot of customers to bank.

We also saw that all Islamic banks are focusing on financing for asset based structures. We introduced a new concept for "services financing". This concept is a milestone for the Islamic banking industry in the country as many customer demand financing product to avail services. This product allows us to finance e.g. a customer's Haj or Umrah. We can also finance education or health care related services. Corporations can avail financing for their consulting or marketing expenses. This is a great product which has been approved by our Shariah Advisor and acknowledged by the regulator.

We have also shown the regulator and PBA our proposal for clean inter-banks money market transactions, a substitute for conventional Repo transactions, conventional banking, T-Bills substitute and the substitute for conventional banking lender of the last resort facility. We have also developed a Shariah compliant Long Term Export Oriented Projects Financing facility that we have also submitted to State Bank of Pakistan.

PAGE: How do you see the financial growth of DIB in reference to statistics or graphs?

NS: The bank has in its first nine months of operations - we became operational in April 2007 - always been profitable and has shown excellent results in extending corporate and retail financing and in mobilizing deposits. We are the only new Islamic bank showing a profit for 2007. It is true success story and we are very proud of the results. The public will have to wait until early March to see our results. Going forward we will show an above the industry growth rate in 2008. Our new and innovative products will be aggressively marketed and 31 new locations will give us a good footprint for distribution of our products and services. You will see us offering a whole range of banc assurance products and new and interesting mutual fund propositions.

PAGE: Also tell us little about SBP stance on Islamic Banking, do you think there is any discrimination in rules for Islamic and conventional banking or there is no such thing prevailing?

NS: State Bank of Pakistan has played a vital role in the growth we see in Islamic banking in Pakistan. The regulator and especially its Islamic Banking Department were instrumental in implementing guidelines which have greatly contributed to the growth of the industry.

Going forward we need to focus now on standardization, e.g. adaptation of AAOIFI Shariah Standards, separate Prudential Regulations for the Islamic banking industry and most importantly the introduction and implementation of Islamic liquidity management products by State Bank of Pakistan. We had the honor to present a couple of months ago our very detailed ideas regarding inter-bank liquidity management tools to PBA as well as to State Bank's LM Task Force.

PAGE: What impact could the rising interest rate have on Islamic banking, would this impact be the same for conventional structure as well as for Islamic structure?

NS: Although we, as an Islamic Bank operate on riba-free principles, the economic environment in a dual banking system like Pakistan inevitably exposes us sadly to the problems of conventional banks; in particular to interest rate risk. This in turn implies that when interest rates change in the conventional system deposit rates must change within the Islamic banking system. When the cost of funds changes to conventional banks, the cost of funds to Islamic Banks too will change. While the actual impact of interest rate change may be indirect on Islamic banks, the consequences would be similar. In the medium term we need to abandon non-halal banking in Islamic countries. Both systems cannot co-exist.

PAGE: How do you see the credit off-take in the first half of the financial year for the banking sector and how Islamic banking is coping with this situation?

NS: I can only speak for Dawood Islamic Bank. In the last few weeks we have seen reluctance in the conventional banking sector to book assets in consumer finance and this will continue for some time. As far as we as an Islamic bank are concerned we see a tremendous growth potential in the industry as more and more companies and consumers embrace the Islamic mode of financial management. Do not forget in terms of assets we as an industry only have about 3 percent of all assets. There might be short-term variations before and after the elections, but in my opinion by and large the country will be again on a healthy growth path. Despite SBP's tight monetary policies I believe we will at least a 6 percent growth in 2008.

PAGE: What is the outlook and plan of DIB for the remaining half of the financial year and how the things could change after elections?

NS: We are on a growth path and will be opening 31 new locations in 2008 in the country. We will continue this path of organic growth and will at the same time, like in 2007, remain a profitable bank. In 2008 we will be also focusing more on Investment banking and wealth management product and services.

We hope that after elections consumer and investor confidence will be completely restored. We are actually very positive and excited about our business and the targets we want to achieve in this year.

PAGE: Any other thing that you would like to bring to the readers knowledge?

NS: Islamic banking is a reality. The industry needs to focus on innovative products and services for all segments of the society. For example the Islamic banking industry fails completely in attracting young people. To bank with Shariah compliant banks is the last thing on their mind. I think we need to make this form of financial management more attractive and transparent. DIBL will in the next months aggressively address this.

PAGE: Any message.

NS: I personally would like to see more enthusiasm in the country about Islamic finance. My personal opinion is very simple: as Muslims we recognize that Islam is not only a "religion" as the English word signifies, but it is a complete way of life. Our Deen obliges us to do everything in a halal way. No exceptions. This is also true for the management of our financial affairs. Products in Islamic Finance are not only the result of the thoughts of individual bankers but have been approved by eminent Shariah scholars in Pakistan. Although this mode of financing might be still in his infancy and has enough room for improvement it is the only way we should bank.