INTERVIEW WITH ALBARAKA ISLAMIC BANK COUNTRY HEAD

AIB EXPLORING NEW FINANCING AVENUES IN THE SME, AGRICULTURE SECTOR

KANWAL SALEEM
Feb 25 - Mar 02, 2008

LAHORE: AlBaraka Islamic Bank (AIB)- the pioneer of Islamic banking in Pakistan has been operating in the country since 1991 as branches of AlBaraka Islamic Bank Bahrain. The AIB, which has a network of 18 branches in 10 major cities of Pakistan, enjoys a reputation of being one of the leading providers of a host of banking products and services in strict compliance with Shari'ah principles.

The AIB has a total asset base of Rs. 22 billion, which has increased by almost 17% over last year. The profitability of the bank has also shown substantial improvement and registered a growth of 90% during the year. The aggregate financing portfolio of the bank has also grown by a healthy 30%, on account of increased financing activities especially in the consumer sector. In line with this, the deposit base also went up by 23% to support the increased business activities.

Mr. Shafqaat Ahmed, Country Head, Albaraka Islamic Bank told Pakistan and Gulf Economist (PAGE) that the bank plans to increase its presence in metropolitan cities, high income localities, untapped markets and regions where the general public is keen of Shari'ah compliant banking products. The branch network increased from 11 to 18 branches in 2007, and by 2010 the bank plans to have 60 branches covering all major cities.

Talking about initiatives taken by the AIB, Mr. Shafqaat Ahmed said the bank has the distinction of being the pioneer of Islamic banking in Pakistan, and as such played a pivotal role in introducing the concept of Shari'ah compliant financing and investment activities in the country. Since the inception of Pakistan Operations in 1991, the bank has successfully developed and maintained its identity as one of the leading providers of a wide array of banking products and services in strict compliance with Shari'ah principles, he said.

Over the years, he said, the bank has focused its business strategy on enhancing its market presence with an increase in its branch network and expansion of its customer base. This has been supported by greater exposure in consumer/retail sector, targeted marketing efforts and promotional campaigns, and initiatives to explore new financing avenues in the SME and agriculture sector. These initiatives have been accomplished in collaboration with the introduction of new products and services, development and retention of quality human resource, and a strong IT infrastructure. Furthermore, the internal controls and risk management capabilities of the bank have been enhanced in order to maintain due oversight of all banking and operational activities, Mr. Shafqaat Ahmed said.

About the IT Initiatives taken by the AIB, Mr. Shafqaat Ahmed said in today's environment, a strong IT infrastructure has become a necessity for effectively and efficiently undertaking the banking business. "Growth in the sector is increasingly being driven by capabilities offered by information technology and progressive banks are deriving competitive advantages from IT-enabled cross selling. AIB has already taken steps towards technology based banking by introducing ATM and on-line banking, and further development is planned to help in achieving growth targets. Senior management of the bank stresses the need for and ensures commitment towards a very substantial upgrade of the IT function to support AIB's expansion plans. In order to achieve this, we are striving for IT-enabled cross-selling, enhanced service efficiency, higher levels of IT-embedded internal controls and risk management.

Recently completed projects include: countrywide online connectivity, ATM card debit and other online banking products and services, implementation of Housing Musharaka System, development of AIB Reporting System (MIS), Islamic Export Refinance System.

So far, he said the AIB has been successful in maintaining its niche in the Islamic banking market; however, the increasing number of new Islamic banks as well as Islamic windows of conventional banks has created stiff competition in this sector. In such a scenario, the strategic direction for AIB is focused on retaining its market share and to expand into other sectors, especially in consumer financing.

To a question, Mr. Shafqaat Ahmed said the AIB is taking initiatives to explore new financing avenues in the SME and agriculture sector. With increasing exposure in consumer/retail financing in the form of Ijara and housing finance, we are marketing efforts to attract and retain more corporate clients. New and innovative modes of Islamic financing, such as Istisna, Musawamah and Salam are introduced to meet financing requirements of manufacturing, trading and agricultural sectors. The AIB has strengthened internal control function such as audit, compliance and risk management, for better oversight of all banking operations.

Mr. Shafqaat Ahmed said the projects under development are:

Full fledged electronic banking and mobile Banking System
Inter-bank funds transfer System
Human Resource Management System
Attendance and Payroll Management System

The future projects include:

Setup of new branches in all regions
Plans for acquisition of a new Core Banking System, which shall meet the requirements of modern days banking activities.
Data Warehousing and Business Intelligence based MIS Report
Management Dashboard Setup through Oracle Discoverer
ATM installations at various branches
Call Center setup
Credit Approval System
Collateral Management System
Complete Budgeting System
Auto Inter - Branch Reconciliation System
Import Contract Registration System
Computer Hardware Inventory Management System

He said the AIB offers the following products and services:

Financing products:

Murabaha -- Murabaha refers to a particular kind of sale in which the seller agrees with the buyer to provide a specific commodity with a certain amount of profit added to the seller's cost. The profit may be in the form of a fixed lump sum or based on a percentage

Ijara -- Under this mode, the bank lets its customers the legal right to use an asset that is under the bank's ownership, in return of pre-defined rentals. The ownership of the asset is transferred to the customer at the end of the lease period

Musharaka -- Musharaka is a partnership agreement in which the bank and its client contribute their capital to establish a new project or to participate in an existing one. The profits from the project are shared according to a pre-defined ratio

Islamic Export Refinance (IERF) - IERF has been launched by the SBP to meet the export refinance needs of banks operating under Islamic modes. The framework of Islamic export refinance is based on the concept of profit and loss sharing.

Consumer Financing: The bank offers facilities to customers for meeting their personal financing requirements in a Shari'ah compliant manner. Individuals can avail the car financing facility through Consumer Car Ijara. In addition, the housing finance facility is also available based on the concept of Diminishing Musharaka.

Letters of Credit Guarantees Banking services are:

Basic Banking Account -- Current account available to individuals in PKR; no minimum balance; no limitation on number of withdrawals; no service charges

Current and Saving Accounts -- No minimum balance; no limitation on number of withdrawals; in all major currencies

Term Deposit Account -- Tenors ranging from 7 days to 5 years; in all major currencies; facility for encashment before maturity

Incentive & Khazana Accounts -- PLS checking accounts with periodic profit payments; no service charges; no restriction on frequency of transactions

Murabaha Investment Accounts -- Joint pool investment account; investment of funds in strict accordance with Shari'ah; half yearly profit payments

Other services include:

Online banking
ATM / Debit Card
Foreign exchange sale & purchase
Safe deposit lockers
Utility bill receipts.