Finance & Banking

ABDUL KARIM JUMA DIRECTOR OF ISLAMIC BANKING, RAKBANK

RAKislamic, the Islamic banking window of RAKBANK,
offers a wide range of Islamic financial services in the UAE.
Would you care to share with our readers the strategic
position in which RAKislamic has managed to put itself
vis-à-vis its competitors, especially the other Islamic
banking windows in the country?

We, at RAKBANK, recognised the increasing demand in the
market for Islamic financing products and started venturing
in with a retail proposition under the brand name “Amal”,
marking the beginning of our journey in 2013. During
the following year, we expanded our Islamic offerings by
introducing home-financing solutions and in 2015 we
entered the business and corporate banking realm, offering
Shari’a-compliant commercial property finance and assetbased financing solutions. In line with industry best practices,
we decided to rebrand our “Amal” Islamic financing solutions
into RAKislamic, incorporating our customer-centric
approach, the Bank’s strategy and most importantly, building
a unified brand proposition and image for the Islamic division.

In 2017, the Bank began implementing a strategy that
focused on diversifying the Business Banking and Wholesale
Banking portfolio, which also translated into the launch of a
complete trade proposition for our RAKislamic customers.
Similarly, RAKislamic offered a first-of-its-kind Shari’acompliant Term Structured Deposit, based on the Murabaha
contract called “Fawrun”, allowing customers to receive
their due profit upfront upon deposit placement instead of
waiting until the maturity date. This was followed by the
integration of Treasury and Financial Institutions Shari’acompliant financial services and solutions.

Overall, throughout the years it is evident that RAKislamic is
constantly improving and ultimately aiming to offer a wide
range of Shari’a-compliant products, services and solutions
spanning across the Bank’s verticals from Personal Banking,
Bancassurance (Takaful) and Business Banking to Wholesale
Banking as well as Treasury, and the most recent Financial
Institutions Group.

RAKBANK, and of course as a result of this, RAKislamic
has developed itself as a specialist in the provision of SME
Financing. Admittedly, many banks shy away from this
segment of the market because it is a difficult area. What
made you focus on SME Financing?

Many banks and financial institutions have shied away from
the SMEs sector after they performed poorly in 2015 and 2016 However, SMEs are a part of RAKBANK’s DNA and
this is why we are considered the leading SME bank in the
country. Our whole approach at RAKBANK was to stick with
the existing SME business, but change the way we lend to
SMEs and focus on reducing the associated risk element.
This also translated into our RAKislamic portfolio of Shari’acompliant products and services that were introduced to
cater directly to our SME customer base.

This strategy and approach have been very successful and to
be very frank we’ve probably benefited from the fact that a
number of other banks exited the space, which has allowed
us to operate within a set of parameters that we are more
comfortable with. Additionally, this led to the recent award
received that named RAKislamic the Best SME Bank in UAE
by the Islamic Business and Finance magazine.

RAKBANK and RAKislamic have developed an impressive digital banking platform.
Needless to say, that adoption of technology has huge cost implications for any bank. Do
you think that the commitment to adopting state-of-the-art technology has helped the
bank in winning more business?

Technology is becoming the main focus of the banking sector, especially at RAKBANK.
We understand the importance of operating efficiently, effectively and seamlessly and the
influence it has on how we are perceived by our customers and the market as a whole.

Innovation is at the forefront of our Bank’s strategy and our focus has been to support and
implement new technology initiatives and/or transform existing ones, in order to serve our
customers through smart applications that save time and require minimal paperwork.

Furthermore, in the case of fintech, we’ve partnered up with a number of companies. Our
approach is to work with different fintech companies and various other parties as and when
we see value in doing so. We are also in touch with international players in different advanced
markets to explore and adopt new and innovative practices that can help us reach our targets.

A related question is about the effect of technology on the
growth of Islamic banking and finance. In your view, how
has technology helped you, as Director of RAKislamic, to
win more business for the Islamic franchise of RAKBANK?

Technology has helped us to understand our customers
and the market. This has allowed us to come up with new
services and value-added products offered through multiple
channels. Through our partnership with fintech companies,
we were able to attract a large segment of personal and
business banking customers who prefer technology-based
banking over traditional banking, while still enjoying our
Shari’a-compliant product suite. This holds especially true
with millennials, thus expanding our customer base who
seek convenience and instant Shari’a-compliant financial
solutions via our apps and digital solutions.

RAKBANK reported nearly 25% year-on-year growth in
net profits by the end of 2019. How much did RAKislamic
contribute to this growth? How much value did the top
management at the Group level attach to the Islamic
business?

Back in 2017, RAKBANK adopted a bank-wide diversification
strategy focusing on the portfolio that was also implemented
in the Islamic banking window. The emphasis shifted from
Islamic cards and auto finance to become a full-fledged Islamic
finance service provider, covering a full spectrum that ranges
from Islamic cards, mortgages, all the way to SME business
finance and trade finance solutions. Our diversification
strategy proved to be successful and RAKislamic contributed
significantly to the overall year-on-year profit growth.

Furthermore, our focus this past year for RAKislamic has
been to finance leading industries that are vital to the Islamic
economy such as the halal food industry, family-friendly
tourism, digital economy, fashion, arts and design, economic
education, and lastly implement industry standards and attain
certifications.

The UAE is a very dynamic banking and financial market,
with a number of mergers and acquisitions in the recent
past. With the ever-changing banking landscape in the
country, how does RAKislamic aim to maintain its distinct
value proposition to remain competitive?

The recent mergers occurring amongst Islamic banks have
created some giants, but what RAKBANK offers is agility. We
may not be the largest Islamic banking provider, however,
our Shari’a-compliant solutions span across all of the Bank’s
six verticals from Personal Banking, Business Banking,
Insurance (Takaful), Treasury, Wholesale Banking and the
recently set up Financial Institutions Group.

Our approach is to develop Islamic banking products and
services at the same pace as RAKBANK’s conventional ones,
including access to seamless digital banking solutions and
platforms.

On a personal level, how did you get attracted to Islamic
banking? Was it a deliberate choice or circumstances led
you to become an Islamic banker?

Islamic banking was created to supply banking solutions and
financing for customers who seek Shari’a-compliant banking.
Personally, it was a faith-driven decision and I continuously
strive to increase my knowledge base in Shari’a financing
and aspire Insha’ Allah to attain knowledge and wisdom
to become a Shari’a scholar. Knowing the ins and outs of
Shari’a financing will help me achieve my goals on a personal
level and also help built a strong foundation to make sound
decisions that will help RAKislamic constantly improve within
this ever-changing sector.

In your experience and observation, is it more difficult for
an Islamic banker to work in an Islamic banking window
of a conventional bank rather than working for a fullyfledged Islamic bank?

It has its challenges but it is not an impossible task. These
challenges motivate us to utilise every resources available
to promote Islamic finance across our wide customer base.
RAKislamic is one of RAKBANK’s diverse solutions that
directly caters to a range of customers from different beliefs
and backgrounds who ultimately seek access to a suite of
Shari’a-compliant products and services that will support
them in carrying out their day-to-day banking activities and
help achieve their financial goals.

A number of personalities must have influenced you
throughout your career. Whom amongst them you would
consider as your greatest mentor or inspiration?

First and foremost is HH Sheikh Zayed bin Sultan Al Nahyan
(may his soul rest in peace). I am honoured to continue
supporting his vision in developing a thriving economy in the
UAE. Secondly, HH Sheikh Saud bin Saqr al Qasimi, Ruler of
Ras Al Khaimah and member of the Supreme Council, and of
course, HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice
President and Prime Minister of the UAE and Ruler of Dubai.

They have inspired me with their dedication to constantly
find ways to make our country more diverse, successful and
renowned worldwide as a tourist and business destination.
Lastly, Elon Musk who marches tirelessly towards creating
new innovative ideas and technologies, and his ability
to envision a modern world that is yet to exist. His ideas,
launches and initiatives focus on building a better and more
energy-efficient world.

What would be your advice to the younger generation of Islamic bankers?

The beautiful thing about learning and knowledge is that it
cannot stop unless you want it to. I believe that one must
continuously evolve and find a purpose to move forward,
whether it involves banking or something else. Facing
challanges helps create resilience, and as long as they are
passionate and dedicated they will achieve their career goals
within the Islamic financing world.

Personally, my passion for Islamic banking and the efforts
to promote its ethical financing solutions drives me to press
forward at all times, because I believe in it wholeheartedly. I
also want to play a role in the developments and advancements
that are happening in the Islamic banking world.

What is the future of Islamic banking and finance in the UAE and worldwide?

Islamic banking and finance is a growing industry that is
continuously evolving with the help of progressive Shari’a
scholars guided by Islamic economics. There are ongoing
efforts in the UAE to achieve HH Sheikh Mohammed bin
Rashid Al Maktoum’s (Prime Minister of the UAE) vision of
transforming Dubai into a capital for Islamic banking with
the establishment of the Higher Sharia Authority to regulate
the industry as well as the adoption of the Accounting and
Auditing Organization for Islamic Financial Institutions
(AAOIFI) as a standard for Islamic finance.

At RAKBANK we are constantly striving to keep up to date
with the international and regional developments and best
practices that are changing at an extremely rapid pace within
the Islamic finance space.

Pause for thought

PROF. HUMAYON DAR

ISLAMIC FINANCE AND THE ECONOMIC COOPERATION AMONGST THE COUNTRIES COMPRISING THE BELT AND ROAD INITIATIVE

Islamic finance is at the brink of the US$3 billion mark1.
Although present in almost 135 countries in one form or
another, it has yet to achieve a meaningful size beyond the
50 countries where it is recognised as a viable opportunity.
Out of these 50, about a third are considered as systemically
significant markets with respect to Islamic finance2. The
potential of Islamic banking and finance (IBF) is almost three
times more than its current size. However, according to
some estimates, it will take the industry more than 30 years
to fill the gap between the potential and actual size of the
industry3. For this gap to be filled efficiently, large additional capital injection is required into the global Islamic financial services industry.

The One Belt and One Road (OBOR), or just the Belt & Road
Initiative (BRI), attempts to resurrect the old Silk Road through
which China had beneficially plugged itself into the world
trade system of the past. It has 65 signatories so far, with a
number of other countries showing an interest to join. About
half of these are the countries where IBF is an important
sector, with about 11 countries that may be classified under
the IMF’s systematically significant Islamic financial markets.

As trade and logistics are central to the BRI, it has great
relevance to IBF that itself has thrived as a trade-based
financial system. In this respect, the role of the International
Islamic Trade Finance Corporation (ITFC), a subsidiary of
Islamic Development Bank (IsDB) should be explored. The
Asian Infrastructure Investment Bank (AIIB) has already
initiated a dialogue with the Islamic Development Bank
(IsDB) to provide infrastructure financing in the IsDB
member countries.

In addition to the massive potential that infrastructure
projects may have, there is an opportunity for China and
other influential countries participating in the BRI to
develop trade-based infrastructure in the OBOR region. A
commodity-based liquidity management solution needs to
be developed, which should be an improvement over the
existing arrangements based on commodity Murabaha.
London has played a central role in this respect, and this may
very well be the time for China to develop an alternative
infrastructure in Beijing or Shanghai.

China should also delineate a detailed plan to help the
member countries develop economically. It should also work
on encouraging economic cooperation amongst the OBOR
countries. The basic features of this are already in place, but
there is a need to link it to IBF, especially in the countries
where it is a significant activity.

Although Chinese government may not need to borrow
from outside the country or may have no further appetite
for external borrowing (given some recent focus on its
burgeoning debt), it is nevertheless important to develop a
vibrant Islamic capital market, with a special focus on Sukuk,
for the benefit of the participating countries. For example,
a multi-billion dollar Sukuk issued by a corporate or a
sovereign within the BRI block, backed by the government
of China, may help capital-deficit countries like Pakistan that
has an ambitious China-Pakistan Economic Corridor (CPEC)
as part of the BRI. The likes of AIIB must be lured into using
Pakistan as a domicile for the issuing of its Sukuk programme,
something that it has contemplated since 2015, with a focus
on Hong Kong.

The new political regime in Pakistan must focus on Islamic
finance to use it as a major tool to carry out its engagements
under CPEC. This is perhaps the most credible opportunity
for the government to use Islamic finance as a tool for
economic development and for attracting foreign capital
into the country. The Asian Development Bank (ADB) has
issued a number of Technical Assistance (TA) programmes to
help the countries in the BRI region improve their capacity
for Islamic banking and finance. The likes of Pakistan,
Afghanistan, Tajikistan, Kazakhstan and the Kyrgyz Republic
have benefitted from such TAs. All these countries have
relevance to the BRI and its success.

If Pakistan decides to miss this opportunity to become a
global champion of Islamic finance on the back of BRI, it is
bound to lick its wounds afterwards, as other countries have
shown serious interest in this proposition. Further delaying
its commitment, Pakistan will be a big-time loser in Islamic
finance. Kazakhstan is an important contender for this
role, as its Astana International Financial Centre (AIFC) is
aggressively pursuing an Islamic finance agenda.

With a market share of 16%, the Pakistani banking sector
can further be boosted by the recently constituted CPEC
Authority in Pakistan. It must immediately set up a specialised
department of Islamic finance within its jurisdiction to assess
the role Islamic finance can play in achieving the goals of the
economic development policy in the country.

ISLAMIC SOCIAL ENTERPRISE FOR COMMUNITY
EMPOWERMENT AND ENHANCEMENT

MUHAMMAD IQMAL HISHAM KAMARUDDIN
UNIVERSITI SAINS ISLAM MALAYSIA

Islamic Social Enterprise (ISE) is increasingly gaining attention due to its flexibility to perform trading activities
for income generation while at the same time offering societal contributions. The role of ISE is greatly viewed
from a value-based perspective, where ISE’s objective is to support the Islamic third sector economy in easing
the needs of those unfortunate and middle-class citizens.

n this regard, ISE plays a crucial functional role in generating wealth for societal purpose, either in the form of
small independent entities, wing of non-government organisations (NGOs), and local or international bodies.
An example would be Islamic Relief, a worldwide Islamic NGO which has its own ISE outlets known as Charity
Shoppe. Others that fall under the same criteria include, Waqf Annur Clinics in Malaysia, Baitul-Mukarram
Complex in Bangladesh and Baitul Maal wat Tamwil (BMT) in Indonesia.

There are increasing numbers of ISE with varieties of services offered; including education, healthcare,
hospitality services and consumer goods trading. These type of institutions are established from capital (in
the form of goods or money) that is collected via donations and almsgiving. ISE fulfils the needs of the needy
by offering goods and services at an affordable price, while at the same time generating income for its own
sustainability. Although there are some understandings on what constitutes ISE, there is still a great deal of
uncertainty and imprecision with regards to the definition of ISE.

What is ISE?

ISE is derived from the concept of Social Enterprise
(SE), which has been identified as one of the solutions
to societal challenges related to inequality caused
by the gap between the rich and the poor. SE
practices foster the empowerment of communities
in a sustainable manner through the promotion of
local innovation and support of entrepreneurship
in rural communities. The term ‘social enterprise’
is often used interchangeably with several related
terms such as volunteerism, social work, welfare and
entrepreneurship. The terms infer two areas, namely
social and entrepreneurship. These two areas are then
combined to form SE.

Although derived from the concept of SE, ISE
operates on Islamic principles with additional values.
There are three important Islamic concepts that are
closely related to every Islamic organisation, including
the ISEs:

i. al-falah (success in this world and hereafter)
ii. maslahah (public interest) and
iii. ’maqasid shari’a (Islamic objectives)

In order to achieve the objectives of al-falah and
maslahah, ISE must operate based on maqasid-eshari’a. For this, there are five basic elements under
maqasid-e-shari’a that needs to be considered for
every activity and decision made by ISE:

(i) preservation of faith
(ii) preservation of life
(iii) preservation of intellect
(iv) preservation of posterity and
(v) preservation of wealth

Hence, ISE may be defined as “An Islamic-based
entity that gained funding (in the forms of monetary
and non-monetary assets) from Islamic charitable
sources (through waqf, sadaqah, hibah, and qard) and
channelled them into businesses activities (goods and
services) for the purpose to contribute to the needy
and at the same time sustain this contribution in a
long term.”

Based on this definition, ISE comprises of four main elements:

• objective of ISE as an Islamic-based entity
• Islamic charitable contracts as a source of capital
• activities and
• income generation and distribution.

This definition excludes other Islamic-based entities
that directly accept charities and distribute them to
the needy, without accumulating those funds.

Selection of Charitable Contracts for ISE as a Source of Capital

Understanding the features of each charitable contract
allows us to better recognise what constitutes ISE
and provides a more solid definition. In addition,
understanding these contracts can help participants
(managers) fulfil their obligations in dealing and
managing the funds. As the basic characteristic of
ISE is related to income generation, some Islamic
charitable contracts are excluded from the definition
of ISE. In this case, ISE is seen as a non-profit
organisation that collects Islamic alms such as zakat,
infaq, sadaqah, and waqf while at the same time fulfils
the social enterprise criteria.

Taking into consideration that these contracts have
different characteristics from Shari’a viewpoint, their
definitions although inclusive, are relatively conflicting
with some of the contract’s requirement. For example,
zakat contract requires that collections from donors
be distributed to eight types of recipients postcollection.

In this case, the collection cannot be kept
and used by the management to generate income,
thus leading to restrictions in the usage of funds.

However, waqf with its uniqueness and limitations
provides huge potential to be used by ISE in the
form of capital as long as the requirements on the
perpetuity of the original assets are put in place.
Comparing all these contracts, sadaqah and hibah
are considered as the most flexible contracts since
they do not impose any limitations and restrictions in
managing capital. This enables ISE to expand capital
without any restrictions.

As ISE is also involved in social business, Islamic
charity funds should be managed properly and
prudently based on trust. Islamic charity funds can
be reinvested for future benefits. Investment of funds
from donors can be utilised for various business needs
and activities such as trading of goods and providing
services in areas that fulfil the needs of the poor and
related customers. Rather than confining ISE activities
within a limited scope, this article includes ISE’s
activities that are in line with ISE’s social business
activities. As discussed above; sadaqah, waqf, qard
hasan and hibah can be utilised by ISE to generate
continuous income through businesses, rather than
solely distributing these funds directly to recipients,
due to their flexibility nature.

The main characteristic that differentiates ISE from
other types of institutions has to be its establishment
as an economic unit that generates income, where
capital is contributed through eligible almsgiving
contracts. The distribution of income is made to the
recipients (depending on the types of contracts) after
deducting all relevant expenses. For instance, for zakat
collection, the distribution should be specified only
for asnaf. Meanwhile, for waqf-based source, the net
income should be distributed to the recipients that are
specifically named by the donor, except for waqf am
where it is opened to all. In the case of sadaqah, on
the other hand, net income can be distributed to the
poor and needy without any limitations.

Conclusion

In essence, ISE is distinctively different from other
institutions due to its wealth-generating properties
and such ISE should aim for al-falah and be guided
by maqasid-e-shari’a. ISE contributes to society
in several forms. In addition to providing donors
with opportunities to give in ways that reflect their
interests and offer affordable goods and services to
the niche segment of the society, ISE also serves the
local community by creating jobs opportunities.

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