BRIDGING THE GAP
Saad Abdul Razak, Executive VP for Retail and Corporate Banking at Dubai Islamic Bank, talks to Will McSheehy about channels, technology, and the need to develop services that really meet customer needs

Dubai Islamic Bank (DIB) was the first bank in the world to adopt Islamic Shariah law as its founding principle when it opened for business in 1975. Since then, the bank’s structuring teams and scholars have been credited with the development of tools such as Murabaha, Istisna, Musharaka and Mudaraba that are in use today at Islamic financial institutions across the globe. In conversation with Saad Abdul Razak, it becomes clear that the bank still sees its place as being at the forefront of innovation in Islamic products and services. During the last year, the pace of DIB’s retail channel development has been frenetic, with the launch of the Al Islami Mubasher call centre rapidly followed by the launch of the Al Islami Online e-banking service in June. In October the purchase of a suite of NCR automated deposit systems and kiosks enabled DIB to create automated self-service branches, and even a mobile ATM system service was instigated to take ATMs to any strategic location where a temporary deployment would benefit customers. At the beginning of 2003, the bank launched the UAE’s first Arabic language SMS mobile banking service, Al Islami Mobile, which it claims offers 36 unique features for the convenience of customers. Speaking at the recent announcement of Q1 2003 results, UAE Minister of State for Financial and Industrial Affairs and DIB Chairman, HE Dr Mohammed Khalfan bin Kharbash, said that the bank’s efforts have now ensured it enjoys the highest deposit levels of any bank in the UAE. He also promised four new branches during 2003; one them to be exclusive to female customers.
In April, DIB restructured itself to divide the bank into four segments: UAE business (retail, corporate and real estate), international business and treasury, support functions (such as IT and HR), and finance. It was against this backdrop of rapid growth and change that BME sat down to talk to Saad Abdul Razak, the head of all UAE business following the restructure, to find out whether he thinks DIB can keep up with its own targets, and how he sees the shape of the retail market changing.

Source: Bankscope from Bureau van Dijk. www.bvdep.com

What sets DIB apart from the pack now that you are no longer the only Islamic financial institution in the marketplace?

DIB was the first Islamic bank in the world, and I think we’re still the most innovative in product design. We have strong Shariah credibility, which is our greatest asset, and we also have a wide product range. You see that a lot of the Islamic banks in the region still have quite limited product ranges, whereas we’re operational in retail, real estate, corporate, treasury and so on – the entire spectrum of Islamic banking.

In your 2002 results, assets grew by 28%, the investment portfolio grew by 24%, and total income rose to Dhs882 million although net income dropped by 2%. Are these growth rates sustainable for the foreseeable future?

The Islamic banking industry in general has been showing excellent growth in terms of deposits. That said, it’s not easy to deploy depositors’ money and maintain 30% business growth. We’ve shown over 25% deposit growth last year and strong revenue growth. We had an issue with costs, as we were heavily investing in our distribution channels, branch banking technology and so on, and that did take a chunk of our revenue. We’re still seeing good growth though.

Your distribution channel investment I think came as part of DIB's integrated technology development plan. Can you explain what this initiative comprised?

We look at technology investment in terms of the added benefits that it can bring to our customers, rather than focusing on internal improvements. Technology has obviously become an integral component of almost every industry, but I feel that in the banking sector technology has not delivered to the customer the services that they really want. We’ve worked hard on all our distribution channels, as we relied on our branches 100% until as recently as 2001. Then, in 2002, we started with 24/7 phone banking, which I think is still the most popular ‘new’ channel. After that we launched Internet banking. We also felt that SMS/mobile banking was important, and we launched the first such service that had Arabic language functionality. We also opened our first 24-hour automated branch on Sheikh Zayed Road in Dubai, and here you can deposit cash and cheques, access Internet banking and so on at any time.
In fact we’ve been surprised by just how keen our customers are to adopt new channels, even though branch banking is still very popular in this region. Looking back now over 2002, we feel extremely proud that we managed to launch four channels in just one year! No bank in the UAE offers as many options as us, taking into account all our Arabic language functionality.

Are you planning any enhancements to these channels this year?

We’re always looking to make ongoing enhancements. In five years I think that people will be far less reliant on the branch. We’ll still have branches, and we’ll be expanding the network, but the branch model will have changed significantly. You cannot keep operations in one area, sales in another, and keep all the different components of the retail service in different places. That just won’t work. Banks will be like a supermarket, and in every corner there will be products for the customers to take. We want to see DIB where the customer wants us to be.
Our thinking is that when you come to a bank you’d really like to get everything done at the same time. You don’t want to have to go to the bank and then to go to the traffic department to renew you licence, and to the post office to get your letters, and to the school to pay the fees etc. You’d like one relationship manager who will cover all such issues for you, and DIB’s vision is to help you with your entire lifestyle. Banking now just covers financial requirements, but I think the future lies in offering a full range of life-assisting services.

H.E. Dr. Mohammed Khalfan Bin Kharbash, UAE Minister of State for Financial and Industrial Affairs and Chairman of Dubai Islamic Bank

You mention a relationship manager, but would you have a relationship manager for every customer?

By relationship manager I don’t necessarily mean a person. The manager could be a PC, a window through which you see services and can shop around. In fact we launched our technology vision at Gitex 2002 and showed people that in three years time there won’t be any ATM cards. We believe that ATMs will be operated through mobile phones, where the customer puts their PIN into the phone, which communicates with the ATM, which distributes the cash. It’s impractical to have lots of plastic cards in your pocket when you could perform transactions using just one tool, the mobile phone. Banking services will have to be open and available 24/7, whether virtual or physical. I just don’t see these new technologies not coming to our markets within three years. Remember that we delivered four channels in just one year, and our strategy is to provide the most convenient banking options in the market. We’re not just here to be an Islamic bank, and although our Shariah credentials are very important, people come to us for products and services that meet their needs.

Does DIB have ambitions beyond the UAE?

Our focus now is the UAE, but I think the Islamic finance industry is growing and that in a year or two we might think about expanding regionally; then in two to three years looking internationally beyond the Gulf region. Islamic banks in countries like the UAE and Bahrain are well entrenched, but there is definitely scope for expansion. We don’t fear competition from other Islamic banks as competition is healthy and we also think there is plenty of business for Islamic banks out there. Certainly more than just two or three Islamic banks could handle. DIB has actually helped other banks to convert to Islamic banking, such as the National Bank of Sharjah here in the UAE. Our Shariah board is the same as theirs. The fact that international banks are opening Islamic windows is also a good thing, as through these windows they are expanding the scope of the Islamic banking market internationally. Even if you look closer to home at Saudi Arabia, a few years ago there were no Islamic banks and now every bank has an Islamic window.

With so many banks entering the Islamic finance market, what is the secret to success?

I think the key think is to have something to add in terms of products and services. The number of Muslims in the market will mean nothing unless you offer the products and services that will attract them to bank with you. There are still gaps between customer needs and the products made available by Islamic financial institutions. I think we’d all agree that there are still more improvements to be made. DIB is trying to narrow these gaps, and for example just this April we have launched our new Ijarah service. We see this personal finance product as a value-adding service that customers really want.

What is the Ijarah service?

It is basically a very simple concept where we at DIB buy services from an external party and then resell those services to our customers with an agreed profit margin. Obviously we need to forge alliances with suitable external parties to enable this Ijarah service to grow, and we have now covered several key sectors such as education, where we have school and university partners. In travel, we will tie up with the leading travel agents to be able to provide our customers with the very best travel packages available. We’ve also agreed several partnerships in the healthcare sector.

I can see how education and healthcare expenditure could involve long term financing, but why would customers need DIB for smaller travel ticket purchases for example?

If you go to the travel agent then you have to pay in one lump, whereas we can spread the cost of the trip or holiday. It may be a smaller amount than school fee payments, but customers still need to spread their expenditure. Also, because DIB is buying the travel services in bulk, we are getting discounted rates from the travel operators that might not be available to the individual. Finally, it’s the convenience factor where you can buy your holiday and arrange the payment in your one visit to the bank. We’re now aggressively growing the numbers of service providers included in the Ijarah scheme and we intend to expand from our current education, healthcare and travel services to other service areas.

DIB has an established pedigree of structuring expertise. What do you see as the greatest conceptual challenges remaining in the industry?

I think the clearest area in which Islamic retail banks are challenged is the development of credit cards. We offer what we call credit cards, though they’re not credit cards in the conventional sense, as you have a 45 day grace period to repay 100% of the balance. That is different to an instant debit card. We are working hard on a credit card solution now, but we will be absolutely sure it is Shariah-compliant before we launch anything. For corporate bankers, there are still gaps in the design of trade finance products to be filled.
In June last year you launched the Johara banking service exclusively for women. What does this service entail?
Ladies banking, I believe, is a sector that is mistakenly ignored by most other banks. Some banks have windows for ladies, but we have decided to take the ladies’ service much further. We have developed a whole suite of products designed specifically for ladies in business, finance and real estate. In the case of business products, we have seen that when opening businesses our female customers are frequently launching in the services sector, such as interior design. Now the cycle of such businesses is often different from the cycle of general trade, so they have different needs. We can then offer specific financing packages and business advice. On the retail level, we offer ladies a dedicated Johara branch in Jumeira, value-adding extras such as discount cards, and special property investment programmes. The Johara branch provides our female customers with a very relaxing environment to bank in, and I think it may be the only such ladies branch in the Middle East.

What will the rest of 2003 hold for you?

Our efforts for this year fall into three main categories. Firstly, continuing enhancements to our distribution channels. Secondly, new product development - and we have between two and three new products for launch this year in the retail and corporate markets. We intend these products to further close the gaps that we were talking about earlier. Finally, we’ll also look at regional opportunities for the potential expansion of our physical footprint.