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Tue 10 Apr 2012 11:21 AM

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James Caan on the rise of Islamic finance

The British entrepreneur on the rise and rise of Islamic finance

James Caan on the rise of Islamic finance
Growth prospect James Caan sees Islamic finance as a big sector to invest into

James Caan made his millions in the recruitment and headhunting business and his claim to fame was his starring role as part of a BBC show which strived to find the latest and hottest new business models.

As a result, he is an expert at delivering the perfect pitch and getting his message across. In the Gulf to announce his latest move into the world of Islamic finance, it soon becomes clear Caan knows exactly how to combine his latest business campaign with some headline grabbing soundbites.

“One of the questions we always ask,” he begins, “is if the global economy operated under Sharia-compliant finance would we have had a credit crisis?” Sitting back in the couch he delivers his bid for quote of the week: “I think the answer is no, actually.”

Aside from his obvious business bias, what weight does his claim have? Sharia-compliant banks did indeed fare better than conventional lenders during the downturn, thanks to rules that forbid speculation and insist loans must be backed by collateral.Banks are also deterred from repackaging debts, as financial instruments generally have to be sold for face value. As a result, Caan sees this as a big sector to invest into and one in which he’s sees a lot of potential.

“When you think that a quarter of the world’s population today is Muslim, as a businessman I see this as one of the biggest growth market opportunities that is under-exploited.

“Potentially over the next five or ten years I can see this as being a very attractive position. I think there is an incredible increase in demand for Sharia-compliant opportunities and products,” he believes.

And the figures certainly back up his claims. Islamic finance assets around the world are expected to climb 33 percent from their 2010 levels to $1.1 trillion by the end of 2012, boosted by the aftermath of the Arab Spring uprisings and dissatisfaction with conventional finance in the wake of the global debt crisis, according to a report by consultants Ernst & Young.

Growth in the Middle East and North Africa will be particularly strong, with assets rising to a projected $990bn by 2015 from $416bn in 2010, as new countries open up to Islamic finance, the report predicted.

In a bid to tap into this market, Caan is pitching to Arab investors to persuade them to invest in a £45m ($69m) UK student housing product, offered through the Islamic investment firm 90 North, in which he holds a stake.

The independent advisory firm was co-founded by Philip Churchill, formerly of Kuwait-backed Gatehouse Bank. The company has already placed nearly £1.1bn ($1.7bn) on behalf of Gulf investors in Islamic-compliant real estate assets to date, so it is far from being a new player in the market.

Sharia law forbids gambling, investments in alcohol and receipt of interest, so fund managers have to select investments deemed halal, or permissible. “Most of the product that we have sourced is UK-based,” Caan says. “The UK is a natural place that I think Middle East investors find very comfortable, because of the governance, the laws and the transparency.”

90 North hopes to tap into the Gulf’s wealthy residents by offering Islamic-compliant property assets with secure long-term returns, Caan says.

“We have identified an investment opportunity in the student housing market. Well-respected universities are still getting more applications than they can cater for so the demand side is very high but most universities are not able to meet the demand in terms of accommodation,” he says. “You have predictability of income.”

Caan invested in fourteen companies when he was an investor in the BBC show Dragons’ Den and was obviously won over by the team behind 90 North. So what does he believe is the perfect way to pitch a new business to investors and how does he determine the wannabes from the wasters?

“As an investor on Dragons’ Den, I always invested in the individual not the company. I believe business is about people, when you see businesses succeed it is the people behind the business.

“When I was sitting in the Den a lot of colleagues were focused around the product… is it strong, is it workable. I believe it doesn’t matter. If it isn’t strong, I can make it stronger; if it’s too big, I can make it smaller; if it’s the wrong colour, I can change the colour… but you can’t change the entrepreneur. When I was investing I wasn’t investing in fourteen companies but in fourteen entrepreneurs.

“When I look at the individuals I am looking to see why they are doing it. What is the underlying motivation? Is there an underlying need there? Is it a family issue? Is it a sibling issue?

“If all I am seeing someone saying ‘I want to make more money than I made last year’ then it’s not for me. One of the investments I made was in a woman who was from a good middle-class family who worked as a waitress during the day and in the evening she sells her products online.

“The reason she does this is because she has three kids and one of her daughters is very bright. She herself went to private school but can no longer afford it but her daughter and she feels the need to educate her privately. When I heard that story, I thought she will swim the second mile. I am always interested in what drives the entrepreneur.”

Looking around the Gulf, Caan believes there is a need to promote entrepreneurship in order to tackle the looming jobs crisis. Having worked as an advisor to the UK government, he says the figures speak for themselves.

According to the World Economic Forum, the Middle East and North Africa (MENA) region will need to respond to the needs of rapidly increasing populations by creating at least 75 million jobs up to 2020 and beyond. Caan has frequently told delegates at events across the Gulf that entrepreneurialism is the way forward, not putting more locals in the public sector.

“The Middle East has a rich history and culture of trade and entrepreneurialism, one where venture capitalism, now largely viewed as a Western concept, originated and helped develop thriving trading nations.

“As part of the education they receive, we need to further encourage young people to think about new business ideas and enhance mechanisms for a venture capital environment to thrive,” he says.

One Gulf state with which Caan is particularly impressed is Qatar, and he has advised the emirate’s rulers too on the country’s rapid economic growth to try and transform it into the Middle East’s hub for entrepreneurs.

“I believe that Qatar should become the Silicon Valley of this region. While Dubai has positioned itself as the travel and tourism hub of the region and Abu Dhabi as the region’s cultural hub, Qatar should become the region’s entrepreneurial hub,” he says.

Caan says Qatar now needs to translate the country’s growth into entrepreneurship and to train the local community in the business basics. “For me this can be done not on dependency on the public sector but through creating new business areas for new economies to emerge,” he says, citing infrastructure, education, IT, logistics and media as some of the areas to tap.

Still eyeing up an opportunity to crystalise his headlines and generate an edge of controversy, Caan veers into some tabloid-style fun as he begins to compare the Gulf’s biggest power players.

“If I were been pitched in Dragons’ Den by Abu Dhabi, by Qatar, by Dubai — which one would I back? [Dubai] has the least and has made the most out of it. That is exactly my position in Dragons’ Den that I could have backed Qatar as it has the resources. The message for me of Dubai is that the consequence of not doing it has a price.

“Look at the region, Dubai probably has the least natural resources within the region so it doesn’t have an option. Its drive and determination is much greater than somewhere like Qatar, where frankly, whether you do or don’t doesn’t matter.”

As he smiles, content in having gotten his message across and his headline expertly secured, we look back out over the Dubai skyline behind us. Pointing to Burj Khalifa, he reveals that he has recently bought an apartment in the world’s tallest tower. It seems Dubai’s pitch was just as perfect as the successful contestants on Caan’s game show.

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