By Neil King
We quizzed CEO of Dubai Islamic Bank, Dr Adnan Chilwan, on the developing relationship between banks and small businesses and how DIB is helping new ventures get off the ground
SME financing has long been a difficult balancing act. What steps have Dubai Islamic Bank taken to improve the options for small businesses?
The SME sector forms a critical pillar not only of the UAE economy but also Dubai Islamic Bank’s (DIB) growth strategy, and hence will see a major allocation of our product development focus and expertise.
We strongly believe that this sector will remain the backbone of the economy and, as an Islamic bank, we view the development and growth of the small businessmen and entrepreneurs as our responsibility. To this end, we have invested in developing a unique suite of products and services that are aimed at meeting the financial needs of this all-important segment.
Our SME Business Solutions Initiative, a Sharia-compliant suite of products and services has been specifically developed to support the growth of these enterprises, including business financing. The offering provides small business owners a broad range of customised solutions, ranging from the establishment of business accounts and cash management tools to trade and treasury services, as well as business credit cards.
Working with dedicated relationship managers, we allow SMEs to access working capital finance, capital expenditure finance, and contracting and fleet finance, supported by flexible repayment options.
We have focused on developing these business finance solutions to meet the specific needs of SMEs in today’s evolving market. By providing high finance amounts and rapid approvals, Dubai Islamic Bank is reshaping the SME banking space, providing a plausible and viable opportunity to unlock the potential of thousands of small and medium enterprises across the UAE.
Why are SME products so important for banks, small businesses, and for the region in general?
SMEs are widely regarded as a key growth driver of the UAE economy and have increasingly grown in importance over the past few years. Contributing to 60 percent of the UAE’s non-oil GDP and 86 percent of private sector employment, the sector has played a critical role in the diversification of the country’s economy.
As the sector continues to grow in importance, it is essential for these businesses to have access to a leading range of products designed to help entrepreneurs and small companies achieve their growth ambitions.
Simultaneously, the segment provides banks with optimum yields and risk diversification as the ticket size is similar to consumer financing.
Why is the SME banking landscape changing in the region? What is making it more possible for banks to offer improved packages?
The SME banking landscape is rapidly changing because institutions are beginning to realise and appreciate the growth potential of SMEs.
With lending to this segment from banks at a low four percent, there is a lot of room for an increased focus on this sector and we are seeing banks adopt a more welcoming approach in this regard.
With the impending introduction of the Al Etihad Credit Bureau, one of the biggest impediments in lending to this sector – accurately assessing the creditworthiness of small businesses – will be resolved. The body will provide the right framework for banks to determine the companies they can reliably lend to.
Coupled with the government’s increasing focus on fostering the growth of this sector, we envisage that the lending landscape to these small businesses will continue to evolve.
What is DIB’s long-term strategy for SMEs? Does it have any specific targets?
Consumer and SME lending together now form the largest business for the bank, boasting one of the most expansive customer bases in the country.
As we remain fully aligned and committed to the transformation that Dubai and the UAE will witness in the near future, we see that the SME segment in particular will continue to form a key component of our growth agenda over the coming years.
Without going into specifics, we expect SME financing to become a key contributor to the bank’s business, especially looking at the growth in trade pre and post EXPO 2020.
Does being an Islamic bank make it any easier or harder to establish new products for business customers?
As our approach to developing new products is rooted in responsible and ethical business practices, we are only able to launch services that are strictly Sharia-compliant and this involves abiding by a robust set of guidelines.
During the recent financial crisis, Islamic banking has shown strong resilience, leading to many governments and entities around the world viewing it as a genuine and perhaps a more preferred route. In essence, Islamic finance is perhaps more appropriate for SMEs and start-ups because of the variety of products and options available allowing the bank to support the business in its initial stages.
How is DIB different to other banks in Dubai and the UAE? What are its unique aspects?
DIB has an unmatched reputation in the banking sector in the UAE and since its inception; it has carved a unique position as one of the leading providers of financial services across local and international markets.
As the first Islamic bank in the world, DIB has been a pioneer in developing a range of Islamic banking products that have constantly moved the industry forward. Competing on an equal footing with conventional banks in the country, the bank enjoys a massive following from customers across all demographics of the country.
We have one of the largest market penetration rates of retail banking customers, an extensive branch network and a well-established franchise, built on our Sharia capabilities and expertise. Not resting on our laurels, we will continue to innovate and leverage our partnerships to ensure a customer experience which defies the norms and takes the concept of product diversity and customer services to a whole new level.
DIB also plans to continue engaging our customers through its focus on growing its technological proposition. Electronic banking platforms are critical in this regard and our continued investment in them has distinguished DIB as one of the most progressive Islamic banks in the industry.
What is the future for Islamic banking in the near, medium and long term?
While a large number of corporate institutions and conventional banks were severely impacted by the economic downturn, the Islamic banking sector stood apart and has continued to display strong resilience throughout the financial crisis.
Moving forward, it is evident that the sector is going to continue growing at a rapid pace and will increasingly position itself as a key component of the global financial landscape, while outpacing the growth of the rest of the banking sector.
As the industry continues to mature, there are also numerous opportunities in the short, medium and long-term.
Asset growth of Islamic institutions in the GCC has outpaced that of their conventional peers. Asset growth of Islamic banks rose more than 15 percent in 2012, compared to ten percent growth of conventional lenders, according to S&P.
Among other factors, this is being driven by support from national governments, growing sentiments across the globe for a fair alternative to conventional banking, and its role as the hub of the increasingly influential global Islamic economy.
Countries across the world are making efforts to become the centre of this industry, in order to capitalise on a market that is worth approximately $6.7tr and provides access to over 1.3 billion Muslims.
To this end, Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, and Ruler of Dubai, announced his aim in 2013 of making Dubai the capital of global Islamic economy within three to five years.
This has seen Islamic banking evolve from an ancillary area of focus to one that is central to the country’s long-term growth strategy.
As the first Islamic bank in the world, DIB has played a critical role in the continued development of the Islamic finance sector and is proud to be the cornerstone of Dubai’s ambitions to become the capital of the Islamic economy and help drive the Islamic finance sector forward.
Following the financial crisis how was DIB able to regain customers’ confidence?
I think it is widely recognised that the crisis impacted the entire financial services sector, but over the past few years we have seen a strong recovery across the UAE.
Having successfully completed our consolidation strategy, during which we strengthened the balance sheet, established a strong capital position and focused on our core businesses while maintaining ample liquidity, DIB has emerged stronger and more robust.
We have consistently declared strong results while enacting responsible policies aimed at safeguarding our position and the future of our customers.
To this end, we have been successful in maintaining a strong and well-entrenched franchise despite the crisis, and have continued to build a brand that is close to the hearts of our customers.
Indicative of our success, DIB’s core business continues to grow and our client base has nearly doubled since the beginning of the economic downturn.
This is because DIB’s customers recognise the bank’s leadership in providing services that are rooted in the principles of fairness and transparency.
We are now one of the largest retail players in the market with over 1.4 million customers and a wide network of 86 branches.
With innovative new offerings across all businesses, DIB today boasts one of the most diversified offerings in the Islamic banking industry and continues to create an innovative range of products.
We are confident that we continue to maintain and grow our customers’ confidence in our services.