Bringing the Gulf to Africa

September 11, 2008
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, NAIROBI, September 11 – The local banking industry has experienced a major revolution in the last few years, from the days when opening a bank account was a strenuous process to nowadays when the institutions are literally hawking their services on the streets.

The introduction of Islamic banking took the competition a notch higher.

Gulf African Bank is one of the Shariah-compliant institutions that have been licensed to operate in the country, and Capital Business sought to find out how its management intends to compete in the predominantly Christian environment.

The bank’s Chief Executive Officer Namjul Hassan is a Pakistani national and a father of four.

Q. What is your education and career background?
A. My first degree was in aeronautical engineering. I worked with the Pakistani Air force for some time then I did my MBA in Finance from the Institute of Business in Karachi.

I then joined a company which was manufacturing automotive parts and with my engineering and finance background, I was made the Chief Executive Officer for 18 years.

I have also worked with the automotive arm of the General Motors as the Country Manager in Pakistan for five years.

Q. How did you get into banking?
This new concept of Shariah Banking was catching up. I joined this investment bank that was set up to drive this concept. It was a small outfit but after several acquisitions, it has grown into one of the largest banks in my country.

Q. Why the interest in banking?
A. I’m not doing it for a job. My commitment to this form of banking is because I believe that the interest-based banking is highly exploitative and has brought a lot of misery to people and I personally see it as a course.

My move from Pakistan to Kenya was not what people would call a ‘real career move’ as I was already in a much bigger bank with about 110 branches and $60 million in deposits but it was so that the right type of Islamic banking could be introduced in Kenya so that people are not misled.

Q. Why did the bank decide to set up operations in Kenya?
A. I was selected by the bank’s shareholders to come to Kenya. They thought Kenya would be a great place to introduce this concept and spread this form of banking across Africa. Kenya is one of the most developed countries in the continent; it has great potential and also a well educated workforce. It could be a shining example of growth in Africa.
 
It will be able to attract a lot of capital from the Middle East because there’s a lot of petrol dollars coming out of the region which will be invested the world over including Kenya.

Q. What is Gulf Africa Bank’s shareholding structure?
A. We have shareholders such as Istithmar, which is basically the Government of Dubai holding 32 percent, Bank Muskat International with 22 percent, then we have Sheikh Ramadhan who’s one of the largest gold dealers in the world holding a 21 percent stake.  Gulfcap, an investment bank in Dubai, owns 10 percent, PTA Bank five percent and a group of Kenyan investors 10 per cent.

Our shareholders are financial institutions with a strong track record of growth and investments.

They have come into Africa through Gulf African Bank because they want to understand the market and if they want to make investments, then they can use us as a platform for that.

Q. How is Islamic Banking different from conventional banking?
A. This is an asset-based system which means that we do not lend money to people but we give them goods and services.

For example if you were to come to us and, say, you need Sh10 million to buy a house, and you were only able to pay Sh2 million for it, we would buy the house for you divide it into 10 units and offer it to you on rental. You would own two units and with time the bank would sell the remaining units to you.

This gives you an advantage in the sense that your rental reduces with time and it’s more equitable because we become your partner in the transaction. If say, there is an act of God like an earthquake or floods then we will share the loss unlike the conventional banks which will come after you and take everything that you own.

When assets are created, that is what generates wealth and well being in the society. It is therefore a form of banking for everyone, it’s for the Christians, the Muslims, the Hindus the Jews; it’s even for the atheist.

Q. Do you think the legal framework is conducive for your operations?
A. Kenya, like any other developing country, has challenges such as corruption and bureaucracy but this is just part of the growing pains. One has to be patient and continue to have a positive outlook about people and the system. I’m not critical about the governments because I believe they are making efforts to change.

Q. Are there any changes in the regulations that you would like to see?
A. Yes! There are some changed that need to be made particularly because we are a bank and not a trading institution per se. when you apply VAT, stamp duties on our house products or other taxes which are there on traders, then it will not be a level playing field. We have written to KRA and want those acts to be amended to include the Islamic banks as financial and not trading institutions.

In the UK for example, they changed the VAT and land holding laws in order to accommodate the Islamic banks so that they can flourish.

We are not asking for special treatment, we want to be treated just like the conventional banks. If we are more expensive because of one reason or because of some legislation, then this bank will not be viable.

Q. Do you have plans to list on the Nairobi Stock Exchange?
A. Absolutely. Our aim is go public within the next three years because we want to set a track record of profits.

Once you have a solid profitability track record, it will be a lot easier for people to invest in that time. We want to become a listed bank and we want to offer shares to the Kenyan people so that they can take advantage of the profits that the bank is making.

Q. A proposal by the former Finance Minister Amos Kimunya to increase the minimum capitalisation for banks to Sh1 billion by 2010 was shot down by legislators. Do you think local banks are adequately capitalised?
A. I think that was a good proposal. It is unfortunate that it was shot down. There are very few countries in the world where you will find that banks have less than $10 million and are operating as a bank. Banks need to have sizeable capital.

Central Bank of Kenya needs to take the step and ensure that in the next five years or so the minimum capital requirement for a bank should be at least Sh3 billion or Sh4 billion. Not less than that.

There should be consolidation in the market. You can’t have a bank which has only two or three branches with a capital of Sh250 million. It does not make sense to me. In this world of technology you need to spend so much on infrastructure and the cost is so much such that unless you have a minimum capital then you really can’t manage to offer good services.

Q. What is Gulf African capitalization?
A. At Sh1.75 billion, we are well capitalized. Our shareholders have no issue in raising it up further.

Q. You started your operations a few months ago. How is business like? Are you recording any significant growth?
A. The amount of deposits that we have got is way beyond our expectations. Our total deposits are well above Sh1.5 billion now and this must be some kind of record because we have achieved this in just three months and with three branches.

We have a very aggressive plan to expand to Mombasa and Garissa. We will have 11 branches before the end of this year and in 18 months we will be a 25-branch bank.

After that we plan to move into Tanzania and Uganda.

Q. What do you think the uptake of Islamic banking will be in the next few years?
A.I think it will be phenomenal. I think people are tired of conventional banking, they are tired of poor services, and they have burnt their fingers in taking up loans that come with heavy penalties and therefore are looking for an alternative.

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