ALKHOBAR, 2 July — Last year, under the caption, “Is press freedom coming to Saudi Arabia?” a Dubai-based magazine reprinted a story that I had written, which appeared in Arab News. I laughed off the magazine’s article because the story was a tourism piece and publishing it hadn’t caused us any second thoughts at all. Two days back another story I wrote was put forward for publication and it was rejected. To say I was upset would be an understatement.
The story concerned two security incidents that happened in Riyadh. Reports of the incidents were widely circulated in the Kingdom through e-mail under the auspices of both the US and UK embassies. The e-mails were even posted on the British Embassy’s website. Despite this, on Sunday night the story couldn’t make it into print in Arab News or other local newspapers. Even worse, yesterday the story was carried by Reuters and appeared in such newspapers as The New York Times and the Gulf News. After it was published internationally, today Saudi newspapers carried the story.
I keep trying to emphasize to one and all, that the days of news censorship are over. Five years ago it would have been possible to suppress the coverage of events. Today, with the rise of the Internet, the biggest problem is not finding information. The real difficulty is discerning which information found online is accurate.
Last week an e-mail arrived at my inbox from K. Elyas. The mail advised me to avoid four “Islamic” websites because their domains were owned by Jews and the information being provided at the sites was inaccurate, at best. Not one to take such information at face value, I did a quick search to discover who were the registered owners of the websites. One site was owned by the group, “Muslim/Christian Dialogues.” Another site was held by a man named Tom Terry. The third site belonged to some sort of company. Since all three of these websites were blocked by King Abdul City for Science and Technology (KACST), I assumed that they contained some sort of offensive material.
Where it got interesting though was when I checked the background on the fourth web address. According to the web resource “Whois,” a man named Hani Draye, living in Riyadh, owned the fourth domain. Hani Draye didn’t sound like a very Jewish name, but one never knows, so I thought to investigate further. Through “Whois” Mr. Draye thoughtfully (or insanely) provided his complete personal contact details including telephone number and e-mail addresses. I fired off a couple of mails and in about two hours my mobile was ringing. Voila! Hani Draye at my service.
Draye immediately clarified that he was not a Jew and that his web address was not blocked by KACST — a fact I’d already discovered. “The website — Allahassurance.com — was previously owned by a member of the Jewish faith and the site was used for anti-Islamic purposes,” explained Draye. “There are a several of us good Muslims who keep track of the registrations of such sites. If the owner neglects to pay for the renewal of the domain, then we move quickly to take over ownership. This is exactly what has happened in the case of Allahassurance.com.”
Plans are being made for the rebuilding of Allahassurance.com. Until the new site is ready, anyone who types in the domain will be directed to another Islamic website, albalagh.net. At the redirect is an essay about the importance of not spreading information concerning the web addresses of anti-Islamic websites. It makes for interesting reading.
Moving on, as you might be aware, consumer focused online brokerage firms haven’t been doing too well lately.
The bursting tech bubble and global economic downturn have meant that many investors took a beating. Online trading was a rather new experience for Middle East investors and its popularity has plummeted in the last year.
iHilal is now the last online brokerage firm in the Middle East and it has recently gone through a dramatic restructuring to keep itself in business. Part of that restructuring is a move away from the consumer market to focus on institutional investors. The company is also offering its purpose built technology as a turnkey solution to power the brokerage activities of financial institutions throughout the Middle East. Ramzi Abu Khadra has survived the storm and remains CEO of the new iHilal Financial Services.
During a recent interview in Dubai, iHilal’s base, Abu Khadra was optimistic about the company’s future and the future of Islamic investing in general. He pointed out that iHilal is a regulated well-established financial intermediary with all the necessary technology in place to withstand the scrutiny of any local or international investigating agency. He acknowledged that right now for the common person, Islamic investing doesn’t have a high allure. But he believes that this is mostly due to individuals associating only Islamic mutual funds with Islamic investing.
“It’s true that Islamic mutual funds have not done very well over the last couple of years,” said Abu Khadra. “The reason for that is that Islamic funds overweighted themselves in regards to technology stocks and as we know there was a technology bubble. The technology bubble burst and everything went downwards.”
Abu Khadra pointed out that Islamic mutual funds became popular during the bull market of the 1990s. As the bull market gathered momentum, more and more funds were started. Most did well until the tech slide in the year 2000. Technology companies were natural choices for Islamic fund managers because of the leverages Islamic fund had to stick with. Fund managers looked for companies with low debts and high liquidity. Tech companies had the right profile but the wrong projections.
“When you look at Islamic investing, mutual funds represent only a portion of the total Islamic investment portfolio,” Abu Khadra explained. “Islamic investors have tended to invest quite a bit in real estate, which in the past two or three years has done very well. Islamic investors have put their money in leasing types of products. For example, buying an airplane and leasing it. This has less risk but the return is not so high. People also invest in commodities like metals trading and lumber trading. These are very low risk and very low return instruments, but billions in Islamic monies goes into those instruments.”
He continued, “If you take the weighted average return of all Islamic assets in the world, none of the others took as much of a hit as mutual funds did. The number that people talk about as far as Islamic funds in the world, something like $200 billion and out of that there are probably $15 billion in Islamic mutual funds. That’s only 7.5 percent. But people tend to see mutual funds more than they see anything else.”
When the Internet came to the Middle East in a big way, the global economy was at a high and the US markets were rising. In 1998, individuals in this region began going online to invest on their own. Abu Khadra called them “self-directed investors.”
These individuals went online believing that they could make any investment and the next morning they’d wake up much richer. Then 2000 came.
“Online trading, unless you really know what you’re doing, is almost like gambling,” said Abu Khadra. “If you look at active mutual fund managers, you will realize that 70 percent of those managers actually underperform the market. This means that if you were to invest in a passive index fund, you would do better than seven out of 10 fund managers. Even professionals cannot time the market and are not geniuses at picking the right stocks. However, there are those few professionals, the three out of 10, and by the way it’s not always the same three every year, that over-perform and do better than the market.”
These days self-directed investors are abandoning the go-it-alone approach and are looking for solid financial advice. They want to put their money in an instrument that allows them to make a return, but Abu Khadra has seen that they are much more realistic about how much of a return to expect. “I remember that in 1999 people wanted 30 percent or more,” he said. “Today if you talk with investors they are happy with high single digits.”
Because individuals are returning to financial institutions for financial advice, iHilal decided to license its technology to institutions to manage funds on behalf of their customers. Abu Khadra explained that banks traditionally used to buy mutual funds or other securities through the use of paperwork, faxes, phones and transferring money to many different locations. iHilal is now essentially offering regional banks a privately branded web-based solution that allows the banks to open accounts on behalf of their customers and then manage the assets online.
Outside of Saudi Arabia, in the UAE, Bahrain, Qatar, Egypt, Lebanon and Jordan, iHilal has put together a network of financial intermediaries that will be using iHilal’s platform to give access to their own clients via face-to-face sales. iHilal will not be disabling its B2C site but to avoid channel conflict it will set its own online prices at or above the price of its channel partners.
In Saudi Arabia, iHilal cannot market its platform as in other countries, due to the Kingdom’s banking regulations, which restrict the sale of international financial products. “The type of platform that we have is called open architecture,” Abu Khadra explained. “Open architecture is a platform that allows people or institutions access to any product in the world as long as it’s a regulated, clean, transparent product that comes from a well-regulated jurisdiction. In Saudi Arabia, technically open architecture is not allowed. The Saudi Arabian Monetary Agency (SAMA) only allows the sale of those products in the country that have been privately branded by a financial institution in the Kingdom. For example, National Commercial Bank sells only NCB mutual funds to its retail customers in Saudi Arabia. The funds might still be managed by an external entity but they are privately labeled as locally branded funds. Our solution can be used to enable privately branded products and we are talking with some Saudi banks in this regard.”
What does Abu Khadra see as the future for investing in the region?
“Today customers are willing to pay a little bit of a premium for financial advice,” he said. “Many customers have learned the importance of long-term financial planning. In Saudi Arabia and the rest of the Middle East, there are a lot of social safety nets that exist today that will probably not exist 20 years from now. People want to invest so that they increase their worth over time, which allows for the building of a house or retirement. The idea is to get away from the speculative type of investing. Financial professionals and the banks are going to have to start reaching out more to educate people on the fundamentals of financial planning. Right now in Saudi Arabia we can say that financial planning is still a notion, but it won’t be long before it will be a necessity.”
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