JEDDAH, 11 April 2007 — The three-day Saudi International banking and Investment Conference 2007 ended here yesterday, with a call for in-depth studies to expand the scope of investment banking from the Shariah perspective and come up with a positive environment for real estate financing.
“Lots of investors are dazed and confused,” Taha A. Al-Kuwaiz, member of the Shoura Council, said while moderating a discussion on “Investment banking: Opportunities and challenges’ on the concluding day of the event. “There are lots of changes taking place at the retail level and factors causing them should be examined,” he said, adding that demographic, political, economic and investment factors were influencing the changes.
Ammar Shata, CEO, Al-Khabeer Financial Advisors, said that despite the region’s immense potential, opportunities remained untapped because of the absence of appropriate mechanisms that could efficiently channel funds from investors to entrepreneurs. This deficiency can be attributed mainly to an underdeveloped financial market structure and dearth of locally available knowledge of advanced financial structures and products. “This is further accentuated as the region’s population is not comfortable with financial products transplanted directly from the West,” he added.
“We recognized the enormous gap that lies between the demand for Islamic financial products and services and its fulfillment. On the one hand, the conventional finance players are struggling to keep pace with the breathtaking advancement in modern finance and investments and, on the other hand, develop a thorough understanding of Shariah.”
Speaking on “Investment banking from the Shariah perspective,” economist Dr. Yasin A. Jefri, said 60 percent of Saudi citizens have been investors for over 20 years. “Investment climate in any country depends on its political and economic stability. The Kingdom in particular has an exceptionally stable economy, especially since 9/11, 2001, with American and other Western investments returning home. That’s why local investors have chosen to take to Islamic investment,” Jefri said, adding that it was growing demand for Islamic investment that gave rise to Islamic banking products. “There was also growing concentration on the part of Islamic scholars on such products. Even foreign banks, and non-Islamic ones, started seeing advantages in Islamic banking products,” he said. “Islamic products are Shariah compliant, but the compliance is not enough, not satisfying,” he added.
Razi Shafik Fakih, acting CEO, HSBC-Amanah, London, noted that there had been an increasing investor preference for Shariah-compliant products, especially in the GCC and Malaysia. Currently, there are more than 250 Shariah-compliant mutual funds together valued $300 billion in assets, with Malaysia alone accounting for a growth from 7 to 71 Islamic investment funds between 1995 and 2004.
He suggested that new funds should be developed on “customer insights” rather than replicating the latest ‘hot trend’ in conventional funds. “This will allow for an appeal to a larger target market including conventional investors, lower expense ratios and better investment results,” he said.
“Standardization of Shariah rules is imperative to increase the scope of investment funds and enhance the investor base to provide size and critical mass,” he said. He wanted simpler, robust funds to be developed so that investors could make smart choices of exchange-traded funds and life cycle funds. Education of the stakeholders is necessary for the growth of the industry, whether investors or sales force, he said.
Dr. Amr I. Rajab member of the Shoura Council who moderated the panel discussion, said: “Lots of banks have changed to Islamic banking, but they say the derivatives have high risk factors. Whether high or low, hey should not limit the Islamic product development.” In Pakistan, he pointed out, few banks have been successful in changing to Islamic banking, but they have not developed the products outside the country. “We are quite behind in this part of the world, yet there is a positive trend and Islamic products are being steadily developed.”
Participating in a panel discussion on “Saudi stock market — current trends and prospects,” Dr. Khalid Abdulrahman Al-Bassam, associate professor at the department of economics at King Abdul Aziz University, said lot of countries had raised the competency of their stock markets and the Saudi stock market should follow suit. He noted that stock markets in Malaysia, Thailand and Brazil had developed the infrastructure with supervisory techniques and regulations. This had resulted in improving the capital of many of their companies. “Such measures can be beneficial to the Kingdom by decreasing inflationary trends and increasing the participation of the private sector,” he said.
Dr. Mugbel Saleh Al-Dhukair, professor of economics at King Abdul Aziz University, said the Saudi stock market could benefit a great deal from the buoyant economy coupled with liquidity.
Moderating a panel discussion on “Investment and real estate financing,” Abdullah Al-Moualimi, president of Dar Al-Moualimi consulting, described the Kingdom’s real estate market as parallel to the Saudi stock market. “Real estate market has been witnessing a big change, an investment tool for many investors.”
Dr. Fahad ibn Yousef Sharif Al-Eatany, business consultant of Trade Exhibitions & Conferences Ltd., which organized the conference, said real estate was mainly a service sector, especially when seen in the context of the World Trade Organization. “We should study our real estate sector in the context of our society and culture.” He described the Kingdom’s real estate as the second biggest sector after Saudi stock market. “The future will see a greater inflow of investment into real estate,” he said. “In fact, we have already started seeing the results...new clients are coming in. So there will be a fierce competition among investors in this sector, between individuals and between companies, especially with King Abdullah Economic City and four other new cities coming up,” he said.
Dr. Tarek Ali Hasan Fadaak, associate professor, faculty of design and environment, King Abdul Aziz University, said the Kingdom needed almost 200,000 new housing units a year, however, a third of inhabitants in Jeddah live in slums. “There will be challenges and yet opportunities to overcome them,” he said. These challenges include risks involved in financing real estate through mortgages or loans.
“There should be a quick and easy process to deal with financing real estate,” Fadaak said. “In fact, we need a five-year-plan to meet our housing requirements.”
Abdulaziz Turkistani, a real estate specialist, said that the recent developments in the real estate sector had made many investors optimistic. “However, some real estate companies are one-man shows and they need to be professionally oriented to reap a rich harvest,” he said.
Abdulmoneam M.N. Morad, executive director and board member of Ewa’a Al Derah for Real Estate Development Company Ltd., speaking on the “Anticipated role of real estate financing companies,” called for a strategic planning on the part of financing companies to meet the growing housing needs, especially in Riyadh, Jeddah and Dammam. Additionally, demand will be increasing for renovations, reconstructions and maintenance of existing units, he said.
NCB was the platinum sponsor of the conference, with SABB and Bank AlJazira as golden sponsors. Deutsche Bank, Saudi Hollandi Bank and Abu Dhabi Islamic Bank were among its silver sponsors.
