‘Debate on legality of products irrelevant’

Top Islamic banker Badlisyah Abdul Ghani is a contrarian when it comes to the present debate on the Shariah compliance of Islamic bankng products.
The CEO of CIMB Islamic Bank Bhd opines that the ongoing debate on the issue of the legality of products from a Shariah perspective had no real tangible benefits for the industry. "The debate is superfluous and irrelevant," he said, in what seems to challenge conventional wisdom and may even ruffle some feathers. Certainly, we cannot merely brush aside his views, given that in his short three-year stint at the helm of CIMB Islamic, the bank has seen its assets grow to more than RM20 billion from just RM1 billion in 2006. The Malaysian Reserve's Jason Ng speaks to Badlisyah to find out his views on the industry.

TMR : The Islamic finance industry is presently seen as replicating conventional banking products and services. How will the industry move forward beyond replicating into innovation?
Badlisyah: We have to offer what the market wants and the market naturally wants what is available in the conventional market. Where it is possible in Shariah for us to offer the same products, we have to make sure we have all the products because we are here to serve customers' needs. On the overall Malaysian market, I believe we have effectively most of the basic products in the market. For CIMB Islamic, we have gone beyond offering basic products. We have come up with innovative products that even conventional markets do not have in Malaysia. We have gone a long way in coming up with products both replicating and of pure innovation.

TMR : How is CIMB Islamic navigating the different sets of Shariah rules and regulations in different regions as well as countries presently?
Badlisyah: We are not bothered. We provide products based on where we do business. Just like when you are a car manufacturer, you make the car based on the specification and requirements of the laws in the respective markets. So when we market our products in different market, we behave the same way, making sure we meet the requirements of the jurisdiction of the local market we are serving.

TMR : But what about the present ongoing debate on the permissibility of certain products such as bai bithaman ajil (BBA) and derivatives under Shariah laws?
Badlisyah: The debate is superfluous and irrelevant. Shariah works on a jurisdictional basis just like any other laws. So to us, it is wrong to ask for Shariah laws to be an international standard law when other laws in conventional banking are not. You must remember Shariah has been there for more than 1,400 years and operated on a jurisdictional basis. But all of a sudden in the modern era, you want to force Shariah to operate across borders. It is a total waste of time.

TMR : So the current dispute has no benefit to the industry?
Badlisyah: What the industry should be bothered about is making sure their relevant domestic market is properly regulated and supported by the right infrastructure. In this regard, Malaysia has managed Shariah issues in the most efficient manner by having an Islamic Banking Act that says Islamic banking activities are all activities that do not contradict the religion of Islam. What that means is that all Shariah schools of law are applicable. Therefore, we do not waste time debating which one is right and which one is better. We allow market forces to determine which is more popular. Every interpretation based on the Quran and backed by legitimate hadith, is valid and enforcible. That is what Shariah says and Malaysia recognises what the Shariah framework is all about and the principles involved.

TMR : How do you regulate the market when there are elements such as profit sharing, partnership and risk-sharing which exist in Islamic finance?Badlisyah: At the end of the day, we have to identify what exactly we are doing. We are doing financial transactions, so irrespective of the Shariah principles used, it is predominantly a financial transaction. For example, most of our deposit products are under the mudarabah principle. You look at the substance of it and if it is a deposit, then you regulate it as a deposit product. Let's say you have a financing product based on a combination of mudarabah and musyarakah but in substance, if it is a financing product, then you regulate it as a financing activity irrespective of the Shariah principles involved. While a single principle may be applicable for many different activities, you regulate based on the activities undertaken.

TMR : Can you share with us your regional expansion plans?
Badlisyah: CIMB Islamic is present through our franchise across all legal entities within the group in Indonesia, Singapore and Brunei, mostly in the corporate investment banking and asset management segment. From a mere 200 branches selling Islamic products in Indonesia, by the end of the year, we should have more than 500 branches selling Islamic products. We hope to roll that business in the same manner we have grown the business in Malaysia, by adopting a dual banking leverage model, using the same resources and infrastructure that the group has and use some of the successful products that we have in Malaysia. It may be tweaked to fit Indonesian Shariah laws, but we have the intention to export it to Indonesia.

TMR : How do you see the growth of Islamic finance globally?
Badlisyah: It will still be in the double digit growth rate. While we had more than 20% growth year on year for quite a number of years previously, it will now be back to the teens because of the liquidity and credit crunch in the global market. Nevertheless, it will still be a double digit growth and is expected to continue without any slowdown because ultimately new interest shown by many jurisdictions to facilitate the investments and funds coming from many new countries will boost growth.

TMR : With so many other jurisdictions vying to be an Islamic finance hub, what advantage does Malaysia have over the rest?Badlisyah: We have more than 40 years of experience in doing the business. We have the most established legislative, regulatory and Shariah framework. We have put all the necessary infrastructure in place. As a result, we have all sorts of players in the market to spur the activities in the market. Years of existence in the market will result in a high level of awareness among consumers. We have the advantage of a very strong domestic market which would allow it to expand the platform to the international market without really much effort and this differentiates us from other markets.

TMR : Do we have the necessary expertise and skills to support the growth?
Badlisyah: Ever since Malaysia started Tabung Haji, after more than 40 years of developing and doing the business, we have a strong base of people with the necessary skills for all business segments including banking, takaful and the capital market of the Islamic finance industry. The scenario at this moment is that we have an acute shortage of people in the industry because all the relevant educational platforms to address the shortage have just recently been set up. It will take time before they can enter into the market. It's a shortage across the board that creates the core of the industry today. In CIMB, we are undertaking in house programmes to train them in Islamic banking and to be competent in the Islamic banking business. It is a good problem though, because it shows the industry is growing faster than we can cope with.

(This story appeared in The Malaysian Reserve on Nov 17, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)