Director of the Islamic Banking Department at the International Bank of Azerbaijan, Behnam Gurbanzade's exclusive interview for AzerNews
By Gulgiz Dadashova
Question: Azerbaijan still lacks legislation in the sphere of Islamic banking. How does it affect the development of this sector in the country? What could be a market share of the Islamic banking in the country following the adoption of the legal act in this regard?
Answer: Despite the rapid expansion of Islamic banking in Azerbaijan, reforms in the legislation are needed to spur the growth of the industry further. The adoption of the legislation in the sphere of Islamic Banking will affect in a better opportunity to create a more even environment with conventional banks, as well as give a chance of introducing full range of Islamic Banking products to the customers. Introduction of new products will result in a growth of the market share of Islamic Banking, as well as expanding a list of Bank's customers.
The financial portfolio of the IBA department currently amounts to approximately to $200 million. The IBA is planning to double Islamic financing operations and increase Islamic banking assets to $400 million by late 2014.
Q.: What is the progress with the development of the bill on Islamic Banking? How would you assess the process of its application as this would surely stipulate amendments to many legislative acts, including the laws on Banks, and on Customs?
A.: The Islamic Development Bank has already received an official request from the government of Azerbaijan for such assistance. Currently, the request is under consideration. An IDB mission will visit Azerbaijan in February 2014 to prepare a decision on awarding a relevant grant. If a grant decision is made, the Bank will determine an adviser for the government on the issue - it can be both IDB officials and attracted specialists. The grant amount and its term have not been determined yet.
A working group of representatives of the Central Bank, the IBA, the Ministries of Economy and Industry, Finance and Taxes and the Cabinet Ministers will be established to develop the amendments to the existing legislation and introduce regulation of banking on Islamic principles. We plan to send our proposals to the country's parliament before October 2014.
Q.: How much are the international organizations interested in issuing funds to Azerbaijan in the framework of Islamic window? What are the goals of the IBA in this regard in 2014?
A.: We are pleased to announce the successful closure and signing of a $120.5 million Syndicated Murabaha Financing Facility by Barwa Bank, Emirates NBD Capital Limited ("EMCAP"), J.P. Morgan Limited ("J.P.Morgan") and Noor Islamic Bank PJSC ("Noor") (together the "Initial Mandated Lead Arrangers" and "Bookrunners"). Launched at $100 million, the Facility was oversubscribed to close at $120.5 million with participation from 10 banks. The Facility was the debut Sharia compliant facility for IBA. Proceeds from the Facility will be used by IBA to fund its Sharia compliant financing activities in Azerbaijan. The Facility was signed on July 16, 2013.
Taking the opportunity I would like to express my congratulations to the entire IBA team for being awarded as the best Cross Border Islamic Deal of 2013 by IFN.
Furthermore, we are in talks with a number of bank groups from MENA with a view to attract financial sources as well as Wakala deposits that meets the Islamic financing requirements. Our goal is to reach $400 million investments in 2014.
Q.: Earlier it was noted that Joint Leasing and IBA decided to diversify their activities. In what stage is the development of the Islamic leasing product?
A.: Indeed, the adoption of the legislation in the sphere of Islamic Banking will give a chance to diversify the activities of Islamic Banking in Azerbaijan. Joint Leasing and the IBA have already completed the project for provision of Islamic leasing services. We signed a cooperation agreement with Joint Leasing for introducing Islamic leasing into their practice.
At the first stage, the IBA Islamic banking made the first tranche to Joint Leasing in amount of 4 million manats. Our cooperation with the Joint Leasing is targeted at optimizing the work of the Islamic Banking Department and Joint Leasing on provision of Islamic financial services. On the one hand, Joint Leasing will draw up leasing contracts which could be concluded by IBA department. And on the other hand, we will offer our new product at the market. In future we will develop Islamic leasing not only in partnership with Joint Leasing but with foreign Islamic financial institutions as well.
Q.: How do you assess the turning of Baku into the center of Islamic banking in the CIS area? What are the prospects of creating the Islamic development center in Azerbaijan that would be a model for the regional and CIS counties?
A.: Globally, Islamic banking is an increasingly visible alternative to conventional banks in Islamic countries and countries with many Muslims. Azerbaijan has a good chance of setting up an Islamic banking center across the CIS and the IBA is ready to take responsibility on promotion of Islamic banking in the CIS countries as requested by Financial-Banking Council of the CIS.
Moreover, we have started such work with IBA-Moscow Bank LLC: together we are analyzing Russian legislation for possibility to provide financial services based on Islamic principles and to develop Islamic banking products so that they would conform to Russian legislation. As a result, the initiative of CIS Financial-Banking Council to define IBA as a common bank for Islamic financing development will find its solution. We have all prerequisites to build a bridge between Asia and the Middle East, as well as between the CIS and the Gulf countries. This, in turn, will enable us to receive good financial dividends. The major plan for this year is to develop a plan of amendments to the regulatory in order to enable the full-fledged Islamic banking in our country. The amendments will fasten up the process of creating the Islamic development center in Azerbaijan.
Q.: How many Islamic products has the IBA issued so far and what are the goals of the IBA for 2014? What is the current share of Islamic banking in the IBA credit portfolio?
A.: So far the Islamic Banking Department of the IBA has several products to offer to their clients such as: two types of Ijarah - house financing and goods financing, Qard-Hasan (current account) - for Individuals and Corporate customers, Wakalah deposit - from 3 up to 120 months, Islamic Bank cards - Jasmine card, Qibla card.
Furthermore we are planning funding of small and medium businesses, servicing enterprise customers and retail segment. The IBA has already proceeded to work on Sukuk structuring. We are planning to issue first Islamic Bonds in 2015 after legislation will be developed. The current share of Islamic banking in the IBA credit portfolio is around 3 percent for the end of 2013.