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‘Initiative consists of doing the right thing without being told’
Irving Mack
Irving Mack
Article written by:
Ahmed Moola
Absa Islamic Banking
The estimated Muslim population of South Africa is between one and two million. Census figures tend to count Indian Muslims and not those of other races, hence the lack of an exact number. Africa, by comparison has in excess of 400 million Muslims.
These figures were among the key triggers for the Absa Group, South Africa’s largest retail banking group, when it decided to develop a new division, Absa Islamic Banking. None of the members of the Absa Board and Executive Committee had any prior experience of Islamic Banking. They were driven by the desire to offer relevant financial services to all members of their diverse customer base, in a manner that was both inclusive as well as commercial. The numbers of Muslims in the country and on the continent offered the opportunity to understand the compliance requirements, develop the products and ‘pay the school fees’ in South Africa. The lessons learned in partnership with the local Muslim population would act as a springboard into the rest of the continent.
I was appointed as Managing Director of Absa Islamic Banking in March 2006. My previous experience was in Investment, Private and Corporate Banking but I had for some time been drawn to the principles of Islamic Banking and had gone as far as developing a model for Islamic vehicle and asset financing. Getting used to a retail banking environment proved a steep learning experience. My first tasks were to set up a Shariah Supervisory Board and to develop products. I began this from a desk in a corridor with the help of consultants whom I knew and trusted, and who, today, are members of my Executive Committee.
We approached senior Muslim scholars whom we had identified as being appropriate to form our Shariah Supervisory Board and had to convince them that Absa, the epitome of conventional banking, was serious about developing a fully Shariah compliant banking institution. To their credit, they agreed to participate and became both allies and hard task masters in the development of our first set of products. Developing compliant products was, however, not enough for the members of our Supervisory Board. They delved into every aspect of delivery and administration until they were finally convinced that we could offer clients an end-to-end Shariah banking experience.
The next challenge was finding staff to help me run the bank. At that time, South Africa had one niche Islamic Bank and one conventional bank offering a Shariah vehicle finance product. This meant that there was a severe shortage of skills in Islamic Banking. We managed to assemble the skills to launch our first suite of products by July 2006, only four months after my appointment. The term skeleton staff has never been so apt.
Not only did we have to run the bank but we also had to find the customers. Islamic Banking marketing skills were virtually non-existent at the time. We began by holding road shows for members of the Muslim community in areas of South Africa which have a high Muslim population – close to the major cities of Johannesburg, Cape Town and Durban. We also held workshops for Muslim scholars and clerics in several areas. These led to the beginning of a belief in our products and processes and the start of our customer base.
Education proved a major challenge in this start-up phase. Absa has a comprehensive national branch footprint but only a tiny percentage of sales staff in branches were Muslim. The Shariah compliant products were so different from anything Absa had offered before that there was resistance to even understanding, let alone selling our products. This required a major drive to win over branch staff to at least understand what we were offering and to be able to sell the products to customers who asked for them. The Muslim population in general was not used to having the luxury of choice. Prior to democracy, Muslims were expected to settle for what was available to the majority of South Africans. These new products were different from those with which they were familiar and many were suspicious or adopted a ‘wait and see’ attitude. The broader Absa customer base, too, needed to be persuaded. At first there were outcries about Islamic Banking being ‘special treatment for Muslims’ and questions about what special treatment Absa was going to provide for other religious groups.
Our marketing programme began in September of our launch year. As the agency had no previous experience of Shariah marketing, we were required to guide them as to appropriate imagery, wording, symbolism and even colours. We developed a special offer for our faithful early clients of a freeze on bank fees between Eid and Hajj, which, although it was a great idea and very popular, caused an enormous amount of additional administration. Our most successful marketing activity, aside from classical advertising, was the development of a Hajj pack for South African pilgrims. This consisted of a back pack containing a prayer mat, slippers and a water bottle. As the bag carried the South African flag, it enabled South African pilgrims to identify each other and became a much sought after promotional item.
During September of 2006 we were asked to develop an appropriate product for a client of Absa Business Bank. Absa Islamic Bank in partnership with Absa Capital signed a R100m Murabaha Equity Conduit Deposit during December of that year. This is one of the largest Shariah compliant investments in the Business Bank market in South Africa to date and a record time for product development and compliance. This deal was later chosen as the 2006 Shariah Deal of the Year for South Africa by a Kuala Lumpur-based organisation. We ended 2006 ahead of forecast on balances, although we hadn’t quite reached the number of clients we’d hope for.
This was one of the triggers to the establishment of a sales team that concentrated exclusively on selling Shariah compliant products. We appointed three regional managers and 44 sales people and the numbers began to show the wisdom of the new approach. Relying on the size of the branch network had not been enough. Having sales consultants to whom potential clients could relate, proved the Golden Key to bringing in new business of the magnitude for which we aimed.
Other challenges we faced included accounting and technology. The technology was designed for an interest rate environment. Everything we needed was, therefore, counter-intuitive to the system, which we needed to use to optimise our branch and sales infrastructure. The winning formula proved to be specifying a product to be fully Shariah compliant and then optimising the flexibility within the parameters of the system to facilitate the exceptions. The challenges with regard to the lending products were far greater than transactional products. The biggest challenge of all was isolating the cash movement within the Islamic Banking division.
Setting up the accounting and finance systems presented its own hurdles. There were the dual reporting requirements, being IFRS as part of Barclays and Absa and AAOIFI as an Islamic Bank. We were required to formulate a funding and financial model that could give the output to both accounting standard requirements and then calculate the profit share ratios required for pay-out to our Mudarabah deposit holders. With much hard work and the best resources in the market, we managed to do all of this and pay out our Profit share for our first 9 months of trading in January 2007.
I cannot close without recognising the Absa Board and Executive Committee for their commitment to the concept of Islamic Banking and their unfailing faith in our team. Although I was regularly reporting to them on things that were outside their experience, they never failed in their support of me and of the concept of Islamic Banking as an important and profitable part of our product offering. Absa, in partnership with Barclays, aims to become the pre-eminent bank in Africa. Islamic Banking is a vital part of our journey towards pre-eminence.
There are 2 groups of people in the world: Those who take credit for the great work of others and those who do great work. We plan to be in the second group as it is under populated!
Footnote: Absa Islamic Banking is making inroads into the lack of skills in Shariah compliant banking through its approach to the Sector Education and Training Authority for Banking in South Africa for support in a skills development programme. This has resulted in the establishment of the South Africa Islamic Interbank Committee in which all of the major banks participate. The first outcome will be a set of training materials for the Islamic Banking environment.
Pat Roberts, Chief Executive Officer, African Fire,
The estimated Muslim population of South Africa is between one and two million. Census figures tend to count Indian Muslims and not those of other races, hence the lack of an exact number. Africa, by comparison has in excess of 400 million Muslims.
These figures were among the key triggers for the Absa Group, South Africa’s largest retail banking group, when it decided to develop a new division, Absa Islamic Banking. None of the members of the Absa Board and Executive Committee had any prior experience of Islamic Banking. They were driven by the desire to offer relevant financial services to all members of their diverse customer base, in a manner that was both inclusive as well as commercial. The numbers of Muslims in the country and on the continent offered the opportunity to understand the compliance requirements, develop the products and ‘pay the school fees’ in South Africa. The lessons learned in partnership with the local Muslim population would act as a springboard into the rest of the continent.
I was appointed as Managing Director of Absa Islamic Banking in March 2006. My previous experience was in Investment, Private and Corporate Banking but I had for some time been drawn to the principles of Islamic Banking and had gone as far as developing a model for Islamic vehicle and asset financing. Getting used to a retail banking environment proved a steep learning experience. My first tasks were to set up a Shariah Supervisory Board and to develop products. I began this from a desk in a corridor with the help of consultants whom I knew and trusted, and who, today, are members of my Executive Committee.
We approached senior Muslim scholars whom we had identified as being appropriate to form our Shariah Supervisory Board and had to convince them that Absa, the epitome of conventional banking, was serious about developing a fully Shariah compliant banking institution. To their credit, they agreed to participate and became both allies and hard task masters in the development of our first set of products. Developing compliant products was, however, not enough for the members of our Supervisory Board. They delved into every aspect of delivery and administration until they were finally convinced that we could offer clients an end-to-end Shariah banking experience.
The next challenge was finding staff to help me run the bank. At that time, South Africa had one niche Islamic Bank and one conventional bank offering a Shariah vehicle finance product. This meant that there was a severe shortage of skills in Islamic Banking. We managed to assemble the skills to launch our first suite of products by July 2006, only four months after my appointment. The term skeleton staff has never been so apt.
Not only did we have to run the bank but we also had to find the customers. Islamic Banking marketing skills were virtually non-existent at the time. We began by holding road shows for members of the Muslim community in areas of South Africa which have a high Muslim population – close to the major cities of Johannesburg, Cape Town and Durban. We also held workshops for Muslim scholars and clerics in several areas. These led to the beginning of a belief in our products and processes and the start of our customer base.
Education proved a major challenge in this start-up phase. Absa has a comprehensive national branch footprint but only a tiny percentage of sales staff in branches were Muslim. The Shariah compliant products were so different from anything Absa had offered before that there was resistance to even understanding, let alone selling our products. This required a major drive to win over branch staff to at least understand what we were offering and to be able to sell the products to customers who asked for them. The Muslim population in general was not used to having the luxury of choice. Prior to democracy, Muslims were expected to settle for what was available to the majority of South Africans. These new products were different from those with which they were familiar and many were suspicious or adopted a ‘wait and see’ attitude. The broader Absa customer base, too, needed to be persuaded. At first there were outcries about Islamic Banking being ‘special treatment for Muslims’ and questions about what special treatment Absa was going to provide for other religious groups.
Our marketing programme began in September of our launch year. As the agency had no previous experience of Shariah marketing, we were required to guide them as to appropriate imagery, wording, symbolism and even colours. We developed a special offer for our faithful early clients of a freeze on bank fees between Eid and Hajj, which, although it was a great idea and very popular, caused an enormous amount of additional administration. Our most successful marketing activity, aside from classical advertising, was the development of a Hajj pack for South African pilgrims. This consisted of a back pack containing a prayer mat, slippers and a water bottle. As the bag carried the South African flag, it enabled South African pilgrims to identify each other and became a much sought after promotional item.
During September of 2006 we were asked to develop an appropriate product for a client of Absa Business Bank. Absa Islamic Bank in partnership with Absa Capital signed a R100m Murabaha Equity Conduit Deposit during December of that year. This is one of the largest Shariah compliant investments in the Business Bank market in South Africa to date and a record time for product development and compliance. This deal was later chosen as the 2006 Shariah Deal of the Year for South Africa by a Kuala Lumpur-based organisation. We ended 2006 ahead of forecast on balances, although we hadn’t quite reached the number of clients we’d hope for.
This was one of the triggers to the establishment of a sales team that concentrated exclusively on selling Shariah compliant products. We appointed three regional managers and 44 sales people and the numbers began to show the wisdom of the new approach. Relying on the size of the branch network had not been enough. Having sales consultants to whom potential clients could relate, proved the Golden Key to bringing in new business of the magnitude for which we aimed.
Other challenges we faced included accounting and technology. The technology was designed for an interest rate environment. Everything we needed was, therefore, counter-intuitive to the system, which we needed to use to optimise our branch and sales infrastructure. The winning formula proved to be specifying a product to be fully Shariah compliant and then optimising the flexibility within the parameters of the system to facilitate the exceptions. The challenges with regard to the lending products were far greater than transactional products. The biggest challenge of all was isolating the cash movement within the Islamic Banking division.
Setting up the accounting and finance systems presented its own hurdles. There were the dual reporting requirements, being IFRS as part of Barclays and Absa and AAOIFI as an Islamic Bank. We were required to formulate a funding and financial model that could give the output to both accounting standard requirements and then calculate the profit share ratios required for pay-out to our Mudarabah deposit holders. With much hard work and the best resources in the market, we managed to do all of this and pay out our Profit share for our first 9 months of trading in January 2007.
I cannot close without recognising the Absa Board and Executive Committee for their commitment to the concept of Islamic Banking and their unfailing faith in our team. Although I was regularly reporting to them on things that were outside their experience, they never failed in their support of me and of the concept of Islamic Banking as an important and profitable part of our product offering. Absa, in partnership with Barclays, aims to become the pre-eminent bank in Africa. Islamic Banking is a vital part of our journey towards pre-eminence.
There are 2 groups of people in the world: Those who take credit for the great work of others and those who do great work. We plan to be in the second group as it is under populated!
Footnote: Absa Islamic Banking is making inroads into the lack of skills in Shariah compliant banking through its approach to the Sector Education and Training Authority for Banking in South Africa for support in a skills development programme. This has resulted in the establishment of the South Africa Islamic Interbank Committee in which all of the major banks participate. The first outcome will be a set of training materials for the Islamic Banking environment.
Pat Roberts, Chief Executive Officer, African Fire,
A Member of The MAVERICK Group
is the consultant to this ABSA Project
