KUWAIT CITY, Jan 23: The international capital markets have changed beyond recognition, and the Islamic Sukuks need real revision, says Gatehouse Bank’s CEO, Richard Thomas. The expert on Islamic financial services was in Kuwait Sunday as part of a GCC tour aimed at investigating new opportunities in the GCC market. The trip, he said, started with a presentation at the UAE Central Bank Friday. Richard Thomas further said that the Kuwait leg of trip aims to provide an interface between Kuwait and the international market, “as that Gatehouse’s principle shareholders are Kuwaitis.” To a question on the findings of last year’s World Islamic Banking Conference, in which he had taken part, Richard noted that the conference recognized that Islamic investment capital now related to real assets rather than the traditional sovereign wealth models. “The Eastern markets are now playing as important a role in Islamic banking as the West, and we now feel our relations to Malaysia have gained greater significance.” When asked if that shouldn’t have been the case all along because of the greater number of Muslims in the East than the West, Richard said that up until recently, the Eastern markets, particularly Malaysia, were extremely domestic.
However, the GCC markets, he said, have been domestic and Western simultaneously. Because of this change in approach to Islamic banking, Richard is now able to engage directly in Malaysia. “This has been a process going on for two or three years. I don’t now look at London and Dubai or London and Kuwait, but I look at London and GCC and Malaysia, all together. I see a world of opportunity rather than regions of opportunity.” Adding to lessons gained from the conference, Richard said there is a greater demand for income related transactions rather than speculative transactions.
“Gatehouse Bank has no speculative mandate. We have always been suspicious of those products. We have always focused on high-quality cash flow transactions. It might be through a building, as asset, a ship or a piece of equipment, but never of a speculative nature.” Richard observed that investors in Kuwait don’t need a high rise office building, which could be speculative, but rather look for middle-income housing. “Housing wouldn’t be speculative in the same way as office buildings, because it would be fulfilling an economic need. Also, port or railway infrastructure related activity will be valuable.”
Crisis
However, the GCC markets, he said, have been domestic and Western simultaneously. Because of this change in approach to Islamic banking, Richard is now able to engage directly in Malaysia. “This has been a process going on for two or three years. I don’t now look at London and Dubai or London and Kuwait, but I look at London and GCC and Malaysia, all together. I see a world of opportunity rather than regions of opportunity.” Adding to lessons gained from the conference, Richard said there is a greater demand for income related transactions rather than speculative transactions.
“Gatehouse Bank has no speculative mandate. We have always been suspicious of those products. We have always focused on high-quality cash flow transactions. It might be through a building, as asset, a ship or a piece of equipment, but never of a speculative nature.” Richard observed that investors in Kuwait don’t need a high rise office building, which could be speculative, but rather look for middle-income housing. “Housing wouldn’t be speculative in the same way as office buildings, because it would be fulfilling an economic need. Also, port or railway infrastructure related activity will be valuable.”
Crisis
About the effects of crisis on Islamic banking, Richard said that the conventional banks haven’t learnt all of the lessons from the crisis. “The Islamic banks have learnt more. However, the conventional banks in the GCC were different in that they had real money in their balance sheets. The Western banks had more of derivative products in their balance sheets.”
Richard highlighted how the conventional banks are returning to the same behavior prior to the crisis. “They know what the problem is but they can’t fix it. May be the last crisis wasn’t bad enough for the banks to have learnt their lessons.” He was quick to add that it’s controversial to say the crisis should have been worse, “because it was the people who suffered and not the bankers.”
“The Islamic banks suffered in some sectors very badly and they learned. What I am hoping for is another change, which is to see more cooperation between the Islamic banks.
“The Islamic banks work quite bilaterally, not together like the conventional banks. The crisis should have brought the Islamic banks closer in terms of transactions or standardizations. We need a forum to make that happen.”
Turning his attention to the situation in the UK, Richard said market there is very fortunate, “because the new government is very pro business, and anti wasting money. We are seeing a much greater focus on international trade and international business, alongside promotion of domestic businesses. There is a reduction in public spending and public debt and increase in focus on business development. We haven’t seen that agenda properly applied since Margaret Thatcher.
“We also have some signs from Germany and other countries that the economy is getting better. Europe has been affected severely by the crisis, particularly with the problems in Southern Europe like Italy and Spain. Without a currency of your own, they couldn’t consolidate their position during change.
“UK has kept its Sterling and so has not been inflated out. We have control over our own inflationary pressures.
“In some European countries, state has become too important. The socialist agenda has the state controlling too many businesses. In the UK, 70 to 80 percent of businesses are accounted for by SMEs, and stimulating that sector is where we are going to get our jobs and growth from.” The new government in the UK has achieved that, Richard added.
“The Muslim population is an important part of that SME business. And if the Islamic banks in the UK pay more attention to that sector, we are set to grow.”
Strength
To question on the strength of Muslim population in the UK, the Islamic banking expert noted that the Muslims in the UK constitute 4.8 percent of the population, which has grown in the recent past. A large part of that population is very productive, which bodes well for the domestic Islamic market.
“Gatehouse Bank is the international face of Islamic banking in the UK, and we see opportunities in both sectors.”
About Gatehouse’s latest acquisition, Richard named the headquarters of the International Hotel Group in Denver. “We are widening our focus. We had focused entirely on the office sector for the last 18 months, because it was the most valued in real estate. Now we are also focusing on the life industrial logistics sector as it looks promising.
“We are looking for long term leases in all sectors. The Kuwaiti investors like the fact that these assets are providing secure long term returns. They appreciate the fact that our deals are entirely transparent. Unlike funds, deals are very transparent and the investors are not getting into a blind opportunity.”
To a question on the bank’s risk assessment model, Richard replied, “In Islamic banking, the risk assessment model is based on the principle of knowledge. It’s important to act on knowledge rather than in ignorance. Application of knowledge is critical.
“If you analyze the problems in the financial sector, it primarily had to do with lending without knowing who you are lending to. The conventional banks just lend, and write off bad debts and charge the good customers to compensate for that loss. So they are usurious in some areas and speculative in others.
“In Islamic finance, we are asked to do our due diligence before lending to know the customer. Our whole risk model is sympathetic.”
By: Valiya S. Sajjad
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