Fattah Finance CEO ZARATKAZY NURPIISOV:
"TRADITIONAL BANKS WILL LOSE MANY OF THEIR CLIENTS AS ISLAMIC FINANCING GAINS PACE"
For several years Kazakhstan has been trying to develop the market of Islamic financing. The CEO of Fattah Finance JSC, Kazakhstan's first Islamic finance company, Zaratkazy NURPIISOV has shared his thoughts on the current situation in the sector and its future prospects.
- It has been more than two years since Fattah Finance was granted a license. How far do you think Kazakhstan has progressed in the development of the Islamic financing market and what is the current situation in this sphere?
- In 2009 the first Islamic bank, Al Hilal, was officially opened. Since then only three Islamic companies have appeared in the country. These are Fattah Finance, the Takaful Mutual Insurance Society and the Istisna Corporation, a consulting company. The companies operate under the existing law of Kazakhstan, which does not specifically cover Islamic financing.
The government has now adopted a roadmap for developing Islamic financing until 2020, which sets out to provide for all possibilities of regulating the activities of such companies. The roadmap also envisages state participation in the development of the Islamic securities market.
What is your assessment of the laws that have already been adopted to regulate Islamic financing? One cannot say that nothing has been done in this sphere. In February 2009 the parliament passed legislative amendments dealing with Islamic banking. In August 2010 a roadmap for the development of Islamic financing was approved.
The amendments that were passed referred to Islamic banking only. The issues connected to customs, taxes, natural monopoly regulations and some others were omitted there.
- So, do you believe the government's efforts in this sphere have been insufficient?
- As for the positive developments, we can mention the fact that during an international Islamic financing forum in June last year the president ordered the drafting of a roadmap for the gradual development of the Islamic financing sector in Kazakhstan. The document will provide for the opening of several Islamic banks, investment funds, asset management and insurance companies.
- What hopes do you pin on the adoption of the document?
- The government is currently implementing a program of industrial and innovative development. To do it Kazakhstan needs investment. The Muslim world, including Malaysia and the countries of the Middle East, has a huge amount of capital ready to flow into Kazakhstan once the right conditions are in place, and that is what the roadmap is for.
- How do you rate the demand for Islamic finance products in Kazakhstan? What is the current volume and future prospects of this market?
- The population of Kazakhstan is over 16 million people, 10 million of whom call themselves Muslims. About 1 million of them are practicing Muslims. If these people want to live and do business according to Islamic norms, this desire cannot be ignored. Our market studies suggest a rough estimate of the demand for Islamic financing services is at least $5 billion.
The world trend is that the market of Islamic financing grows by 15-20% a year. The traditional world financial system is changing. People are looking for new ways of managing their finances. There are very interesting ideas for integration in the Islamic world. For example, the king of Saudi Arabia has suggested creating a union of Arab countries. If this union is made a reality, it will play a huge political and economic role, considering the constant growth of the Islamic population in the world. Kazakhstan cannot stay away from these trends.
- Do you expect new players to appear in the market in the nearest future? What are their chances for success?
- Companies from Qatar, Bahrain, Brunei, Kuwait, Malaysia and Turkey are showing interest in our market. They are all ready to go in, but they need clear rules to be established for their work here.
I do not think our market will be too tight for them. It has a very big potential. The program of industrial and innovative development will require huge investment in the infrastructure that has not seen upgrading since the fall of the Soviet Union.
We should also not forget about the investment potential of the Kazakhstani population. According to unofficial data, the population keeps nearly $50 billion under their pillows. Now when many say a crisis is looming, people should start thinking about investing their money to prevent it from turning into dust as it already happened back in the 90s.
Where to invest your money? If you deposit your money with a bank, in case of the bank's failure the state will only guarantee you the return of 5 million tenge and that may take a long time as it did in the case of Nauryzbank and Valyut-Tranzit Bank.
Invest in real estate? It is no secret that real estate is now overpriced. The demand for it is determined by the people's paying capacity. Many people who get a mortgage cannot repay it. Therefore we believe the real estate prices may fall considerably.
The advantages of Islamic finance products are clear because they are guaranteed with real assets. We also see the non-Muslim population as our clients. In Malaysia, for example, 70% of the clients of Islamic financial institutes are non-Muslims and there is no contradiction here. You should not be afraid to use Islamic finance products, if you are not a Muslim, or if you do not offer Namaz regularly. If your project does not involve things banned by the Quran, such as the production and supplies of alcohol, arms, pork, gambling and other harmful activities, why not opt for Islamic financing?
- How many people do you think will switch from using traditional financial services to using Islamic ones?
- There will definitely be such people. It is not easy predict their numbers, but my optimistic forecast is that by 2020 Islamic institutions will make up 10% of Kazakhstan's financial system. I believe in 8 years' time this is quite feasible.
But traditional banks will take efforts to retain their customers. A local subsidiary of one of the Russian banks has recently said it is interested in Islamic financial instruments. It hoped it would be allowed to open so-called "Islamic windows".
An Islamic window is when the same bank works with both traditional and Islamic financial instruments. In our country Islamic windows are not allowed and I believe this is right. If you want to offer Islamic financing, you should get a separate license for that and open a separate bank. HSBC with its HSBC Amanah is a good example.
- Going back to the topic of new players in the market, could you tell us about the current status of the project to open the second Islamic bank in Kazakhstan. Do you think the project is still timely?
- The project of creating the second Islamic bank is within the competence of two countries - Malaysia and Kazakhstan. You must be interested in why the project has been delayed by so long. Our Malaysian partner in the project is a state-owned company AmanahRaya. The AmanahRaya group includes a bank registered in Labuan. According to our law, the company that has a subsidiary registered in one of the offshore zones included in the offshore zones list approved by the National Bank of Kazakhstan (by the way, Labuan is on this list too) cannot be a shareholder in a Kazakhstan-based bank. The Malaysian prime minister asked our prime minister to help resolve this issue as in this case it was a Malaysian state company. This matter was discussed by the sides at the International Islamic Forum WIEF-7 in June 2011 in Astana.
We hope that our government will settle the issue by removing Labuan from the offshore zones list or by signing an intergovernmental agreement.
Hopefully, this Islamic bank will be registered next year if settlement is reached this year. The business plan for creation of the bank is almost ready, and it was prepared with the participation of PriceWaterhouseCoopers.
- Kazakhstan's government plans to issue Islamic securities. Borrowings, as necessary, may be made as early as in 2012. What value do you think this year's issue may reach? Will these securities by in demand, given the current economic situation?
- Everything will depend on the Finance Ministry. Sukuks are infrastructure securities, or the right type of securities Kazakhstan needs now with its old infrastructure and the existing programs aimed at industrial and innovation development. The demand will be very high, primarily from the pension funds that view these securities as long-term investments. Foreign investors may also get interested. I talked to our Malaysian colleagues and they believe Kazakhstan will easily float $1 billion to $3 billions in sukuks.
Foreign investors can buy all these sukuks as well as those of other issuers, for example, Samruk-Kazyna's affiliated companies'.
- What plans does Fattah Finance have for the near future and, in particular, 2012? When do you think the company will reach the breakeven point?
- I think that this year we will be able not only to cover the previous losses but earn some profit too.
We have new ideas and new directions to go. For instance, Fattah Finance can be an advisor for Kazakh companies and help them raise money in the Muslim markets through securities issue. We are planning to offer such services to some companies and pension funds in Kazakhstan as early as this year.
In addition, our company is helping some of its Malaysian partners to find Kazakh companies to create joint ventures with. We also plan on helping Kazakh companies to find business partners in Malaysia.
AmanahRaya, one of the leading companies engaged in management of Islamic financial assets in Asia, has suggested that the National Bank invest some of the National Fund's assets in the international Islamic securities, sovereign sukuks of Malaysia, Brunei, Singapore and other developed countries in South-East Asia.
We were also involved in a very interested education project of our Malaysian partners. It was a project called "smart-school" and aimed at introducing e-learning systems for different disciplines. These systems are not expensive at all, for example, the cost of an English course varies between $90 and $220 per year. A number of universities and schools are considering the possibility of introducing such systems.
- You also have such projects as Islamic investment fund and halal hub. What is that status? What other interesting and significant projects can we expect this year?
- We established a Hajj fund with the Malaysian state financial company AmanahRaya. The fund was officially launched in June during the International Islamic Forum WIFE-7 in Astana. The structure and functions of the fund are similar to those of Tabung Hadji Lembaga, a Malaysian Hajj fund.
The idea is very simple: we will help people save money for the Hajj, however we assume that they may want to save money for something else. Kazakhstan enjoys the largest quota for visits to Saudi Arabia during the Hajj, which is 10,000 people (0.1% of the Muslim population of the country) but today the number of Kazakh pilgrims does not exceed 4,000 people. This does not mean that only few people would like to go to Hajj, many just cannot afford it as today it costs about $4,000.
Malaysian Hajj funds "Tabung Hadji Lembaga" and "AmanahRaya" invest their money in Hajj infrastructure: hotels in Mecca and Medina.
- What is the status of the halal hub project?
- After signing the memorandum of cooperation aimed at creation of a halal hub in Kazakhstan in July 2010, our company together with AmanahRaya started developing a concept of the halal hub. We have conducted a number of meetings and talks with the Malaysian companies that have experience in organizing a halal hub in Malaysia, namely Halal Industry Development Corporation (HDC), a state company that specializes in halal industry development; International Halal Integrity Alliance (IHI Alliance), a developer of halal certification standards and provider of halal training services; Dewina Food Industries Sdn Bhd, a producer of halal food products, and a number of other companies.
After analyzing the performance of halal hubs in different countries, we arrived at a conclusion that a combined approach has to be applied to a Kazakhstan-based halal hub, or the best practices of Malaysia in food production and those of Brunei in standardization, logistics and halal products.
However, the Kazakh government would like the halal hub project to help develop the agricultural sector. So, we proposed that our Malaysian partners organize a joint venture worth about $20 million to produce packaged halal food, which could be in demand not only in Kazakhstan but also in CIS and abroad.
This plant could contribute to a higher demand for domestic agricultural products and better development of the agricultural sector of Kazakhstan.
Thus, to date we have carried out a huge amount of research work and are currently in talks with a number foreign investors from South-East Asia about financing the feasibility studies for creation of a halal hub in Kazakhstan.
We need to attract domestic and foreign capital, primarily Islamic capital, to ensure development of the halal industry.
-Thanks for the interview!
February, 2012
й 2012 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited
February, 2012
© 2024 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited
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