HSBC puts trust and faith in the future

Even in a new country such as the UAE, some buildings have a history and legacy all of their own. The Bur Dubai branch of HSBC, nestling creekside just where Dubai’s waterway takes its final turn to the Gulf, has already played a big part in the emirate’s development. Now it is heralding another significant shift in its business life.

You might say the area is where modern Dubai began. In the 1950s it was headquarters to the British Bank of the Middle East (BBME), the first foreign-owned bank in the region, operating under an agreement with Sheikh Rashid, then Ruler of Dubai. Before the oil bonanza began, he realised that the emirate’s economic future was as a commercial hub for the Gulf, and in order to ensure that, the Creek had to be wide and deep enough to support big merchant vessels.

So the Creek was dredged, using BBME as an early project finance manager. The bank arranged payment for the expensive dredging contract via revenues from Dubai customs and Kuwaiti investment. In gratitude for the bank’s role in Dubai’s development, Sheikh Rashid’s successor Sheikh Maktoum, gifted the bank (now owned by the global banking giant HSBC) the land for the current building. It still bears the BBME coat of arms and motto, “Fiducia et fides” (Trust and faith), on its entrance.

Through the bank’s glass doors, the modern revolution begins. On the left hand side of the main business hall, it is still recognisably an HSBC branch, with tellers and desks for support staff, all decked out in HSBC’s traditional red and white logo. On the right, a significant change is under way. HSBC has decided to hand over 50 per cent of the building’s main business area to Al Amanah, its Islamic offshoot. Though on first glance it looks like a marketing gimmick, in fact the change signals a shift in thinking from HSBC, the region’s biggest foreign bank, which in turn reflects the new priorities of the post-crisis world for the Middle East.

Shafiqa Ahmed Abdul Razaq, the senior manager of the Bur Dubai branch, explained the logic to me recently. “Arabs and other Muslims want sharia products, there is no doubt of that. But they also want to bank with a big international bank, like HSBC. Emotionally, it is very important for them to be able to do both.”

In the Middle East, HSBC has very firmly nailed its colours to the mast of Islamic banking. The region is one of the few that grew in crisis-stricken 2008, contributing nearly 19 per cent to global profits of US$9.3 billion (Dh34.15bn). The UAE accounted for nearly half of that regional profit.

But sharia-compliant banking and financial services still makes up a comparatively small proportion of that contribution. The figures from Al Amanah are not stripped out, but if the Bur Dubai branch is extrapolated, it is obvious there is a big market to go for. Ms Razaq estimated that only about 8 per cent of the business done in the branch is sharia compliant.

To hand over nearly 50 per cent of the business-generating capacity of a bank branch to a sector that currently accounts for less than 10 per cent of revenue seems incongruous, but it is a sign of the confidence HSBC has in sharia-compliant financial services. Significantly, some 20 per cent of all new business in its top-notch Premier banking service comes from Al Amanah. HSBC believes it has seen the future of banking in the Middle East, and it is Islamic.

For every conventional financial product HSBC offers, there is now an Al Amanah equivalent, from current and savings accounts, to credit cards and loans, right through to mortgages.

On the corporate side, small businesses in Dubai are increasingly looking for Islamic products and services. The big corporations have seen a slowdown in the issuance of sukuk (sharia-compliant bonds) this year, but some recent analyses estimate there is a flood of new issues in the wings later this year or early next. Sharia-compliant project finance techniques (modern day equivalents of the BBME creek-dredging scheme) are also planned.

Some westerners have problems with Islamic finance. Critics regard it as a clever bit of marketing by the Islamic financial experts who are paid handsomely for stamping a sharia-compliant fatwa on a “new” product. Others point to the lack of uniformity of products and regulations in the Islamic world with its 1.6 billion Muslims, stretching right across the globe.

There is some validity in these criticisms. Islamic financial analysts concede the need for higher standards of professional training and regulatory uniformity among Islamic financial institutions.

But it seems to me the Bur Dubai branch initiative tells a story simple enough for even the most committed western capitalist to understand: there is a huge market out there, with demand generated by Muslim consumers who want the reassurance and comfort of financial services that comply with the basic tenets of their faith. It would show a total absence of entrepreneurial spirit if the global financial institutions fail to satisfy that demand.
And just for the record, I guess, I should point out that I am a non-Muslim HSBC customer.

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