Noor Islamic Bank targets low-income savers in the Emirates

The United Arab Emirates’ Noor Islamic Bank is to target lower-income workers by launching Islamic banking products through the country’s post office network.

The joint venture between Noor Islamic and the UAE post office is targeting the 50 per cent of the population who have no formal bank accounts, according to Hussain Al Qemzi, Noor Islamic’s chief executive. “Post office banks are common around the world,” says Mr Qemzi. “It is time for an Islamic bank to try out this idea. We have signed a contract with the post offices [in the UAE] to create a post bank to cater to the poor.”

Regular banking accounts for low-income individuals would comply with an order from the ministry of labour that requires companies to deposit salaries in banks. For many low-income expatriate customers from countries such as India, Pakistan and the Philippines, who represent a significant chunk of the UAE’s workforce, a post office account would offer significantly lower charges than those of regular banks.

It would also bring these workers into the formal economy and may cut into the hawala system on which many low-paid workers are forced to rely in order to transfer funds back to their families. The informal hawala system has been identified as a financing mechanism used by extremist networks.

The proposed activities of the joint venture will include debit cards, Islamic insurance, credit cards, microfinancing, salary payments, remittances and currency exchange, according to earlier statements. “We understand that providing banking services to the low-income segment may not be lucrative,” the joint venture said earlier this year.

Noor Islamic, which began taking deposits from customers this year, is 25 per cent owned by the Dubai government, 25 per cent by Sheikh Mohammed bin Rashid Al Maktoum, Dubai’s ruler, 5 per cent by the UAE federal government and 45 per cent by 17 UAE royals and businessmen, according to earlier reports. Some of the most prominent names in Dubai’s business elite sit on the bank’s board.

Mr Qemzi says that he is looking for expansion into Asia, Africa and even Europe, regions which are home to large and growing communities of Muslims. “We see plenty of areas which are empty. North Africa and Central Asia has no presence of Islamic banking. Indonesia and Pakistan has a very small presence of Islamic banking,” he says.

Noor Islamic may choose to acquire either conventional banks which can be converted to Islamic institutions or existing Islamic banks for expansion. Mr Qemzi previously helped convert the National Bank of Sharjah into an Islamic institution.

“Either you go organic by getting Islamic banking licences in other countries or you acquire conventional banks and convert them to Islamic banks,” he says. “You have to do this very carefully. You need to consider the cost of conversion and the regulation has to be in place.”

One challenge for such consumer-based expansion is finding bankers who are equally versatile with the needs of the market and familiar with Islamic concepts. This is a common problem cited by top executives at Islamic banks. “We are in a situation where so much talent is chasing such few people,” says Mr Qemzi.

By Farhan Bokhari, The Financial Times, June 2, 2008

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