How have the western debt crises affected Islamic finance?
KHAN: Both conventional and Islamic banks do well when the economies do well. When there is a downturn, it affects asset prices and it affects the entire economy. Islamic banks are also impacted by the decline in asset prices. Islamic financial institutions have more resilience when they stay true to their principles by not creating leverage on their balance sheets, they haven’t done any name lending, or any other things they are not supposed to be doing. When they stay true to their principles, there is an inherent resilience in the system of Islamic banking.
Do you foresee a period of convergence and harmonization within the different areas of Islamic finance?
KHAN: The Islamic finance industry is regulated by Sharia regulations, which are the core of the industry. These Sharia regulations are filtered through industry building organizations, such as the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), based in Bahrain, and the Islamic Financial Services Board (IFSB), which is headquartered in Kuala Lumpur. These industry-building organizations have now created a consensus on 95% of the Sharia standards. There are more than 6,000 fatwas, or edicts, on Islamic finance and Islamic banking. I think in any body of law, to have a 5% difference leaves space for innovation, new products, and new ideas to be accommodated. We have moved towards consensus in a great way.
How do you see financial activity evolving across the different financial service centers in the world today?
KHAN: Firstly, Islamic banking is part of the larger Islamic financial services proposition, in which there is takaful, there is Islamic asset management, and there are the activities around waqf. Banking is just one part of it. Banking will grow in economies that are growing faster. The Arabian economies are strong, with a huge amount of investment. Saudi banks will do very well. Secondly, Islamic banking has always been about community banking, and when the economy and the community are going well, it will do very well. The way I see the different centers evolving is in how they are complementary to each other. Malaysia has developed different levels of expertise as a regional hub, and in certain products as a global hub. There is complementarity among these various centers. Dubai, Malaysia, Qatar, Bahrain, and Saudi Arabia all have a role to play. They all evolve, and with the passage of time, some will become centers of excellence in one area. Markets move on a 24-hour basis. Every market will have an opportunity to play a role.
What new initiatives is Fajr Capital currently involved in?
KHAN: We have invested in some excellent portfolio companies, especially in the financial services sector. We have Bank Islam Brunei Darussalam, which I am pleased to say, thanks to our partners at the Ministry of Finance and His Majesty’s Foundation, is doing very well. We have an excellent management team. We have an investment into the MENA Infrastructure Fund, which is an important area of focus for us. We have an investment into renewable energy that turns waste into energy. In each of these investments, we look for opportunities to do good business while doing good for society. We also look for investment opportunities in the markets that we know and the areas which we know. We work with partners whom we know. We are working on a number of initiatives in healthcare and education. Financial services continue to be a core area for us.
What geographic areas are most interesting for Fajr Capital?
KHAN: Our first focus is to look into growing economies, and economies which we can relate to. Examples are Muslim Asia, Brunei, Malaysia, Indonesia, and the Gulf Cooperation Council (GCC). At the same we look at interesting opportunities that come up in sectors that are appealing. An example of this is our investment in renewable energy in the United Kingdom. We have good technology, good partners, and good regulations there. There is a public finance initiative policy by the United Kingdom’s government, which was exciting enough for us to create a demonstration investment which people will migrate into other Organization of Islamic Conference (OIC) economies. So while our focus will continue to be in the OIC world, and the countries within it that we regard as growth economies where we have good connectivity and good knowledge of those economies, we would look at other markets as well.
These industry-building organizations have now created a consensus on 95% of the Sharia standards...I think in any body of law, to have a 5% difference leaves space for innovation, new products, and new ideas to be accommodated. We have moved towards consensus in a great way.
What sectors are currently on your agenda and what sectors are you looking at for the future?
KHAN: We are looking at education as a very important area. As you know the demographic bulge in the OIC world requires health, so democratization of education, and democratization of healthcare are very big opportunities. We are looking at both of these sectors. Of course, financial services continue to be our primary focus.