By the end of last year, the meltdown was complete. Lehman Brothers had failed, Merrill Lynch was gone, and analysts from CNBC to the beleaguered banks were predicting that Wall Street would never again look the same.
But while the Dow sank and many despaired, one sector in the financial world saw its growth potential go through the roof: Islamic finance.
Seizing on the opportunity, Islamic banking executives began a PR blitz, arguing that if the same principles that Islamic finance employs had been in place on Wall Street, the crisis never would have happened.
At a time where populist anger is at a high over perceived greed at many of the world’s top financial institutions, Islamic bankers are hoping to see a boom on top of several years of high industry growth.
It is in this context that the newly minted CEO of Egypt’s National Bank for Development (NBD), Nevine Lotfy, is working at a feverish pace to transform her bank into a pure and top-notch Islamic financing institution.
Lotfy left Citigroup after more than 30 years, determined to get involved with a financial institution that was pursuing a policy of growth rather than one shutting down many of its portfolios.
NBD has long been a mixed-portfolio institution offering both Islamic and conventional banking options commercially and corporately. It was established in 1980 with a paid capital of LE 50 million.
In 2007, the Abu Dhabi Islamic Bank (ADIB) purchased a 49 percent share in NBD and helped reorient the mission of the bank to transform it into one offering purely Islamic banking options.
More than a year later, NBD sits only months away from its August re-launch at which point it will no longer offer customers traditional banking options.
“In terms of new production, 100 percent on the financing side is Islamic, whether its consumer or corporate, said Lotfy, looking to November, noting also that her five-year objective is “to be the premier Islamic bank in Egypt.
And Egypt is a market with great potential. Though it lacks the wealth of many of the Gulf countries, which currently serve as the hub of Islamic finance, Egypt’s massive population and high banking potential make it an appealing market.
It is estimated that only 12 percent of Egyptians are banked. Commercial banks, therefore, have been working to affect the sort of cultural shift that might boost that number. The potential is even greater for Islamic banks which make up just 3 percent of the banking sector in Egypt.
“Banks have really gotten into consumer banking big time about 10 years ago, said Lotfy. “And it’s still in its embryonic stage. It still has an awful lot of room to grow.
The biggest question for Islamic banks, in Egypt included, is whether they can translate the global financial crisis into more business.
Their argument for this is simple: none of the Wall Street practices that got us into this mess would ever have been allowed under Sharia compliant banking. There would have been no excessive leveraging, no derivatives, and none of the complex debt selling associated with the housing crisis.
This is an important case for banks like these to make in a place like Egypt, where there was reportedly a rush on the private banks at the beginning of the economic crisis.
But for Lotfy and her crew, the task at hand is less grand but still seemingly monumental. The clock is ticking and she has just over four months before the August launch to finalize her team, establish a set of Islamic banking products to offer clients, and prepare to convert many of the accounts in order to make them Sharia compliant.
NBD aims to offer products to individual consumers, to small and medium enterprises (SMEs), and to large corporates. Putting in place a set of attractive products for each has been central to Lotfy’s work since joining the bank.
“This bank, before the acquisition, had what it called Islamic Windows, she said, “so they had a whole bunch of products already .There are new products that we actually import, or get inspired by, but they have to be tweaked and tailored to fit the Egyptian market.
And she’s not worried about the economic recession, she said, because it provides a window of low-growth globally that has given her and her team cover in order to dream up these products.
The recession, she said, “has worked a little bit in our favor in the sense that [it gave us] the preparation period that we needed, demand is not really skyrocketing anyway, so we have time to regroup, and organize and design the products.
Lotfy’s mantra, when it comes to banking with individual consumers and SMEs, is simplify. Part of encouraging people to bank, she argued, is not to swamp them with products so difficult they can’t understand them.
This is the sort of model that has allowed Islamic banks to boom in recent years.
It is estimated that, globally, the industry is worth $300 billion. It also continues to see around 15 percent growth per year.
And there are over 300 Islamic finance institutions in 75 countries. Islamic banking, therefore, had broken down the levy and is beginning to flood non-Muslim markets.
This tremendous growth has led some industry experts to worry that expertise in the Islamic banking sector will not be able to keep up with the growing demand. Some estimate that there will be demand for nearly twice the number of Islamic bankers than there are today by 2012.
Lotfy’s ambitions are equally bold as she rebrands her bank.
“We would like to double our deposit base by the end of 2010. We would like to reach about LE 1 billion in consumer finance by the end of 2010, she said.
With a growing demand for Islamic banking, Egypt’s market is ripe for the new products NBD is looking to offer, which makes these goals not too far out of reach.