Amlak Finance has been one of the success stories from Dubai Inc. Mohamed Al Hashimi, chief executive officer of AMLAK finance spoke to Paul McNamara about recent developments and the year ahead
Amlak Finance is the region's preeminent Islamic home financing company that is 75 per cent owned by Dubai-based Emaar Properties. Emaar, in turn, is 32 per cent owned by the government of Dubai.
In conversation, Mohamed Al Hashimi comes across as being calm and collected, which belies the super-fast growth that Amlak Finance has been experiencing since its launch
Amlak was in the headlines again recently for the announcement that it had formed an alliance with the Dallah Al Baraka Group to form a new entity named Amlak International to offer products and services in the Kingdom of Saudi Arabia. The idea is that the new Islamic finance company will focus on extending financing and real estate development services for institutions and individuals in the Kingdom.
Can you tell us more about Amlak International?
One of the strategies that we have always had in place has been to duplicate the model that we have in Dubai in other markets. This is what was behind our going public in 2004 and our capital raising in 2005. We were not just looking for money to fund our local expansion within the UAE.
The first market that we looked at expanding into was Saudi Arabia, due to the sheer population and size of the market and also because it is virgin territory. Our collaboration with the Dallah Al Baraka Group, Saudi Investment Bank and Aseer Company resulted in the formation of Amlak International.
This is a SR1 billion ($266 million) Islamic finance company with the aim of tapping into that market, not just with products that are linked to what Emaar is doing in Economic City, but also with all the other developments that are going on. The market is colossal. There is so much potential that we need to be there.
We are also very fortunate that we were licensed by SAMA as the first Islamic finance mortgage company in the Kingdom. This is a major development for us.
We are also looking at Egypt, which is very important to us. Syria is another place we are looking at. We are looking at a range of Arab countries where there is potential for us to grow. Home financing is a something that is needed everywhere in the world, but has never been available in this region. We are confident now that the time is right for us to go in.
Can you envisage a time when Amlak's business in Saudi Arabia might eclipse its business in the UAE?
Possibly. Based on our studies we anticipate that we would need to have a further capital call within two years or we might invite other shareholders in either through a private placement or IPO floatation. The reason for this is that the Sukuk market is not really ready for this sort of thing and we are not sure if it will be available by then.
What is the timeline for the development of Amlak International in terms of introducing products to the market?
We are licensed as an Islamic finance company but we also have a license that allows us to invest in real estate as well. We can develop our own real estate, which we may look at doing if there are opportunities for us. But the real focus will be on using the product lines that we have within Amlak here in the UAE.
We are a 22.5 per cent shareholder in Amlak International and the remaining balance is with Saudi investors. It is a model that we are very comfortable with. We are going in with partners that we trust, which is very important. We add value both in the brand that we bring, as well as the experience that we have and the product line that we offer today.
At the end of the day it is a very simple product. You can either do it on an Ijarah basis or an Istisna'a basis. But we are presuming that our products will be structured on the same basis. Mainly we will be looking at what is happening in the Economic City.
Your profits were up over 40 per cent for the first three quarters of the year. Where did the growth come from?
Over 85 per cent came from our core business. We have always pursued a policy of sticking to the things that we know best. During boom times, people start to look at other areas and other opportunities and dabble in things like equities that are one-off, non-recurring items. But we don't get into that.
The problem is that you start to see a shift in your income away from the core into non-operational items or non-recurring items. Next thing you know, you are looking at a decline in profits.
Maybe we are more conservative. Perhaps last year there were companies that grew from 300 to 400 per cent whereas we grew about 100 per cent. This year, many of those fast-growing companies will have negative growth and incur losses. We are maintaining positive growth.
Our business is pretty simple. You take finance and you give your client a mortgage. It is good income but it is income that I book over 20 years. I am not going to book it over two years. I am not going to make money off you in two years time. I will make significant money off you in 15 or 20 years time.
We tend to make money when there are houses for people to live in. Today in the UAE there is only a small proportion that has actually been delivered. There is a huge inventory that has yet to come onto the market and when it does, then we will get the chance to make significantly more money.
So your growth is because the market itself is growing rather than because you are stealing more market share?
The pie is still growing and there is a substantial portion that has yet to come to the market because there is so much property that has yet to be delivered. We are not seeing any slowdown in our growth rates. As properties come near to completion, then the need for finance starts to increase.
Also, the fact that investments in equities have suffered of late means that people have started shifting their focus away from the stock markets and back into real estate again.
We are also the first company to launch an Islamic re-finance product. Such re-financing or equity release products are very popular in places like the UK. Here you have people who bought their homes a few years ago when prices were very low and the value has now increased. We are allowing them to release equity from their homes without having to sell them.
We allow people to take out the capital and use it to invest in other areas like more property or equities. This has proved to be very popular and we have had phenomenal response.
What has happened to your staff levels to accommodate this level of growth?
We are still increasing our staff numbers. We have another branch now in Abu Dhabi which we opened in May. Our main focus for the year ahead, for us to be successful, is by taking care of our customers and this means a focus on good customer service staff.
The ability to take the customer's order and process it in a timely and efficient manner is what will be the defining factor. It is not going to be the rates or the products or any of that. It is how you take care of your customers. Taking on a mortgage is a hectic thing to go through and it is not something that you want to go through every day. If you get excellent service, then you don't mind paying a small premium.
There are more and more people coming into the market and it is not going to get any easier. There is more competition because this is a great product to have. It is very secure. It is better than any other product that is out there.
How do you benchmark yourselves?
We benchmark ourselves against other international firms. We have a strong desire to become an Islamic bank and we will continue to lobby the Central Bank until we get a license. I look at the example set by the UK banks, the Halifax and Abbey National. They started out as mortgage-focused building societies, demutualised and just look at how they have grown nationally and internationally. This is our plan and I should think that this should be enough evidence for the governor of the Central Bank. We have the same ambitions, but we also want to be a leader in Islamic banking.
We have sent the Central Bank official letters from our board to its governor and we have met with him and his team, with regards to our converting to and Islamic bank. The application remains with them to this day. We are not going to stop following up even if we have to do it day in, day out because we have a proper model.
The reason for this is that today our balance sheet is probably larger than many of the banks in town. Yet as a finance company, we are restricted in so many ways. For us to continue to grow at the levels that we are growing and be competitive, then we need to have access to cheap funds.
We need to be able take deposits from individuals. We need to have salaries transferred to us. An individual can have a car loan and a credit card from XYZ Bank and a mortgage from Amlak. His mortgage repayments will be bigger than the other two put together but his salary goes to XYZ Bank. Guess who takes first cut of that salary? They do. Guess who gets the last bit? We do. I do not think that is right.
These days many people want to have everything consolidated into one. And at present I cannot do that if the cost of funds is going to be expensive. What we are trying to do is just replicate what has happened everywhere else in the world.
What is the agenda for Egypt?
Our largest shareholder is Emaar and they have been doing a significant amount of work in Egypt. Our aim is to have something in Egypt by the end of the year. In all of these markets, we only tend to make money when the properties are there and developed. So we are moving in now to be up and running for the time when property becomes available.
With such aggressive growth plans, how do you find enough people at the senior levels to manage your growth?
In the finance industry the universal problem is finding enough good people with the right experience. This is why it is so important to keep the stars that you have, because you have trained and developed them. If you don't make efforts to retain them, they know they are a great commodity and will go somewhere else, which seems to me to be a tragic waste of development and human capital.
Getting quality people is always going to be a challenge. But the biggest challenge is in keeping them.
What has been the most significant growth pain in getting Amlak to where it is today?
When we first started, we were the only ones. Then the market erupted overnight. We started in December 2001. In our first year we booked $20 million worth of business.
In the one month, June 2002, we booked $23 million. It just happened like that. We had a very small staff of 15 people. So we struggled with a lot of things.
Funding was the main issue. We couldn't get money. International banks said there was no way they were going to touch us. They said we were risk takers. They said we were financing all of these new houses and yet there were no laws to protect them. They complained that we were offering financing to expats who were going to hate the proposal and run away. They said we did not even know what the value of these properties was going to be and they were all off-plan. They said we did not even know if the properties were going to be delivered and so on.
So we had to go it alone. We were forced to go public. There was no way to get money anywhere else. And remember that we were going public at a time when no-one wanted to go public. We went public in 2004 and the last company to go public had been Abu Dhabi Islamic Bank in 1997. That's how long it had been. So there were some serious challenges. Now these same people who wouldn't touch us at that time are now in our market and trying to compete with us.
Can you tell me more about the Sukuk that you are working on?
We are finalising a $300 million Ijarah Sukuk which will be the first residential securitisation in this region of mortgaged properties which we are doing in collaboration with a number of institutions. This will be launched before the end of the year.
It will be an off-balance sheet transaction and will be targeting investors who are not from this region. We are looking at Europe and South East Asia. This is a very important step for us and we are getting everything ready now.
This is important not just for us but also for the industry and how it might develop. This won't be a one-off thing; we will have a series of issues.
© Banker Middle East 2006
