Confidence is key in heading an organization and Afaq Khan is all about confidence in his bank — and more importantly, Islamic banking. NAZNEEN HALIM speaks to the head honcho.

Claims that the Islamic finance industry escaped relatively unscathed from the global economic drubbing have strengthened over the past few months, in light of the relative stability of Islamic banks and evidenced by the establishment of more Islamic windows and standalone outfits. Afaq Khan, CEO of Standard Chartered Saadiq is also not one to refute that claim.

According to Khan, the bank has seen its lines of business grow exponentially since its establishment in 2003. Currently ranked first on the global Sukuk league table and second in the global syndication financing league table, it is easy to see why Khan has absolute faith in his bank and of course, its competence in serving its customers’ needs.

Among those needs, Khan says, is to diversify its line of business to cater to an ever-growing line of small to medium-sized enterprises (SMEs) and corporations actively looking for Islamic banking solutions. “Post-credit crunch, people have started to look for more options, and Islamic financing is one of them.

“This is because it was largely unaffected by the sub-prime crisis, so clearly a lot of people are interested. We have seen a lot more requests from our customers and the public to try and understand the difference between conventional and Islamic banking, and more importantly, requests from issuers to see if they can meet their needs via Islamic finance,” Khan elucidated.

“Having been involved in Islamic banking since 1994, and with Standard Chartered since the establishment of its Islamic banking business in 2003, I have seen the industry grow beyond the expectations of the market. There is more interest and knowledge among the practitioners themselves and there has also been a lot of support from customers, regulators, Shariah scholars, and now the media are also playing a very important role in talking about Islamic finance and creating awareness,” he said.

Business is booming
“New governments are showing interest in this sector — western countries — and the product suite is growing exponentially in line with the increasing awareness and acknowledgement from the regulators.

Lawyers have also taken keen interest in the subject matter and Shariah scholars have been instrumental in providing guidance to enhance the product suite,” Khan revealed, when asked about Standard Chartered Saadiq’s role as an emerging markets bank. “From an Islamic banking perspective, I am very confident that the growth in all the economies we are offering Islamic solutions are in good shape. We want to reach economic mass and economic highs and invest in markets and make them much bigger,” he added.

Standard Chartered’s Islamic initiatives are most prominent in countries such as Malaysia, Indonesia, Pakistan and the Middle East. However, Khan is adamant that the bank’s geographical reach is seamless. Khan, who basically oversees all Islamic activities carried out by Standard Chartered Saadiq, is indeed a lucky man when it comes to keeping his job interesting.

“I’m responsible for the total outlook on Islamic finance for the bank, so at one point there could be talk about Sukuk, and the next you could be talking about aircraft and shipping finance, home mortgage or credit card solutions.

“Generally in this area of specialization, most people are forced to look at a small segment of the financial industry, but I am fortunate to be able to see the whole picture. There are no geographical or product boundaries, so it is very exciting. Anything that the bank does Islamically comes under the Saadiq initiative.

“Frankly, the wholesale banking space has a much broader remit. We have businesses globally in Turkey, Brunei, Singapore, you name it. This is because the mandate is much broader in this space as opposed to consumer banking where you have to get licenses from the central bank and set up a branch network and all the ensuing steps,” he added.

Ever so sanguine, Khan revealed: “All geographies and products have done well. (Laughs) I know people find that hard to believe, but that is my actual experience and I can’t say otherwise. We were very fortunate to have seen across the board growth in both the retail and banking space. The growth we are enjoying is very significant.”

A new wave
The growing need for risk management tools has prompted Standard Chartered to develop a commodity hedging suite to its customers. According to Khan, this new tool will provide hedging in commodities which can either be backed by its own inventories or sourced from outside.

“The derivatives are part of the development of the industry, where we have moved from selling individual products to servicing the comprehensive needs of the customer.” However, Khan was quick to add that the bank has no intention of emphasizing one new business line over the other. “Basically our customers are importers and exporters who want a solution.

They want to hedge the volatility of their commodities — be it sugar, rice, etc — so they can provide comparative pricing to their customers in the local market.

“Any hedging in Islamic finance is halal only for hedging purposes and not for speculation. You can’t short sell or speculate. If you’re importing 10,000 tonnes of wheat, you can only hedge 10,000, not 11,000 tonnes. Our product is a risk management and a hedging tool, and not a tool for speculation in the market,” Khan emphasized.

“When people think of derivatives, people think speculation. In Islamic finance you’re not allowed to take a view on the market, you can only fix your price of production.” This, Khan says, is most important to the importers and manufacturers to enable fair pricing. “The whole point is the price of production.”

What the future holds
“We want Saadiq to be positioned as a thought leader and innovator in the market; we want to serve our customers and be on the cutting edge for finding new solutions and customers.

“We have carved out a reputation for ourselves in terms of leadership and innovation, so whether it is a sovereign deal or corporate deal, we are always among the first to be consulted,” Khan revealed candidly.

“As a CEO you’re always doing something new and learning something. Of course there are always the challenges of a new market and a new business, but if you can find a solution within the Shariah principles and balance it with the laws of the land, you can take a new investor to a new issuer and vice versa. That’s very satisfying.”