In-Person With Mr. Abdulkader Thomas - CEO Of SHAPE Knowledge Services

 


27 June, 2019   71 views   I-FIKR Admin
Interview Report

In-Person

Mr. Abdulkader Thomas is the President and Chief Executive Officer (CEO) of SHAPE Knowledge Services. He has over 35 years of diversified financial services experience in major markets including Bahrain, New York, London, Los Angeles and Washington, D.C. He has served in senior positions of international banks and the CEO of regional banks and financial service companies. His areas of activity have included trade finance, real estate finance, securities, and alternative finance at various global and regional financial institutions. He was chairman of Sanabel Investment Co. (formerly Alkhhabeer International) in Bahrain, and later as chairman of Alkhabeer Capital (DIFC) Limited. He has acted as a member of the international advisory board of the Securities Commission of Malaysia. Based on his diversified financial services experience, the following are excerpts of his interview on the prospects of Islamic finance in the United States (US), UK and Africa.

 

1. As Islamic finance is gaining popularity around the world, the United States (US) is also trying to get a piece of the pie by tapping into the global Islamic finance, sukuk and takaful markets. In your view, what regulatory and legal amendments should be made to ensure the US to have these tremendous possibilities? 

 

With the USD remaining both the primary reserve currency and the main currency for oil trades, the US has long been a magnet for Islamic investors. From a policy perspective, there are two major points at play. As a purely secular state, the US will not have uniquely Islamic finance legislation; we will talk about what has been accomplished up to now in a moment. Second, the entire Islamic market space is no bigger than one of the global banks. As a result, the general view among US policymakers is that it is too small to consider.

Now, when it comes to regulation and law, we have a different subject. The US financial services laws are broadly divided into four categories: banking, securities, insurance, and non-bank financial institutions.

The banking sector enjoys four main rulings supporting Islamic finance. But the rulings are not particular to Islamic finance even though they may note that the basis was to accommodate faith-based requirements. First, in 1994, Citibank secured a Federal Reserve Bank ruling that it could engage in certain types of transactions due to local customs. This facilitated the formation of Citi Islamic Investment Bank in Bahrain. 

Then, in 1997 and 1999, the former United Bank of Kuwait’s New York branch secured rulings allowing ijarah muntahia bitamleek under a bank’s mortgaging powers, and then murabahah under a bank’s instalment credit powers. In 2000, Key Bank building on the ijarah ruling to secure a ruling allowing ijarah-istisna’ transactions. Finally, in 2002, SHAPE obtained a ruling that enabled profit-sharing deposits. The last ruling led to a product designed by SHAPE and deployed by University Bank, and later copied by a few community banks. 

The reality of this enabling infrastructure is that only a few banks have actively embraced these powers; with University Bank, Devon Bank and Key Bank being the main players. Most of the larger banks have preferred workarounds. This means that the substantial multi-billion dollar investment in US real estate by Islamic investors is financed through master lease structures. In these products, a conventional bank makes a traditional mortgage loan to an SPV which then acquires the property and leases it to another SPV controlled by the Islamic investors. There is massive intransigence from the big banks to change their behaviour and limited demand from overseas investors for alternative products.

Insurance in the US is governed by state regulations and varies from state to state. Takaful in the US was innovated by Omar Fisher. He demonstrated in the 1990s that rules governing mutual insurers in the US were sufficient for takaful. But, there have only been experiments in the US takaful market. 

Perhaps the greatest success in volume has been on the non-bank financial institutions side. Since the mid-1990s, leasing companies in the US attract several billion dollars in new investment from the GCC. Some of these companies modify their products; some do not. 

Beyond the leasing companies, Guidance Financial has built the single largest Islamic home finance program in the US using a declining musharakah product which is sold to Freddie Mac. The product, however, is not permitted for investment by banks. 

Freddie Mac, under its emerging markets programs, has embraced murabahah products. These are used by University Bank[1] and Devon Bank. Freddie’s approach also is strictly secular. Emerging markets are segments that are underserved for any reason. Freddie embraces product innovation in these segments. Intriguingly, my experience in the US and the UK, there is always about 46% of the Islamic home finance segment that attracts non-Muslims.[2] This has been proven to be true with the products delivered to Freddie.

 

Read Full Interview in I-FIKR Digest 14, June 2019 Edition.


[1] For disclosure purposes, SHAPE designed and licenses the Islamic banking product suite used by University Bank.

[2] Generally, Orthodox Jews and Mennonite Christians are the most common. But, there are a surprisingly large number of “random” others. In the US, it is unlawful to ask an applicant her or his religion. Hence this information is extrapolated from anecdotal reports.


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