Banking big on Islam

A timely debut in Sabah for world’s biggest Islamic bank

By Oliver Majaham
Pictures by Ille Tugimin

Malaysia has been good to Saudi Arabia’s Al Rajhi, the world’s biggest Islamic bank. It was its launch pad to international finance when it opened its first branch in Kuala Lumpur in 2006. Now it has 23 Malaysian branches including its latest in Kota Kinabalu. Sabah Chief Minister Musa Aman says it augurs well for his resource-rich Borneo island state where investors are flocking to it to fund industries and enterprises that are spun off largely from oil and gas, palm oil, and eco-tourism. Next year Sabah is spending 4 billion ringgit ($1.3 billion), its biggest, to grow its economy by 4.5% to 5%. And Ahmed Rehman, Al Rajhi’s chief executive officer, says the state can expect investments from 5m of his bank’s customers in Arabia, Kuwait and Jordan.

In the last four years, Al Rajhi has turned in 6 billion ringgit ($1.9 billion) a year; 350m ringgit last year from its Malaysian operation. It has assets of about 160 billion ringgit and a market capitalization of 100 billion ringgit. Profit of about 6 billion ringgit makes it the most profitable Arab bank.

Al Rajhi’s spectacular performance in Malaysia is no surprise. The country is the world’s biggest issuer of sukuk (Islamic bonds) with a record of nearly 40 billion ringgit. Ahmed says his Malaysian banks have 130,000 customers of whom 40% are non-Muslims. And it is easy to see why: A complex system of profit-sharing generally gives Islamic bank depositors higher returns.

Eighty-eight percent of stocks at Bursa Malaysia accounting for about two-thirds of Malaysia’s share market capitalization are Shariah compliant.

In fact Islamic banking has its earliest beginning in Malaysia in 1941 when it was a British colony. It issued its first bonds that did not carry any interests which Islam forbids.

Musa is confident that Al Rajhi “will have a multiplier effect on foreign direct investment” in Sabah.

“We recognize that you have the potential to bring investment from the Middle East and North Africa to Sabah,” he said at the opening of Al Rajhi’s first branch at Wisma Muis in Kota Kinabalu. The bank also has a drive-through cash point, the only one in Sabah.

Ahmed says his bank “is a vehicle to tap surplus liquidity in the Gulf” for Sabah enterprises. “We have the conduits and we know the investors,” he says, and adds that he finds “Sabah economic development landscape exciting.”

Sabah can also expect an influx of Arab tourists. Ahmed says many of them prefer Malaysia and 320,000 visited it last year. But few have come to Sabah. – Insight Sabah