In an exclusive interview with Amer Bukvic, CEO of Bosna Bank International (BBI), IFN had the opportunity to explore current Islamic finance development, opportunities and challenges in Bosnia and Herzegovina including the country’s new Islamic index. The following are his responses to the questions asked by IFN, in an email exchange.
What is the current state of Islamic banking and investment in Bosnia? Is it growing?
Islamic banking has a growing influence and role. In the last 10 years, BBI has been recording an average annual growth of 20% and is one of the fastest-growing banks in Bosnia. Strongly supporting the growth of the economy of Bosnia and Herzegovina (B&H), BBI shareholders in the last two years increased BBI’s capital two times, with the increase totaling EUR30.6 million (US$34.07 million). BBI is now the fourth bank in terms of paid-up capital. This opens up the potential of placing a new amount of EUR250 million (US$278.38 million) of financing into the economy in the following years. Currently, assets of BBI stand at around EUR380 million (US$423.14 million) and 75% of the assets relate to financing. The average capital adequacy of banks in Bosnia is 15.44% while BBI recorded a growth in capital adequacy amounting to 19.18%. We note the steady increase in savings as a proof of trust that citizens have in BBI. Currently, BBI has start-up lines of financing with very attractive conditions but only for companies operating in certain areas. We will continue to expand these areas in order to enable as many companies to access these funds.
Regarding investments, Bosnia has recorded significantly increased investments from Gulf countries, especially in tourism and real estate. As a result, the number of tourists from Gulf countries has increased more than 20 times since 2010. Also, a huge investment project valued at US$2.7 billion is on the horizon.
What is the current level of awareness regarding Shariah compliant financial transactions in Bosnia?
We are proud of the results achieved and the partnerships we have built with both retail and corporate clients as well as local authorities. BBI was an ambitious project in the country existing in a post-socialist political environment and a legal framework which does not recognize Islamic banking principles, has a lack of experts in Islamic finance, a weak knowledge of religious principles overall and an overbanked market with large European banks. Through public education, marketing strategy and public relations (PR) activities, BBI successfully developed a solution and launched an inclusive model of for Islamic finance development. The following new initiatives were also major successes: the fastest-growing bank in the B&H market and the region, the launch of the Sarajevo Business Forum, a comprehensive public education of young experts in Islamic banking, raising public awareness, implementing socially responsible projects and overcoming ethnical division in B&H.
Through strategic efforts and PR activities to raise public awareness, BBI managed to get high-profile journalists and key Islamic finance experts to continuously publish articles and participate in discussions or give interviews on radio shows and TV stations. BBI also initiated continuous seminars and workshops for local Islamic community representatives to introduce the public to the principles of Islamic finance. Today, with awareness significantly higher, BBI’s PR activities are focused not on products but on Islamic finance as a principle. BBI also awards around 15 scholarships to Master’s students of Islamic banking every year; so far more than 100 students have received this scholarship. We have our own radio and TV shows and pages in newspapers dedicated to Islamic banking. That way, we are changing the people’s perception of Islamic banking. About 16 years ago most people did not know that Islamic banking exists.
Are regulators doing enough to attract Islamic investments into the country? What could be done to increase the level of Islamic finance activities, as well as to attract foreign Islamic funds to invest in Bosnian securities?
The Bosnian legal framework does not yet allow the implementation of all Islamic banking modes of finance in full capacity. However, prominent scholars from BBI managed to ensure that all of BBI’s financial contracts are in compliance with Shariah laws. These contracts are acceptable within the legal framework. BBI’s management in collaboration with experts from economics and Islamic commercial law developed products in compliance with Islamic banking principles that satisfy all modern banking needs. Banking laws in Bosnia are very strict since the financial system was unstable after the war. Our regulators are very committed to stability and the Bosnian central bank still works under a currency board arrangement. Also, some legislative provisions aimed at protecting clients actually limit the implementation of certain Islamic finance contracts. That limits our activities but we are making progress and still working hard to overcome such obstacles.
As a socially responsible bank, through the BBI VIP Business Club, BBI connects local entrepreneurs and helps them in establishing cooperation with foreign markets, particularly with Gulf countries. We work hard on attracting foreign investors and BBI organizes the Sarajevo Business Forum every year with its own resources, in partnership with our shareholders: IDB, Dubai Islamic Bank and Abu Dhabi Islamic Bank. This year, the conference attracted more than 1,600 people from more than 50 countries. That is the largest investment conference in this part of Europe. We are building the investment infrastructure by cooperating with the government and some other institutions.
The Sarajevo Stock Exchange and BBI launched a new Islamic index. How will this new index boost foreign investments into Bosnia’s private sector?
The Islamic index is a joint project of BBI and the Sarajevo Stock Exchange for the benefit of the Bosnian economy. Our aim was to develop infrastructure for Islamic investments with BBI publishing a list of Shariah compliant companies for free, and via the SASX-BBI Index investors can see how these companies are performing. BBI also provides mergers and acquisitions consulting, business valuation and other supporting services to interested foreign investors. Our aim is to partner with foreign investors and Islamic investments funds willing to invest into Southeast Europe. Investment Corporation of Dubai already took over two Bosnian agricultural companies through BBI consultancy services. That is a win-win outcome maximizing benefits for all sides and the economy as a whole. Now this list of Shariah compliant companies on the Sarajevo Stock Exchange serves as a pipeline for future investment projects. If we see that investors are interested, we will broaden our Shariah screening and investment banking activities on the whole Southeast European region.
BBI told IFN in 2015 that it is looking to include Salam instruments in its product suite and launch a private equity fund. Is this still on track?
It all started on the Sarajevo Business Forum. Investment Corporation of Dubai has established agricultural investment fund (Zeraa) in cooperation with BBI, in order to utilize the enormous potential of Bosnian agriculture. This was great news since a very serious investor came to our country. BBI works closely with the fund, provides financial management services and the results are already visible. We formed a pipeline of more than 100 agricultural companies, and Zeraa Agricultural Investment so far took over two big companies: Bosnaplod and Hepok. The Hepok transaction happened two months ago, when Zeraa bought a 94.8% stake in the company which owns one of the largest grape plantations in Southeast Europe. We provided Bosnaplod with Salam financing for the production of plums this season, and the plan is to export more than 70% of the production of plums in the future.
In your opinion, what is the outlook of Islamic finance in Bosnia?
In the future, BBI has plans to expand the BBI Group and to strengthen the Bosnian economy by investing in agriculture, education and real estate, the industries with the most potential and biggest opportunities for impact. BBI currently operates 30 branches all over the country and in 2017 we plan to continue expanding this network. BBI’s Investment Banking Department will continue to operate as a bridge between Bosnian companies and interested investors from all around the world. Other banks in Bosnia are competing on the existing market, while BBI is expanding that market with new investments from abroad. Through the Sarajevo Business Forum, we are able to position BBI as a leader on that new market share and maintain strong growth for the future. A challenge ahead of us is the establishment of Takaful companies to further enrich the spectrum of Islamic finance institutions in Southeast Europe. We are currently looking for a partner in this project.