Kuwait Finance House Malaysia (KFH Malaysia) was granted approval by the Central Bank in May 2004, only five months ahead of the other two foreign Islamic banks. However it moved so fast that it has even celebrated the first anniversary of its operation recently, while the other two are still struggling to set up their full operation. MIF
Monthly talks to KFH Malaysia managing director K. Salman Younis on the driving force behind the success story.
KFH Malaysia marks its first anniversary of operations with numerous feathers in its hat, mostly the first of their kind. Having obtained its operating approval from Bank Negara Malaysia in May 2004, the wholly-owned subsidiary of Kuwait Finance House, Kuwait started to move forward, in tandem with the growth pace of the Malaysian Islamic finance industry.
The company started its hiring process on the 1st December 2004, followed by soft opening on the 8th August 2005 and the official opening on the 17th February 2006. Today it is proud to have a family of 160 employees while continuing to grow further.
Younis started the interview by expressing his sincerest gratitude to the Malaysian government, Ministry of Finance, the regulatory bodies, namely Bank Negara Malaysia and the Securities Commission, saying that without the assistance and guidance of those mentioned, KFH Malaysia would not be what it is now.
Being the first foreign Islamic bank in Malaysia, Younis said with pride that most of its products and services in Malaysia were among the first of their kind, citing the KFH Promissory FX Contract-i, which offers a hedging mechanism to protect customers against fluctuations in foreign exchange and the KFH Musyarakah Mutanaqisah Home & Property Financing-i, a financing product based on the concept of diminishing partnership and leasing.
KFH Malaysia is also the first foreign Islamic bank in Malaysia to be accorded a Dealer`s Licence from the Securities Commission, which enables it to undertake fund management, investment advisory and security services.
“We have to date obtained 44 product approvals from Bank Negara Malaysia, and over the next three years we hope to open five more branches,” he said, pointing out the next branch to be opened would be in section 9 of Shah Alam, hopefully before the end of this year.
Its parent company, the largest Islamic bank in Kuwait and the second largest in the world, has successfully diversified its product range, which today covers full-scale retail, corporate and investment banking, commercial banking, asset management and direct investments in the fields of real estate development, aviation, shipping, education, information technology, Takaful and many others. Thus it is not surprising if KFH Malaysia is following suit.
Marking the first real estate venture in Asia by the KFH Group, KFH Malaysia has teamed up with the Singapore-based Pacific Star Group, a leading real estate investment, fund management and asset management company, to set up a US$600 million Islamic real estate fund targeted at customers within Asia.
Under the fund structure, Pacific Star and KFH establish and co-sponsor the “Baitak Asia Real Estate Fund.” In addition, KFH Malaysia acts as investment agent and Shariah advisor, while Pacific Star, through its group of companies, provides investment advisory, fund management and asset management services. The Fund`s geographical focus will be on assets/projects in the major cities of Malaysia and some other countries in the region.
Having shared the experience in commercial aviation at large with the parent company`s 85%-owned Alafco, coupled with existing skills in finance, marketing, legal, operational and technical considerations required in the negotiation of transactions in aircraft, KFH Malaysia decided to offer the service here in Malaysia.
It has entered into an Understanding with AirAsia to provide global treasury solutions for its aircraft financing facility. Under the arrangement, KFH Malaysia has been mandated, together with another bank, to lead arrange the financing of six Airbus A320-200 aircrafts for a tenure of 12 years, arranged under the principle of Ijarah Muntahiah Bitamlik.
The global treasury solutions will enable AirAsia to hedge its foreign exchange rate risk exposure and its Ijarah floating rate commitments. Additionally, KFH Malaysia has also proposed a solution that will enable AirAsia to hedge its Ijarah floating rate commitments. This will enable AirAsia to convert its floating rate commitments into a fixed rate exposure, thus negating the possibility of any negative impact to volatility and uncertainty in rates over the 12-year facility period.
“AirAsia has been a catalyst in leading the push for the development of Shariah compliant financial instruments due to its requirement in financing its aircraft purchase,” Younis explained, adding that as the aviation industry involved global players which include aircraft manufacturers, airline operators, aircraft parts suppliers, financiers etc, such innovation would create awareness of such Islamic instruments.
Younis also said that the delivery of the first aircraft for AirAsia under the facility had been made on the day KFH Malaysia celebrated its first anniversary of operations, which was on the 20th September 2006.
Complementing its financing facilities offered to its customers, KFH has forged a strategic alliance with three main Takaful operators, Syarikat Takaful Malaysia, Takaful Nasional and Takaful Ikhlas, to provide convenience of financing as well as Takaful protection for assets and properties.
The arrangement paves the way for the partners to leverage on each other`s strengths and vast business networks, he explained, adding that the strategic alliance would provide a convenient way for its customers to take up Takaful products with the three Takaful operators through KFH Malaysia`s business channels.
Younis also highlighted that at KFH Malaysia, besides offering Islamic finance products and services, it also acted as an intermediary and facilitator to promote two-way investments between Malaysia and the Middle East.
For instance, he said, the Kuwaiti closed shareholding company listed on the Kuwait Stock Exchange, National Industries Company for Building Material, had recently launched its first Islamic bond issue or Sukuk in Kuala Lumpur, whereby Kuwait Finance House had been made the mandated lead manager and the book runner for the issue.
Asserting the recent announcements by the Central Bank to allow onshore Islamic foreign currency services as “a definitely good move”, Younis said it demonstrated the government`s commitment to assist corporations in conducting business in Malaysia. In supporting the idea of making the country the regional Islamic banking hub, he concluded that KFH Malaysia would, more importantly, ensure that the cornerstones of Islamic banking, namely fairness and mutually beneficial relationships shall be prevalent in all its business dealings.