EVOLUTION OF ISLAMIC BANKING IN SOUTHEAST EUROPE: spark from Bosnia and Herzegovina
A Chronological Overview: from brand introduction and challenging early beginnings to solidifying brand positioning for better leverage of the Islamic banking potential in the heart of Europe
How it all began?
Establishment of Bosna Bank International (BBI) in 2000 as the first Islamic bank in Bosnia and Herzegovina and the first bank of this kind in Europe as well, was a difficult path even though Bosnia and Herzegovina base its history and heritage on Islamic religion and its values.
A long period since 1906 when first initiatives of establishing an Islamic bank in Bosnia were running and until another try in 1992 (Vakufska banka), including two world wars, 1990-ies Balkan warsand socialist regime, left significant knowledge and understanding gap on Islamic economy and banking principles. After Vakufska banka failed to be in accordance with Islamic principles and converted to conventional one, people left no hope for success of Islamic banking operations to be introduced in Bosnia and Herzegovina especially after 1990-ies war resulted in more obstacles between three Bosnian constitutional ethnic groups: Bosniak Muslims, Serbian Orthodox and Croatian Catholics.
In October 2000, a greenfield investment by Islamic Development Bank – KSA, Abu Dhabi Islamic Bank – UAE and Dubai Islamic Bank – UAE resulted in establishment of fully compliant Islamic bank with headquarters in Sarajevo. The Bank had big challengesahead as it needed to satisfy both State banking regulation and Islamic principles at once, create and enhance public awareness, build experts’ base and compete with 55 other banks in 3.8 milliontotal market population with limited economic activity.
Beginnings were very hard. The goal was to establish a bank which complies to Islamic principles in former socialist environment. Law on Banks was not supporting it, and the Country was lacking Islamic banking experts which could be hired.The market was flooded by large banking groups such as Raiffeisen, Hypo, Intesa, UniCredit and others. It was a real challenge.
Step 1: Banking regulation and BBI product offering
How to comply with both Islamic banking principles and State Law on Banks which does not recognize it? How to structure Islamic banking products to be competitive in the market and which will be value added for the clients? These were main stumbling blocks for past efforts in Bosnia and Herzegovina as it is now in many former socialist countries.
While other Islamic banks mostly use Murabaha on its Assets side, BBI could not do it as banks in Bosnia and are not allowed to trade with goods. Also, while it is common to use Mudaraba model for deposits, general public had difficult time to understand how is it possible that a client can lose its deposits, i.e. how come the Bank cannot guarantee its return? Taking into consideration all these challenges BBI had to come up with a solution which suits each side. As a result it offered financings based on combination of diminishing Musharaka and Ijaramodels and its deposits on Wakala model. Today, BBI offers all types of commercial banking products which are all in compliance with Islamic principles and competitive to other banks’ offers.
As both solutions satisfied minimum regulatory requirements, BBI launched it from its beginning and consistently worked on changing regulation which would allow Islamic banks to operate in normal conditions. BBI’s proposal of updating State Law on Banks passed twice in Lower House of the Parliament but wasblocked both times when reached Upper House only due to political reasons.
For all 13 years of BBI operations it had significant help and assistance from its General Assembly, Supervisory, Shari’a and Audit boards’ members such as: Ahmed Mohammad Ali, President of IDB, Abdulaziz Al Muhairi, former CEO of Abu Dhabi Islamic Bank and Dubai Bank, Abdulrahman Abdul Malek, former CEO of Abu Dhabi Islamic Bank, Khaled Al Aboodi, CEO of ICD-IDB Group, Adnan Buyukdeniz, former CEO of Albaraka Turk Participation Bank,Sheikh Nizam Yaqoobi, member of Fatwa and Shari’a Supervisory Board of Abu Dhabi Islamic Bank, Abdullah El-Kuwaiz, former Executive Director of IDB,Hasan Demirhan, Head of Treasury department and IDB Group, Mohammed Hadi Mejai, Head of Investments at IDB Group, Andrew Douglas Moir, Global Head of Strategy at Abu Dhabi Islamic Bank, Sheikh Dr. Abdussatar Abu Ghuddah, Dr. Adil Bushnak, Chairman of the Bushnak Group,Junaid Ahmed, CEO of Dubai Islamic Bank Pakistan,Gokhan Kamil Bozkurt, former CEO of Turk Telekom, Sharol Razar and Hamza Taha both from IDB and Mazin Al Ghunaim from ADIB Group.
Step 2: Raising public awareness on Islamic banking operations
Even though a Country with Islamic population mostly, Bosnians were reluctant to go for anything else different than conventional banking products. Adding to it the negative effect of September 11, 2001 terrorist attacks to Islam in general and creation of Islamophobia, BBI was facing another challenge. Management knew that it needs to raise the awareness on benefits of Islamic banking products. BBI started close cooperation with different media, mostly print magazines and newspapers which published articles on the subject, newsfeeds and expert analysis from scholars. In addition, the Bank hired high profile journalists to help on the subject and arrange participation on radio shows, TV stations, etc. Today, even though the awareness is significantly higher, BBI is still keeping focus on its PR activities as there is still room for enhancement of public knowledge on Islamic banking.
A global economic crisis was another opportunity to practically show to general public which banking system is more sustainable. Speaking only for the last five years, BBI had CAGR of its assets by 24% with increasing confidence from retail customers which in last two years increased their deposits in BBI by approx. 40%. In Bosnia and Herzegovina, BBI is practically showing to the public that Islamic banking principles havethe potential for shaping sustainable banking system in the future.
Besides intensive PR activities BBI decided to develop its marketing team within its own capacity since it was developing a new product with a new brand. That is why it started and continued to do everything in-house which further developed its marketing personnel and extended their skills and competencies.
BBI also introduced seminars and workshops for Islamic Community representatives who were dealing with their neighbors and faced increasing number of questions on Islamic banking and its definition. It all resulted in better understanding of new alternative concept to conventional banking.
Step 3: Educating workforce – creation of experts on Islamic banking
Having products and with increasing demand, BBI needed educated workforce and experts to lead the Bank towards big success. In the initial stage BBI could not rely on hiring an expert from another bank as it was surrounded only by conventional ones. The only way was to educate new generation of experts from the beginning. BBI was focusing on two projects in this step: BBI Academy and Masters Programs at State University of Sarajevo.
BBI Academy is internal project run with initial goal to educate BBI staff on principles of Islamic banking operations and to enhance technical banking skills as well. Every employee has to go through series of seminars and trainings in BBI Academy in order to be selectively educated enough to carry certain task in Islamic bank. Those who showed good results had a chance to advance and takeover more responsibility.
Besides in house trainings BBI cooperated with participation banks from Turkey, namely Albaraka Turk Participation Bank and Asya Participation Bank which organized and performed advanced trainings for BBI staff and selective workshops with a goal to fully cover certain business process in non interest banking operations.
Innovative way to bring out the new generation of experts was through introduction of advanced studies at local State University of Sarajevo in cooperation with BBI. Until today, Masters Programs on Islamic banking generated 50 new masters in this field each strictly covering different topics in interest free banking operations. Each one of them is now responsible to upgrade bank’s operations within their ownexpertise.
As a result of long term dedication towards educating new experts, in 2013 BBI mediated in structuring new master studies on Islamic banking and finance to be conducted jointly by University of Bolton, UK, State University of Sarajevo and BBI Bank as three party program. It will be conducted in Sarajevo and will result in students receiving double degree from each university.
With its pioneer move, BBI positioned Sarajevo as a hub for Islamic banking in Southeast Europe region. Now, students are coming, people are curious how BBI made it, its model is considered as unique and receives global interest. BBI is regular topic on international conferences held in France, Azerbaijan, Albania, Russia, Kazakhstan, Turkmenistan and others.
Step 4: Market challenge – how to add value in an overbanked market
In 2000, when BBI got its banking license, the market was overbanked having 55 banks offering wide assortment of products. Business strategy of BBI was to differentiate and to add value.
BBI promoted its competitive advantage as bridge towards Near East and Middle East countries based on its relations with shareholders which were coming from Kingdom of Saudi Arabia and United Arab Emirates. Direct lines for documentary business brought many export oriented clients to BBI and those were blue chip companies of Bosnia and Herzegovina. The database of clients continuously rose and covered all major Country’s industries which made Bank’s portfolio stronger.
Besides having full assortment of commercial banking products BBI introduced new initiatives with a goal to be a partner with its clients and to jointly upgrade its business. Sarajevo Business Forum (SBF) was one of the initiatives. Annual investment conference organized by BBI and with patronage of its majority shareholder Islamic Development Bank, is a platform for business to business networking. Each year itgathers more than 1,000 businessmen and investors in order to provide opportunities to domestic economy for new investments and opening of new markets. Preparations for SBF last throughout the year with strategic partnerships of local and international media who call for people to register participation and nominate their projects. During preparations BBI brings experts who teach local project owners how to prepare feasibility studies and how to present them.
In addition, BBI was the first one to establish VIP Business Club with companies joining in order to gain benefits of local and international business networking andtrade missions which the Club organizes for its members. The Club continuously encourages new possibilities for its members in order to contribute towards enhancement of their businesses.
BBI also initiated new financing lines with strict purpose and conditions such as one with the World Bank for SME companies, Turkish financing line for financing sustainable return of refugees, IFAD line for agricultural financings and others. Before going into implementation stage, many international institutions are first seeking an advice from BBI.
All the time BBI kept its focus on socially responsible projects and invested a lot of its effort in structuring and implementing many charity projects. Continuously, it distributes scholarships for socially endangered and talented students and since 2010 in collaboration with its partners it distributedfew million Euros for this purpose.
A Promising Future – Expanding on the Strategic Mindset in the fast changing environment
Since 2008, the Financial Services Industry is facing challenges today that are more severe and intractable than ever encountered before. The changes affecting banks stem from new Macro economic and regulatory requirements, far-reaching shifts in the global economy, changing consumer attitudes toward bank brands and risk, and a wave of new, well-defined competitors. This changing environment is an opportunity, as Islamic banks have plenty of work to do in addressing strategic choices against mainstream conventional banks on the same turf.
BBI led by fully local management is strategically reinforcing strong brand positioning of a modern, customer-centric image that emphasizes ethical values and socially responsible efforts in reaching all customer segments open to ethical banking.For BBI, sustainable growth is about innovation either through process automation, marketing and customer service improvement strategy or through ethical banking products stemming from new, competitive financing lines and focusing on unique market segments such as sustainable energy.Internally, reorganization of the sales force from a product focus to a customer segment focus, improvement of sales techniques and skills, and installing an improved omni-channel offering through channel collaboration will synergize greater efficiency and promote customer loyalty and hence ensure continued growth and success.
BBI AWARDS IN BOSNIA AND HERZEGOVINA- Best Manager in banking sector of B&H 2013for CEO (Perdana Leadership Foundation)
- Superbrands2013/2014
- Most Desirable Employerfrom financial sector2013 (web portal
- International banking award 2013 (International Islamic University of Malaysia)
- Most Desirable Employerfrom financial sector2012 (web portal
- Golden Charterin 2012 for CEO (International League of Humanists)
- Most Desirable Employerfrom financial sector2011 (web portal
- Best Manager in banking sector of Southeast Europe 2011 for CEO (European Association of Managers)
- Person of the year 2011 for CEO (daily newspapers “SAN”)
- Superbrands 2010
- City of Sarajevo Plaque2010 (City of Sarajevo)
BBI in numbers
Article mentions 4 crucial segments which drove BBI’s success and positioned it on 9th place in Bosnian market which consists of total 24 banks.
2008 / 2009 / 2010 / 2011 / 2012BOSNA BANK INTERNATIONAL (BBI)
FINANCINGS / +32% / +36% / +22% / +17% / +32%
ASSETS / +25% / +29% / +27% / +10% / +27%
DEPOSITS / +51% / +44% / +39% / +9% / +20%
BANKING SECTOR OF BOSNIA AND HERZEGOVINA
FINANCINGS / +21% / -3% / +4% / +5% / +4%
ASSETS / +8% / 0% / +1% / +4% / +2%
DEPOSITS / -2% / +2% / +4% / +4% / +3%
Amer Bukvic, CEO of BBI Bank