- Could you provide some background to your experience within the Islamic markets?
I have been involved with the Middle East banking sector since 1977, moving to Bahrain in 1981. I joined Man Group Islamic desk in 2004, whose team then joined Eiger Trading Advisors in July 2009, to set up its commodity Murabaha business. As a new entrant to an established market place dominated by a single participant, it was felt that an entirely new approach to the business was required. Of paramount importance was to provide a superior quality of customer service, combined with automating the Commodity Murabaha process to ensure complete client satisfaction. The result was the Eiger Trading Platform (the first of its kind). The identification of automation opportunities for client processes is ongoing to this day and continues to be a core identity for the Company.
- How is the Covid 19 pandemic affecting the market?
I hope that I am wrong, but I fear negatively. We are experiencing a new economic landscape the likes of which no one has seen before and hence any forecasts for future growth are guesses at best.
However, the pandemic has forced companies across the world to reassess their position within their respective industries and allocation of resources; which has encouraged an adaption and furthered new ideas about how to utilise technology.
- Could you give us an overview of how the commodity Murabaha market has grown and developed? What has changed in recent years?
The underlying commodity Murabaha transaction remains virtually unchanged, however the global market for these services has expanded exponentially over the last decade, with a growing requirement for the transaction delivery method to be fully digitalised. The Banking market could not have expanded its client facing applications without the buy-in of the Commodity Murabaha companies. Ten years ago transactions were manually intensive with each trade taking 20 minutes to complete.
It is estimated that market volumes have increased from under a billion dollars per day to tens of billions today; something that without automation allowing the processing of thousands of transactions per hour would not have occurred.
Hand in hand with this market change, our clients have demanded enhanced governance to ensure transparency with Shariah. An adherence to sustainability standards is also key as peer companies (including ourselves) identify how to comply with the highest global ethical standards. I believe excellent corporate governance and adherence to sustainability targets are key to the continued expansion of this market. The current pandemic crisis has only heightened the critical importance of corporate governance
- The structure is not accepted in several markets – do you think this should and would change? Why?
From a commercial perspective, yes we would like to see change, but we respect entirely the views of the local Shariah Boards that do not wish to use Commodity Murabaha products. This is an ongoing discussion in a number of jurisdictions and we are always happy to enter into a dialogue with the relevant regulators.
- How does technology factor into the narrative of commodity Murabaha evolution? What are some of the technological advances made and why are they important? Do any challengers remain?
Financial digitisation is a priority for most of the organisations we work with. Whilst I believe the Islamic Industry was initially slow to perceive the advantages, technology is increasingly becoming the driver for growth, digitisation projects are increasingly pushing the market, forcing the retirement of ageing legacy methodology. The ability to transact thousands of transactions within a very short time line has enabled the emergence of Islamic virtual or digital banks in the GCC and South East Asia.
There has also been a significant rise in peer-to-peer lending platforms. Yet more Fintech companies are providing access to financial services to previously unbanked populations using novel digital-based services, faster payments and new options for investment.
Our marketplace has grown significantly in recent years, driven by the demands of our customers to provide a more efficient service to coincide with the technological advances of modern Islamic banking products. In the highly competitive interbank and capital markets, Islamic financial institutions are looking for ways to achieve faster execution, increase efficiency and reduce human error.
In the corporate and retail market, our customers are seeking full automation to support their products and the high volume of transactions that tend to occur in this space. Straight-through processing is a key motivation for retail focused Islamic Banks, finance companies and peer-to-peer platforms, delivering an optimum customer experience and streamlining internal delivery channels.
- What are some of the biggest barriers in this space?
Standardisation is still a big hurdle, we are seeing many moves from IIFM and regulatory bodies to address this, but it is slow to implement.
Adoption of new practices which include digitalisation is still evident and creates a vacuum for new fintech companies to compete.
I continue to feel that training and knowledge is some areas is lacking.
- What do you think are key trends for the year ahead?
Given the unprecedented economic disruption caused by the pandemic and an extremely opaque view of future economic activity, a very difficult question to answer.
Estimates for global GDP for the remainder of this year, are horrific from an historical perspective and any intermediate growth will be anemic. This will most likely feed into reduced earnings for most Islamic industry participants. However companies that are agile and have access to resources, especially in the digital arena, may well see this as a huge opportunity as institutions look to slash costs through process efficiencies. R&D spend now, could well pay dividends over future years. Overall though I believe that the next few years will be one of retrenchment and an uptick in M & A activity.
We have seen the number of Islamic fintech’s increase significantly over the past few years, demand driven by clients who wish to access Shariah-compliant products aligned with their values.
I expect that Islamic financial institutions will accelerate their digitisation projects in the wake of the pandemic and we will see more Islamic Fintech companies launch.
- Sustainability is becoming ever more prominent, what is Eiger Trading doing to lessen its environmental impact?
For us, sustainability falls into three connected areas, people, planet, and profit and our approach in practice entails us managing our firm’s impact on the all three areas.
This means we are conscious of the businesses long term needs and are working hard to be preventative rather than reactive. This takes many forms including investing in fair-trade products, reducing packaging materials, ensuring humane working conditions at supplier facilities, using technology to reduce our carbon footprint and working with suppliers who are also taking a positive approach to this global issue.
Although I feel we have come a long way, the bar still needs to be raised. It is a very complex issue and we continue to devote resources to ascertain how we can achieve more than just lip service to requirements.
- What are Eiger’s top priorities/key focus for the next 12-18 months? What can we expect from the firm over the period?
Our key focus is to maintain excellent relationships with our customers and stakeholders. We believe we have the strength and vision to navigate the extremely murky waters ahead. We need to listen to our clients, expand and improve our digital offerings and ensure continued good governance. We will continue our journey.