DAHABSHIL BANK INTERNATIONAL-DJIBOUTI, EAST AFRICA
Dahabshiil Company is the largest money transfer company in the Horn of Africa specializing in fast and reliable money transfers in Africa and around the globe. The company which prides itself on being trustworthy, reliable and innovative is planning to launch a new Islamic banking arm, which is scheduled to take place in Djibouti in early 2010.
The new bank will make Dahabshiil’s marketing spend more powerful and less expensive through the use of a cost-effective and targeted financial public relations campaign to build trust, credibility and confidence in the Dahabshi Bank International brand within the global business and investment community, as well as the wider public.
The new bank vision is to offer the highest standard of banking services to customers, achieve the highest return on capital among peers and have maximum development impact on community. Our Mission is to succeed by focusing on three objectives: Accountability, Integrity and Profitability.
Accountability comes from selecting world-class people, processes and technology; we maintain a solution-oriented culture where top performers are rewarded.
Integrity is a result of upholding Shariah principles, which we consider as universal
Values that benefit our customers.
Profitability is enhanced by leveraging our platform over a large market share in our key markets; our proven ability to provide inclusive and socially responsible banking services beyond traditional customers is one of our competitive advantages.
The key values that underpin the bank’s operations start with Shariah compliance. This means interest-free banking, treating customers as investors and sharing profits with them. The bank is driven to contribute to the local and regional communities that it serves by increasing access to banking service and connecting the region to the international financial system. We value transparency in all our dealings with our customers and regulatory authorities.
Dahabshiil Financial Services (Dahabshiil) is the largest remittance company in the Horn of Africa. It was founded in 1970s as a general trading enterprise in Somalia by a Somali entrepreneur, Mohamed Said Duale, who through exceptional business acumen, hard work and a rare knack for identifying opportunities has demonstrated how the pursuit of commercial interests can support social and economic development. When the Somali government collapsed in 1991, along with all government institutions, Mohamed Said saw a void in the financial sector and developed a vision to keep Somalis in the Diaspora firmly linked to their
Families in the devastated country.
Today, Dahabshiil has an extensive worldwide money transfer network serving Diaspora communities from East Africa, in particular, Somalia, Djibouti, Eritrea, Sudan, and Ethiopia, providing them with a vital and often life-saving link to their home countries. Dahabshiil has the largest network, over 220 outlets, in Somalia, and accounts for the biggest share among all remitters to the country.
In addition to money remittance, Dahabshiil Group includes companies in general trade, real estate, construction, and telecommunication. It is a major shareholder of Somtel, a principal private telecommunication company serving the Somali region.
The group has its head office in Dubai Airport Free Zone, UAE, and at present have more than 1000 branches and agents in 44 countries around the world. In the United Kingdom, Dahabshiil has more than 200 agents. In the USA, Dahabshil, Inc, an affiliate Company, is currently licensed in 11 states and is a member of the Cooperate Council on Africa. In the United Arab Emirates (UAE), it owns Al-Dahab Exchange based in Dubai and licensed by the Central Bank of UAE. Dahabshiil is also licensed in Canada, Djibouti, Uganda and many other locations.
Dahabshiil has partnership agreements with several international remittance companies and banks which complement its network.
In ‘Bank-less’ Somalia, in addition to money transfer, Dahabshiil provides its customers, corporations and individuals, with a number of banking services including checking and savings accounts and business loans. It provides facilities to regional governments and international organisations operating in the region.
Role in Social and Economic Development
Dahabshiil operates as a business enterprise with a profit motive. Over the years, also it has served the development and social needs of the East African community, especially the bank-
Less failed state of Somalia. Its operations have had a direct impact in reducing poverty and at times saving lives. As a remittance company collecting money from the Diaspora and delivering it to families throughout Somalia’s war-ravaged territory, Dahabshiil has been successful in serving both the urban and rural areas, sometimes in remote villages that have no other means of contact with the rest of the world.
Initially and during the early years of the major waves of migration from Somalia, Dahabshiil primarily served families that relied on the remittances as subsistence money. The company usually transferred small amounts not exceeding US200 per transaction. As the Diaspora settled in their new countries of residence and pursued professional and business opportunities, both the level and purpose of remittances have changed. Significant amounts are now transferred for investment, trade and other purposes. These funds now help build new houses, factories, schools, telecoms and power generation services in Somalia whose people have received very little international development aid for nearly two decades.
Dahabshiil’s services have contributed directly to the development of a vibrant private sector in Somalia, where most public services are provided by private enterprises. Despite an enormous infrastructure deficit, local entrepreneurs, with the help of their relatives in the Diaspora, have been able to provide basic social services at affordable costs to the community. Today, Somalis enjoy some of the lowest telecom rates in the world, thanks to the people’s entrepreneurial spirit and the generous support they receive from members of the Diaspora. Dahabshiil has built an enduring bridge between the ambitions of the local people and the charitable instincts of the Diaspora, creating a unique framework for social cohesion where practically every Somali working abroad has a direct interaction with his/her family members back home through un interrupted flow of monthly remittance.
Dahabshiil has contributed significantly to the maintenance of a functioning financial system for the Somali population that have no access to formal banking services. At times Dahabshiil has served as a “bank” of last resort to regional administrations in Somalia. These governments often obtain loans and advances from Dahabshiil to provide for basic public services.
Dahabshiil is the largest private sector employer for the Somali population, providing well paying jobs to a large number of people at all skill levels in a country where unemployment runs above 90%. The company generates jobs in all parts of the country helping alleviate poverty.
Through the success of its money transfer operations, Dahabshiil has a remarkable record in Social responsibility. The company provides grants to a wide range of social projects and causes in all parts of the country. It gives donations to builds schools, hospitals, bridges, wells, and a variety of other social welfare services.
Recognition for Quality Service
Over 90% of Dahabshiil’s transactions involve small transfers of less than $200. The
Company has built a sterling reputation for reliability, quick service and low cost, which still constitute its core competitive advantage. It delivers money to even the most remote and isolated villages in the Horn within 24 hours!
In Somalia, Dahabshiil is the favourite payment facilitator for most the international
development, humanitarian and news organizations including United Nations Organizations such as UNDP, WHO, WFP, and UNHCR; the European Union; Save the Children (USA and UK), Oxfam, Care International, UK Department for International Development (DFID), the BBC World Service etc.
Dahabshiil was in November 2008 honoured with the award of Top Manager by the
International Association of Money Transfer Networks (IAMTN) at their annual conference in London. The award of Top Manager of the year is the first of its kind given to an African company and in winning Dahabshiil overcame competition from major global money transfer brands such as Western Union, Coinstar and Unistream. The award not only recognised the outstanding service that Dahabshiil offers its customers and its commitment to social responsibility, but also endorsed the company’s excellent record for complying with the most rigorous international standards of conduct.
It is Dahabshiil’s intention to collaborate with strategic partners, especially financial institutions and international/regional development banks that promote the development of the private sector and the strengthening of the financial systems in emerging African countries. The promoters intent will be that these partners take up an equity stake in the bank and to that end will continue to engage both prominent business personalities in the region as well as institutional investors.
These partners have been identified on the basis of their added value/synergies/market
Capture/branding value etc. to the bank. This will include partners such as the International Finance Corporation (IFC). The bank’s other investors will also include potential investment from Islamic funds and financiers based in the Middle East whose value will be through the provisions of regional presence in the area, technical development assistance, trade finance and Islamic Banking product development.
The results of discussions with strategic partners have been positive so far and the promoters are confident that once the bank is operational, these partners, crucial to the further development of the bank will be secured.
The bank is expected to be highly profitable with a very good return on investment, based on the business plan and financial projections. The bank over the projected period is expected to yield an internal rate of return of 133%. The sponsors intend to broaden the capital base of the bank and its shareholding in line with its regional expansion strategy. It is the key sponsors hope that these investors will facilitate and participate in the expansion of the bank in exchange for an increased upside on their investment as the bank matures in size.
The ownership and shareholding structure is expected to evolve and the plan in place allows for options for the initial investors to realise part of the gain on their investments early enough.
An initial public offering of the bank is also anticipated within 5 years of the bank commencing operations. This will be done either by way of a private placement or through listing on a major stock exchange in the region.
The existing sponsor, Dahabshiil, will continue to remain as the majority shareholder even after broadening the shareholder base and continue the same level of commitment to the bank.
DBI will establish a Zakat fund with special regulations and a management committee to administer it. The Fund shall have an account independent from other accounts of the bank to deposit the Zakat money and disburse from it according to the directions of DBI’s Shariah Advisory Board. Disbursements from the fund shall be made by decisions of the Panel in accordance with the principles of Shariah.
Critical Success Factors
The successful realisation of the objectives of the bank, including the regional expansion and continued profitability will be pegged on having in place certain critical elements which include:
A capital base that will support the vision and mission of the bank;
The right strategic/technical partners;
.Highly experienced management team and recruitment of the right calibre of staff with the ability to grow within the organization;
. Appropriate infrastructure for the branches and satellite offices at the most efficient
. Latest technology both in the back office and front office operations and robust
Business management systems;
. Tap on the under-served segments (for example, people with monthly income of less
Than DFr90, 000) and the un-banked populations of Djibouti and Somalia;
. Quality service level in the market which will be noticed by customers;
. Innovative Islamic banking products and services that will differentiate the bank from the existing banks;
. Competitive pricing of products and services that will benefit both the customers and the bank;
. Leverage on the strategic alliance with the existing Dahabshiil network and link to the Diaspora for marketing purposes, service provision as well as its brand which is
Perceived to be adding great value to the development of the Region and its people; and Link with the strategic business partners and investors
3 Products and Services
Following is a brief description of the products and services of the new bank and a general explanation to how these are treated and applied in Islamic Banking.
Element of Differentiation
The bank intends on differentiating itself from its competitors namely on account of the following:
Promotion and Distribution through Dahabshiil network DBI will be afforded with a vast and existing network through which it will be able to promote and distribute its products and services through Dahabshiil network. This will be able to save
On time and costs involved in market penetration. Further, the Dahabshiil network in the Somalia region already have an existing deposit base, which the bank will utilise from day one.
Flexibility in Pricing Strategy
The bank has a clear strategy of investing in state of the art technology as a way of increasing efficiency and ultimately service delivery to its clients. Though the intent is not to compete with other players in the market on price, by virtue of the size of the market targeted by the bank as compared to that serviced by other banks in Djibouti, combined with the use of technology, the bank will have the ability to reduce prices based on its volume of business if competitive pressures require it to do so while maintaining profitability at an acceptable level.
The bank will continuously introduce new and innovative products and services in the market which are in compliance with Islamic Sarah.
Islamic Banking Products
DBI will offer a suite of Islamic financial products and services to its clients who are interested in conducting their personal and business financing transactions in a Sarah-compliant manner. Operations will focus on a) asset finance, b) partnership finance and c) lease finance. DBI will deploy the most common Islamic financing instruments.
The main principles underlying Islamic Banking are:
. No interest is received or charged.
. Lending is generally asset-based.
. Concept of profit and loss sharing between the bank and customer.
. Excessive risk-taking and the use of complex financial derivatives is avoided.
. Only lawful activities can be supported by the bank.
Islamic banking offers the best of both worlds: the profit-driven approach of traditional banking within the framework of universal ethical and moral values.
The bank’s lending products will be governed by Islamic Shariah Rules and Principles. The Islamic banking lending products offered by the bank will include the generally accepted products highlighted below.
. Murabaha (Cost-plus transaction) – Murabaha is a purchase and sale with an agreed-Upon profit margin.
. Qard al-Hasan (Loan without profit) – Qard is a loan without profit. The borrower is
Required to repay only the principal amount borrowed but may pay an extra amount as a token of appreciation at the borrower’s absolute discretion. Qard contracts can also be used to support current accounts, in which customers lend the money to the bank. The bank generates profit on this loan and returns the capital and some of the profit it has obtained.
Mudaraba (Partnership) – In Mudaraba, the customer provides funds to the bank, which then invests the funds into various investment schemes and financing. The profit sharing is agreed in advance.
Ijara (Lease) – Ijara is a concept closest to the conventional idea of leasing. This involves payments processing for asset acquisition, rental calculation and payments, arrears processing, and sale of the asset at the end of the contract period (in the case of Ijara way iqtina).
. Musharaka (Investments) – Musharaka means “to share.” In a banking context, it indicates that all profits or losses are shared equally.
Istisna (Manufacturing Contract or Project Finance) – In an Istisna sale, the buyer asks the manufacturer to create a specific project or commodity with material from the
Manufacturer. The price is fixed after all parties give their consent and agree on all the necessary specifications of the project or commodity.
Salam (Forward Sale) – Salam is a sale in which the seller supplies specific goods to the buyer at a future date in exchange for a price fully paid in advance. It is typically used to finance agriculture. The bank must take delivery of the commodity on maturity and it can enter into a parallel contract of Salam with another party to sell the commodity on the future date.
Tawarruq (Reverse Murabaha) – Tawarruq is a finance method with which one can raise loan financing through buying instalments in a commodity owned by the bank. Applicants then authorize the bank to sell their share in this commodity, on their behalf, to a third party for cash and then deposit the proceeds into their account.
Sukuk (Islamic Bond) – Sukuk is an Islamic bond that must be linked to an underlying
Asset. Banks cannot raise funds by issuing generic fixed or floating coupon-bearing
Bonds. Banks can securitize a stream of cash flows from Ijaras or Murabahas and then
Issue Sukuks. The coupon cash flow for these Sukuks can be the cash flow from the
Underlying Ijaras or Murabahas.
In general, savings products in Islamic banks are similar in many ways to savings accounts at commercial banks, with the following distinctions which will also apply in the case of the new Bank:-
Interest cannot be paid on savings accounts in Islamic banks. As such, no promise of
Reward can be made to the depositors.
Savings accounts are governed by the Mudaraba rules, whereby the depositors are
The capital providers and the bank is the Mudarib.
Depositors are awarded a share of the profits of the bank at the end of an accounting cycle, based on a pre-agreed point system that allocates profits per monetary unit per time unit. As this is tied to the amount of profit generated by the bank, the actual profit distribution may vary between one period and another, although the agreed point system is fixed.
As such depositors will know how much return they got at the end of the period, as
Opposed to depositors at a commercial bank who know how much return to expect at the beginning of the period.
Theoretically, depositors are also supposed to share in the losses incurred by the
Bank if any. However, it is generally accepted that the bank’s owners may agree to
Make a contribution to the depositors to maintain the bank’s competitive position.
This, however, causes an added strain on the bank’s capital base by further
Amplifying its losses.
Savings accounts can be general, participating in the profits of the bank as a whole,
Or specific, targeted towards financing a particular investment or project, and share in the profits of this specific investment or project alone.
. Profit calculation: at the end of the accounting period (which can be monthly,
Quarterly, semi annually, or annually) and as the bank calculates the profits generated during that period, it also calculates the points for profit sharing. Points are allocated for the bank’s own capital base and other non-profit-sharing monies at its disposal (E.g. current accounts), as well as for every eligible monetary unit deposited in the savings accounts multiplied by the number of eligible days it was deposited in the account. The total of these points represents the total profits, and a share is allocated to each point. These shares are then distributed to each account in accordance with the number of points it gathered, while the bank retains the remaining profit corresponding to its capital base and the other non-profit-sharing monies at its disposal. The shares of the savings accounts are then distributed in accordance with a pre-agreed ratio, part to the depositors, and part to the bank as manager of the accounts (Midrib).
Dr. Mohamed Osman Nur
Chief Executive Officer
Dahabshil Bank International-Djibouti