Citi Woos Rich Muslims with Bank That Follows Koran

By Miller, Suzanne | American Banker, May 22, 1997 | Go to article overview

Citi Woos Rich Muslims with Bank That Follows Koran


Miller, Suzanne, American Banker


Citicorp has borrowed from the principles of a 1,300-year-old holy book to provide a new twist to its growing worldwide retail banking franchise.

Ten months ago it launched Citi Islamic Investment Bank, a Bahrain-based institution that is striving to serve well-heeled observant Muslims throughout the Islamic world.

But unlike Citicorp's other international subsidiaries, Citi Islamic is taking its orders from the Koran, which forbids charging interest. As a result, the unit is focusing on providing a mix of asset management services, debit cards, and even leasing arrangements.

"The standard finance practices in Islamic banking should be asset-based finance which is free from interest, deception, and unfairness," said Mohammed Al-Shroogi, Citi Islamic's chairman, in a phone interview. "There should be no exploitation of the weak party in any dealing."

While many bankers might consider such talk antithetical to normal business practice, Mr. Al-Shroogi said there is plenty of opportunity to build a solid franchise in the Muslim world using Citicorp's network of branches.

The retail market of wealthy Muslims has increased about 15% yearly over the past 10 years and is still expanding both regionally and globally, he said.

The potential size of Citi Islamic's market in the Persian Gulf region is $7 billion to $10 billion. The area includes oil-rich Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates, as well as Bahrain, the island nation where the bank is headquartered.

Mr. Al-Shroogi contends that the broader Islamic market, which extends to the Far East, could be as large as $80 billion of assets.

He said there is a growing number of wealthy young Muslims in the Middle East and the Western world who are eager to build fortunes while observing the Koran.

The retail market of Muslims with net worth of $1 million or more is "very large," he said, and "the youth are increasingly turning to Muslim products."

The centerpiece of Citi Islamic's effort is a soon-to-be-launched global equity fund, which will focus on blue-chip stocks in companies in the United States, Europe, and Asia that are deemed morally appropriate.

What is acceptable?

"Very selective equity," Mr. Al-Shroogi said. "Stocks like IBM, Coca Cola, and Pepsi." Interest-charging institutions, such as Western commercial banks and insurance companies, as well as liquor and tobacco companies are off-limits.

Investment criteria for the pending global equity fund typifies the business code that will shape other Citi Islamic products.

To make sure the bank is on upholding these ideals, Citibank officers sit side by side with scholars of Islam on the Citi Islamic board.

Citi Islamic has 15 employees. Most of them are practicing Muslims from Islamic countries. Mr. Al-Shroogi is a Bahraini national who has spent his entire career at Citibank.

Most bankers who keep a close eye on Citi's progress agree it's too early to determine how successful this Islamic policy will prove, given that it's untried as yet by any other Western bank. …

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