UBS and Islamic Banking

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Case Details:

Case Code : FINC047
Case Length : 18 Pages
Period : 2000-07
Pub. Date : 2007
Teaching Note :Not Available
Organization : UBS AG
Industry : Banking
Countries : Bahrain

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Noriba was founded to provide the global market with innovative Shariah-compliant investment opportunities, and I believe that it is our commitment to this mission that has driven the success of Noriba."¹

- Md. Toufic Kanafani, Chief Executive Officer, Noriba Bank BSC, in December 2005.

Most Innovative Islamic Bank

In February 2005, Euromoney magazine² named Noriba³ Bank BSC (Noriba), the Bahrain subsidiary of Switzerland based UBS AG (UBS) as 2004's Most Innovative Islamic Bank. Noriba's product, Range Murabaha⁴ Investments (RaMI)⁵ was adjudged the 'Finance Product of the Year' in appreciation of the innovation at the bank⁶. The product from Noriba provided the investors a return of about ten percent annually; higher than Murabaha (Shariah⁷ compliant trade finance) products. Commenting on the product, Md. Toufic Kanafani (Kanafani), Chief Executive Officer, Noriba said, "This is an outstanding product which provides investors with capital preservation, the possibility of higher rates of return and a flexible investment period."⁸

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

Noriba set out to develop innovative financial products and to become a global leader in Shariah-compliant product development.

The finance professionals at Noriba provided the clients with personalized advice and a range of investment opportunities that adhered to the conditions set by the Noriba Shariah Board.⁹

According to Kanafani, it was this focus that led to the success of Noriba.

He said, "In addition to our emphasis on innovation, our focus is very client-centric; our relationship managers are fully committed to giving our clients the most personal attention, advice at every level, and fostering a level of trust that engenders solid and long-term client relationships."¹⁰

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1] "Leading the Way," Kanafani's Interview with Robin Wigglesworth, Banker, December 2005.

2] Euromoney is a leading international financial services magazine. Euromoney awards recognize those banks that have consistently out-performed their peers in various capital market sectors and have proven themselves to be a well-organized, professional, versatile and innovative.

3] Noriba is a wholly-owned subsidiary of UBS. It was incorporated by the Bahrain Monetary Agency (BMA) in 2002. The name is a combination of the English word 'no' and the Arabic word 'Riba" meaning interest, thus conveying the idea of no interest.

4] The concept of a Murabaha involves trading in goods or commodities and making profit through their purchase and sale in a way that conforms to Islamic guidelines. It is a contract in which a financial institution purchases goods on behalf of a client, who makes deferred payments that cover costs and an agreed-upon profit margin for the financial institution.

5] A structured yield alternative that provides investors with the opportunity to optimize the risk-adjusted returns on their short-term investments.

6] "Islamic Banking: Far beyond Islamic Investors," www.ubs.com.

7] Literally 'the way of life,' Shariah is a complete set of principles and rules regulating the life of Muslims from cradle to grave, including investments and commerce.

8] "Increasing Range and Sophistication for Islamic Products," International Herald Tribune, September 07, 2005.

9] The Noriba's Board of Directors formed a Noriba Shariah Board. The board's duty was to monitor the bank's transactional procedures and assuring their Shariah compliancy.

10] Shamillia Sivahambu, "Noriba Bank's Shariah Innovations," www.structuredproductsonline.com, July 01, 2005.