Azad Yahya Bajger, Chairman of the Board of Directors of both Cihan Bank for Islamic Investment and Finance and Cihan Group, has more than 40 years of experience in Trade, banking and management with extensive experience in Iraq, Middle East, Europe and Asia. No doubt, he is one of the Iraq’s powerful Business Man.
He began his career in 1972 with his father Haj Yahya Saeed Bajger and brothers. His outstanding performance in various capacities within the different companies of Cihan Group was rewarded with his overseas postings where he is appointed as Honorary Consul General of Japan at Kurdistan since 1 Sep.2008. In additions to his being a member from 1984 - 1989 of Trading and industry Chamber in Erbil, Head of Erbil Chamber of commerce in 1989 – 2006, vice president of Iraqi Union of Trading and industry Chamber in 1989 – 1993. In his role as Cihan Bank Chairman, he enabled the bank to move in a new direction with the introduction of international banking services and products.
Cihan Bank for Islamic Investment and Finance is one of the first privately owned bank in Kurdistan which is a running retail bank with a paid up capital of 255 Billion IQD i.e. 216 million USD. Cihan Bank is ranked as the 3rd best Iraqi bank under CAMEL standards of Central Bank of Iraq.
It has been operating since April 2009, providing its services through 10 branches all over the country. The bank is a member of one of the leading and financial conglomerates-Cihan Group in Iraq with business lines spread in many fields such as cars, trucks and heavy machinery trading, construction, education, petroleum services, media, insurance and general trading. The group is composed of 12 companies in three countries: Iraq, Turkey and UAE. Cihan Bank uses innovative Islamic banking products to an expanding customer base.
Cihan Bank is an Islamic bank and practices banking according to the Islamic investment which is known as Murabaha, Musharaka, Istisnaa & manufacturing loan ending by owning other way of commercial investments and several other banking services.
Cihan Bank has projected expansion plans to open branches in the major cities in Iraq and the Kurdistan region, whilst contributing to the economic growth of the country.
No doubt, at a time of greater market regulation and increasing customer demands, Islamic banks need to reposition themselves.
BL: How is Islamic retail banking performing in Erbil?
Bajger: Erbil is the capital of Kurdistan; Baghdad is the capital of the Federal Republic of Iraq. However, nowadays people believe that Islamic banking provides them with better services than conventional banking especially that Islamic banking abides by the Sharia principles and many people in Erbil and the rest of Iraq care about “Riba” which is prohibited by the Islamic Sharia. Subsequently, this is the environment where Islamic banking can be active. However, Islamic banking all over the world from early years up to now are developing and growing by at least 20% each year.
The Islamic banking system is present in 75 countries with a total size of about $2 trillion. India is one of the countries expected to lead the next growth phase. There is growth in traditional banking but not as much as the growth in Islamic banking so this means the market needs Islamic banking more than traditional banking.
BL: What was the effect of the Global Financial Crisis?
Bajger: Actually, the global financial crisis affected all the economies in the world directly or indirectly. Iraq and especially the Kurdistan region were affected slightly but there are some developed countries like Europe and the Unites States that recorded a minus ratio.
BL: How does Islamic retail banking compare with the conventional sector?
Bajger: This is the key question. Conventional banking works on the philosophy (time values money) that when you deposit funds, you get interest and when you borrow you have to pay interest but in Islamic banking this Riba-interest is prohibited as per Sharia. Thus, Sharia states that trade and profit are acceptable but interests on fixed rate are unacceptable (Riba). This is the philosophy where the Islamic banking works on participating in loss and profit while the traditional banking doesn’t do that, it doesn’t accept risk and customers have to pay Riba. The interest is the main difference.
BL: Why some Islamic activities are much more expensive than traditional banking activities?
Bajger: The Islamic bank takes more risk than the conventional banks because it accepts losses according to Sharia; when there is a high risk there is a high return. Islamic banking accepts high risk, so they have to take a higher return and secondly they work on partnership basis. Therefore, when I’m your partner, you put labor and I put capital, so when you lose, we will lose together, when you make profit, we will both profit from this partnership; this is the philosophy of Islamic banking.
BL: Why Islamic retail banking is not cost competitive with conventional retail banking?
Bajger: In some areas, there’s a lot of competition between conventional and Islamic banks, for example, in letter of credit where all banks do not charge interest but they charge commissions.
Islamic and traditional banks compete on charges, but we don’t compete with them in some other activities because we have different markets.
BL: Does it lack economies of scale? Does it have unavoidable additional costs?
Bajger: Yes. For example, Cihan Bank imports about 15,000 Toyota Corolla cars to be sold to the taxi drivers who may have to earn the living of their families. Thus, we compete with other banks in this field. Cihan Bank and other Islamic and conventional banks sell cars as taxis, but at the end, people prefer to buy from Cihan Bank because of the best banking services offered. Therefore, there is economy of scale, if we sell more, we can reduce the cost.
BL: Does Islamic banking have unavoidable additional cost?
Bajger: Absolutely, Islamic banking has additional cost. Islamic banking products are more expensive than those of the conventional banking products because Islamic banking takes more risk but it gets better returns.
BL: How is Islamic retail banking competing with conventional banking?
Bajger: Banking is a very important institute to develop the economy of any country so there are huge opportunities to all the banks in Iraq, but the most important element is the skilled management and the reputation. Cihan Bank is providing financial facilities nearly to most sectors. Currently, we are selling houses in Bajger City in Erbil and also recently we launched the Cihan city project. We sell residential and office units on installments basis.
BL: How is the sector likely to grow over the next few years in Erbil and the globe?
Bajger: Actually, there are about 46 banks, 6 state banks and 37 banks belonging to the private sector, there are other foreign banks also working in Iraq. Now, there are many financial institutions waiting for a license to start business in all Iraq, but these institutions prefer Erbil because of safer situation. From these 37 private banks, there are about 7 Islamic banks, but before 1992, there was only one Islamic bank. So, the number of Islamic banks grew by almost seven times during two decades.
BL: What is your opinion towards those who claim that Islamic banks are not yet 100% Islamic?
Bajger: Everybody is free to say what he believes. I accept this issue when the traditional bank opens a window for Islamic banking to satisfy this segment of customers but this does not apply to real fledged Islamic bank which is monitored by Sharia Committee.
Nevertheless, our experience in Islamic banking is new and we are trying our best to reach perfection especially that we have a good Sharia committee who is looking into any weak points to improve it. Probably, after few years we will be 100% in accordance to Sharia principles.
BL: How to implement Islamic banking successfully?
Bajger: The most important prerequisite is that the management should take into consideration three essential factors: 1- liquidity, 2- the risk percentage and 3-profitability.
BL: How to convince your customer that the Islamic banking financing will guarantee their peace of mind, even in the event that interest rate goes up?
Bajger: If interest rate goes up, this means everything will go up and this will create inflation. This means, that people might be affected but we believe that when we do “Murabaha”, “Istesnaa”, “Musharaka”, “Mudaraba” or “Istezraa” then people don’t worry about interest and they don’t care about the cost of capital because we are sharing the profit and the loss and at the same time Islamic banks are much more controlling their customers than the traditional banks.
BL: What is your opinion on profit sharing in Islamic banking?
Bajger: Islamic banks deal with their customers in a transparent manner because these banks are depending on Islamic Sharia. Of course, Islamic banks are looking for the benefits of the bank, but at the same time Islamic banks are searching for the benefits of their customers. Islamic banks share risk with borrowers and downside risk with depositors. Islamic banking is generally based on profit-and-loss-sharing.
BL: Is there a need of standardization on vocabulary and pricing formula on Islamic products?
Bajger: I think it should be in order to unify the work of this type of banks. Nevertheless, I believe that there are certain standards for all the Islamic banks and there are specific standards for conventional banks. If each Islamic bank works by its own way, the customer will be misled.
I think the market will force banks to reduce their fees when the other competitors are asking for reduced prices or they are accepting the same fee. So, economy of scale works here, we will see what the other bank is doing then we decide to charge more or less. So, this may affect more than the market supply and demand, but I don’t think that we should have a price list acceptable to all Islamic banking activities. There should be competition; it’s always healthier.
BL: Is there a need of Shariah audit on Islamic banking rather than shariah supervision?
Bajger: As per religion, Supervision is a must. When we launch a new product, we have to get Sharia approval, but in some areas we may need Sharia to audit the procedures. For example, if you own jewelry shop and you want to borrow from me two kilos of gold to make jewelries and sell to the market. What’s the benefit, how much return should you give me? It is prohibited to give me an amount of gold at the end of a certain period. Gold against gold is not accepted but I may give you the two kilos of gold and I will charge for example 1 million Iraqi dinar or 1000 dollars and this is accepted by Sharia. Therefore, I believe auditing is good.
Auditing is necessary and the two activities should be implemented together but you have to have a daily supervision but you shouldn’t have a daily Sharia auditing. So, auditing is a periodic operation but supervision is a daily process.
BL: What is the profile and activities of Cihan Group?
Bajger: Cihan Group is in business since in the early forties dealing in the textile trade, then in 1949 the group witnessed a remarkable transformation to become a renowned global conglomerate composed of 12 companies in three countries: Iraq, Turkey, and UAE. The main business areas of CIHAN Group are banking, investment, finance, automotive, education, construction, insurance, Petroleum services, media, transportation, as well as general trading. Moreover, Cihan Group is one of the founders of Kurdistan Stock Exchange in Erbil - Iraq.
Cihan Group started its gigantic growth in the seventies where the group stated its investments in local light industry like embroidery, packing, and plastics while in the eighties it started its expansion into the region and then all over Iraq and later on in the early nineties Cihan Group commenced its food stuff trading (tea and rice) and presently it is becoming one of the biggest importers of tea in the Middle East from the world-known AKBAR Brothers – Sri Lanka. In 1997, CIHAN entered the automotive business. In 2007, the Group stated its expansion plan into education and in 2009 in banking, construction, heavy machinery, trading, and logistics.
Finally, the turnover of the group is more than one billion dollars per year.
Cihan means the globe, it’s a Latin word. We hope that one day Cihan Bank will be a global bank.
