Abu Dhabi's second Islamic bank was launched almost a year ago, just before the global financial crisis hit the Middle East. Despite this Al Hilal Bank continues to expand. Writer Mike Imeson

Anyone who thinks that Islamic banking is backward-looking and lacking in innovation should drop in to Al Hilal Bank's flagship mall branch in Abu Dhabi's Corniche.

The large premises are laid out with individual 'shops' catering to the financial needs of different customer segments - children, youths, women, home-buyers, tourists buying air tickets, car-buyers, high-net-worth individuals, small businesses and more.

Orange, the bank's corporate colour, hits you right in the retina. It feels as if you are in a shopping mall in Europe or North America. During my visit, posters of football players were everywhere, illustrating the bank's sponsorship of the UAE's President's Cup.

Al Hilal, Abu Dhabi's second Islamic bank - after Abu Dhabi Islamic Bank - was set up by the Abu Dhabi Investment Council last June, with about $300m of paid-up capital.

"Our branches are unique - globally, not just regionally - in focusing on so many customer segments," says Mohamed Berro, Al Hilal's chief executive. "It tells you about our focus. It proves that Islamic banking, and Islam, is not a hindrance to innovation, to modern and fresh thinking and products."

Youth policy

The 'shop' for children is not a play area, but a functional place where, with parents, they can open accounts and deposit money. "As they grow older, they will graduate to the youth branch in the same mall," says Mr Berro. "In the Arab world more than 50% of the population is below 21, so we have a large reservoir of customers.

"In the auto showroom you can buy a car, and we can finance it. There is an office to register the car with the police and you can insure it there. You can have a coffee while you wait for the administration to be done, and then drive off."

Al Hilal has entered into a partnership with Visa to offer a range of sharia-compliant Visa cards, including Visa Classic and Visa Gold. It has set up a sharia-compliant national savings scheme with the UAE's National Bonds Corporation in February.

On the corporate side, the bank has provided a $110m ijara (lease) to Etihad, the national airline, to buy an Airbus A340-600. "That was a big transaction for a young bank," says Mr Berro. "It depicts the way we are going forward."

The UAE economy is not immune to the global downturn. "Recession hits all banks, no matter how you are structured," says Mr Berro. "But Islamic banking can weather the storm better. My guess is that regionally there will be more convergence into Islamic banking, which has been able to create the products and services to compete with conventional banking."

Islamic banks rely heavily on deposits for their liquidity, but not to the exclusion of funding from the wholesale markets.

"We borrow from banks as well as take deposits," says Mr Berro. "It is not where you get your deposits from that matters [for Islamic banks], it is where you invest. You invest in real assets, not speculative assets."

Al Hilal's strategy is to become a major Islamic bank in the UAE, and to some extent globally. It has eight branches in the UAE - three in Abu Dhabi and five in other emirates - and expects to have 12 to 14 in the UAE by the end of 2009. In April, it announced it will open its first overseas branch - and the first Islamic bank - in Kazakhstan.

With the financial weight of the Abu Dhabi government behind it, the future looks bright for Al Hilal.

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