Dubai Islamic Bank takes the retail route

Dubai Islamic Bank has been expanding its sharia-compliant products range, introducing new types of investments to the retail market, including its first sharia-compliant commodity-linked note. Amanda Lee reports

Dubai Islamic Bank (DIB) has been offering sharia-compliant structured products since 2004. But it has really been this year that the Islamic retail bank has put in place a retail distribution structure.

"The aim of the retail banking investment platform is to provide our customers with options other than offerings such as plain vanilla deposits and accounts," says Naveed Ahmad, Dubai-based head of investments and product development, wealth management, at DIB. "This strategy is to educate our customers about wealth management solutions whereby diversification of investments can potentially provide them a portfolio with reduced volatility and higher returns."

DIB, established in 1975, claims to be the first Islamic bank to have incorporated the principles of Islam in all its practices. "Our focus is on retail banking and private banking," Ahmad says. "We are interested in alternative investment solutions that may be able to offer customers a diversified strategy to achieve higher returns than fixed deposits."

The bank's latest product, a three-year sharia-compliant structured note linked to a basket of commodities containing gold, crude oil, copper, aluminium and zinc, has raised $38 million in four weeks. The Commodity-Linked Individually Capped Performance (Clip) notes, launched in September, also feature capital protection. DIB markets the notes, which are structured and priced by Deutsche Bank and which have a minimum investment of $10,000.

The Clip notes will offer investors a guaranteed return of 10% in the first year and a maximum potential annual return of 8% in the second and third year, depending on the performance of the basket of commodities.

"We only sell sharia-compliant products that are approved by our sharia board," Ahmad says. "This note is done through a detailed sharia-compliant mechanism that has been developed by our own sharia board and the sharia board of Deutsche Bank."

Although the Clip note is co-branded with Deutsche, DIB works with a range of partners to develop new products. "Apart from Deutsche Bank, DIB has worked with various fund managers and investment banks to structure investment products," Ahmad says. "For example, we have worked with Mellon Global Investments, SICO and Gulf Finance House in the past."

DIB's priority this year has been to develop and launch sharia-compliant offerings for retail distribution, of which the Clip note is the latest. "Over the past year, we have worked hard to develop a solid infrastructure for the retail investment platform and provide our customers with a wide range of investment options," Ahmad says.

The domestic and regional equity markets have been particularly volatile this year, so investors are attracted to global stock markets as a means of diversifying their portfolios, according to DIB. Investors in the region are also increasingly interested in asset classes such as commodities and property.

"Globally, commodities have emerged as a preferred alternative asset class, with pension funds and hedge funds most active in this area," says Saseed Al Qatami, senior vice-president, head of wealth management at DIB. "We feel DIB customers can derive benefits from this trend and consider commodities in the same way as they would with equities."

Other than the Clip notes, DIB has already launched a pan-European real estate fund, US real estate fund and two French real estate funds, all of which are sharia compliant. "At present there are not many banks in the region that provide sharia-compliant structured products," Ahmad says. "The most popular products include sharia-compliant retail estate funds and equity-based mutual funds."

In May, DIB launched the Al Islami Capital Protected Fund, a five-year fund that invests in sharia-compliant equities in the US, European and Japanese stock markets. The fund is capital-protected at maturity and investors can redeem their capital as often as twice a month.

The minimum investment is $10,000 for individuals and $25,000 for institutions. The investment can also be higher in multiples of $1,000 for both segments. Like the Clip notes, the fund is aimed at allowing both retail and high-net-worth investors to take part in the growth of global markets in a way that is sharia-compliant, DIB says.