This very French outfit could teach a thing or two to Islamic bankersJanuary 13, 2018
IN the world of business, when it comes to money there are very few friends around, and this is the very painful fact that one faces when on the hunt for the elusive cash.
With the current state of global affairs, banks and financial institutions are increasingly moving away from the principle of putting their money where their mouth is.
They are not taking any prisoners, thus pre-empting the risk of having to deal with a failed proposition (or so they think) from the very start of their screening process.
It is a known fact that commercial banks in Malaysia have imposed new rules, taking on customers only after greater scrutiny and submitting the applicant’s requests to a pass or fail process even before a proper loan application is considered.
Businesses are aware that Islamic banks, in particular, are shy on risk-taking. And this is bound to change too but not in the risk-easing direction.
Islamic banks around the world are getting a tap on their wrists for risk-taking activities, loopholes in corporate governance, and a lack of streamlining in their loan investment and funding application processes. This is why they are known to be the lesser risk takers around.
But from now on, they will have to take even fewer risks.
Studies done almost a decade ago showed that Islamic banks located above target risk levels tend to show risk-averse behaviour. The same study indicated that banks below target risk levels were inclined towards risk‐seeking attitude.
Those results also highlighted that banks which have higher loans-to-total asset ratio tend to take on lower risks.
Then there is the additional issue of a premium imposed on all loans disbursed which have been the norm for decades, besides the fact that their supervisory board (SSB) and the religious aspect of the system restrains risk-taking.
But it is the simplified business model of a French institution that is of fascination here.
It brings me to ask why are the Islamic banking and Islamic finance models not working on these similar lines, and it is intriguing indeed.
I am talking about Bpifrance.
BPI stands for Banque Publique d’Investissement, a French investment bank. It is a joint venture of two public entities: Caisse des dépôts et consignations and EPIC BPI-Groupe.
Basically, Bpifrance assists businesses of all sizes although their primary market micro-enterprises, small and medium entreprises, and mid-caps.
But they also assist large firms that are considered strategic for France’s economy, territorial integrity or employment.
Bpifrance finance businesses, provide investments and cash flow needs such as seed capital, innovation aid, bank guarantees etc.
An example of its wider reach and innovative formulas is the fact that it is the first port of call for young biotechs in France.
It describes itself as “the bank of entrepreneurs”, offering €50,000 (RM239,500) loans to young businesses, as well as equity financing internally or in cooperation with venture capitalists.
Bpifrance also has a dedicated tourism fund. It participated in the funding of Paris-based adventure and extreme sports booking site Adrenaline Hunter.
It is not the fact that it funds, invests and participates in enterprises that make it awesome. As a bank, it is supposed to do just that but it is the fact that it supports startups from day one of their inception which is the uniqueness of this institution.
Speaking to Malay Mail in Paris, Bpifrance head of public relations Jean Baptiste Marin-Lamellet said the bank would even absorb the losses by failed startups, and that it has a 50-50 success rate in its efforts to back young innovative firms.
During the presentation, the bank indicated that it had its own criteria that it follows before it funds an entity, but it was clear that these criteria were not put in place to bar the institution from risk-taking.
It amazes one to see that France, the country of innovation (it is innovating at such a rapid pace that it is now moving alongside other innovation and startup centres in the world), has understood that it has to take bigger risks in order to succeed in the internet age.
While in the same breath, we know how tough it is for anyone to get assistance from Islamic banking or finance institutions in some countries.
In Bahrain for example, Bank Islam would go to great lengths in risk-taking, to the point of writing off loans, if they find out that the borrower is unable to keep up with its commitments.
But then, this is how they do things in the Middle East.