Reinventing the wheel

After the closure of CSFBdirect-eUnion and the scaling down of islamiq.com, ihilal, now the last online brokerage company in the middle east, has restructured its business and insists it is very much here to stay

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By  Massoud Derhally Published  June 3, 2002

|~||~||~|Following what appears to be the demise of the Islamic e-finance company IslamIQ.com, iHilal.com, its only competitor, says it has had to revaluate and reassess the way it will do business. The company has restructured its business into several segments, essentially moving away from being completely dedicated to the online delivery channel. “We are almost completely, I would say 95%, out of the direct consumer business,” says Ramzi Abu Khadra, CEO of what is now known as IHilal Financial Services, “and we are focusing on two revenue streams for the company.”

The new components of the newly restructured company include iHilal Portfolio Management Solution (iPMS), a turnkey technology solution aimed at banks, financial advisors and money managers, which iHilal hopes will help it acquire a new set of clients. The second element is the company’s strategy to focus on institutional clients and cater to the asset management needs of organisations.

According to Abu Khadra, iPMS will allow iHilal’s new clients to get complete access to a variety of Islamic products, using the web as an interface and providing online client record keeping. It will also allow them to place buy and sell orders online and provide complete cash management through the company’s regulated operation in Guernsey. “IHilal is regulated as a custodian in Guernsey, enabling it to actually handle cash as an iHilal nominee, something that IslamIQ has never come close to,” says Ramzi Abu Khadra.

The solution also allows iHilal Guernsey to do ‘KYC’ — know your customer — and anti-money laundering procedures on all customers that come onto the system. The company also handles all back office operations, including ordering, processing and clearing. IHilal’s new advertising campaign reflects all of these changes, says Abu Khadra.
The company has also hired Abdullah Najia, an ex-Nomura banker who used to oversee the institutional business for the Japanese bank in the Middle East, to head the new segment of its business, iHilal Institutional.

The institutional arm aims to scope the market for Islamic institutional products from all over the world and will include offerings such as real estate, leasing, private equity, private placement, and venture capital products. “iHilal has three criteria for screening: it carries out financial due diligence, Shariah due diligence, and makes sure that the product is highly regulated,” says Abu Khadra.

“If a product meets in-house criteria then it is offered to institutions from all over the world, including the Middle East, Europe and Switzerland that have large portions of Islamic money.” The difference between a year ago and today is that these deals are conducted in person, face to face. In instances where the market asks for a specific market category of a product that does not exist, iHilal helps structure the product. It then goes to a manufacturer that is one of the best manufacturers in that product category, giving it a mandate to structure the product according to Sharia guidelines and the placement possibilites that iHilal has assessed in the market.
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“We still have our online presence, but given market conditions, given investor attitude — like the shift from self directed investing to investing via financial advisors and money managers — we are no longer the company we used to be, absolutely not. We now work through intermediaries,” explains Abu Khadra.

“Intermediaries are the channels to go through for those that want to invest Islamically with financial advice. What we are giving these intermediaries is a one-stop shop that allows them to tap into and be able to access the Islamic financial space and turnkey solutions overnight,” adds Abu Khadra.

When asked about the number of customers and online transactions, Abu Khadra says, “We had thousands of people but hundreds of transactions. Just because a client is with you though it does not mean they are trading. The volume of online trading in the US decreased by 40% in 2001 relative to 2000, according to the Online Banking Report. Volumes fell down worldwide and like any other company in this space our volumes have fallen down.”

Restructuring the business was definitely a sound decision by iHilal. Market volatility in the US and a never-ending list of dot-com casualties was a clear indication that doing business on the internet is by no means a guarantee of commerical success. Last month, IslamIQ’s chief executive, Dr. Hasnita Hashim admitted that her company was struggling because it was only generating nominal revenue online.

Given what appears to be the demise of IslamIQ — once hailed a groundbreaking concept in Islamic finance — it is only natural for rumour mongering to intensify about iHilal being next in line. Some of those rumours include lay-offs and burning through US $40 million. Dispelling rumours that iHilal may be a sinking ship, Abu Khadra says, “We are currently recruiting personell that fit into our institutional needs as well as salespeople for the portfolio management solution. We have not even spent close to US $40 million, not even half of that.”

As to gossip that iHilal is deferring payment to suppliers and is in a legal battle with religious portal, Islamicity.com, Abu Khadra says iHilal had the option, not the obligation, through a contract with Islamicity to increase its stake in the site last year. “We decided not to exercise that option because we felt that the value that Islamicity.com was bringing to the table was not reflective of the cost of exercising that option, but we still have part ownership in the company,” says Abu Khadra. “Islamicity.com felt that we should have exercised that option and have given them non-contractual indications that we would exercise the option. However, contractually speaking, we have not defaulted on anything and are 100% in our legal bounds.”

On the issue of deferred payment, Abu Khadra says that, like any company in the Middle East or elsewhere, iHilal manages its cash flow and working capital, and the way iHilal manages its cash flow is by managing its payables and receivables. “Like many companies in this part of the world you try to work those [cash flow and working capital] out to the extent that you stretch one and minimise the other without generating any contentious issues to managing cash,” he says.

So is the company making any money today? “I am making top line money, meaning that the company is making revenue; it is not cash flow positive but at the same time there has never been a requirement for the company to break even at this time from the initial business plan,” explains Abu Khadra.The revamped financial services company dismissed the possibility of buying into IslamiQ.com. “We have looked at that and have dismissed that possibility. We do not see there is a value in what has been offered to us,” explains Abu Khadra.
IHilal insists that the prospects for both of its business divisions look good. The adoption of the iHilal Portfolio Management Solution is picking up rapidly, according to Abu Khadra. He says that the company has also made headway on the institutional side of the business, that it has assessed market requirements and that a market for its services exists. By Massoud A Derhally||**||

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