Home Loans for the Islamic Market

The Islamic banking sector has seen considerable growth over the past few years, alongside increasing demand for residential home ownership in countries like Saudi Arabia. We spoke to Abdulellah Al Shaikh – CEO of Saudi Home Loans Company (SHL) about these changes, and how their business model has worked with phenomenal success.

The Islamic Banking Sector (called participant banking) has seen significant growth in recent years. Ernst and Young (E&Y), in their 2016 report ‘World Islamic Banking Competitiveness’, showed the assets of Islamic banks growing at an average rate of 14% per year between 2008 and 2012. Islamic banks or participant banking accounted for 51.2% of total banking space in Saudi Arabia.  E&Y predict that the sector will continue to grow over the coming years.

Islamic banks differ from conventional banking in that they have to operate in a way that is compliant with Shari’ah law. They are not permitted to deal with businesses that are considered sinful (such as businesses dealing in pork, alcohol and gambling), and perhaps more importantly, usury is banned, so they can’t charge fees or interest from loans.

So how to these banks make money, and how can we account for their huge success in recent years?

We talked to Mr Abdulellah Al Shaikh, CEO of Saudi Home Loans Company (SHL), about the growth of Islamic banking sector and why there is such strong demand for their home loans product.

Let’s start off by talking about your business model?

Saudi Home Loans (SHL) was founded in 2007 as the first finance company in the Kingdom of Saudi Arabia to specialise exclusively in providing home finance solutions to citizens and expatriates wishing to buy residential property in the region.

We are now celebrating its tenth year in business, and we are proud of the achievements we have made so far, which I credit to our client focused approach and commitment to excellence throughout the process.

Despite the challenges and difficulties faced by the company, our assets portfolio has always shown higher results compared to our peers in the market. It has increased significantly during the last few years to reach a net book value of SAR 4 billion.

Another key aspect of SHL’s service offering is that all of its finance solutions are Shari’ah compliant and certified by a highly respected Shari’ah Supervisory Board, giving clients the reassurance that their home purchase is consistent with Islamic principles.

The firm is also licensed and regulated by the Saudi Arabia Monetary Authority (SAMA), so clients can rest assured that they are receiving a service that is in line with their beliefs. This oversight is particularly vital, as it has helped SHL to grow as a leader in this rapidly evolving market.

How does your business model work?

Under Islamic Ijara, the client has the option to select and identify the property he or she wishes to purchase and agree with the seller on the purchase price. If all property and loan conditions were met, then SHL purchases the property from the seller and leases it to the client with promise to sell agreement.

Only the client has the right to use this property against monthly affordable rental payments, and after completing the term of the leasing contract the title of the property will be transferred to his or her name.

How do you account for your phenomenal success?

In the almost ten years that SHL has been operational, we have helped more than 8,000 customers realise the dream of owning their own home.

Our success is due to the determination of our shareholders that from day one, SHL should differentiate itself through the quality and consistency of its customer service. Moreover, we focus exclusively on the residential home purchase market. SHL offers home finance throughout the Kingdom, and we are recognised by real estate brokers and other industry professionals for the flexibility of our client proposition. We have a finance solution for almost any scenario.

We have built a strong team of colleagues that put the client first in everything we do and ensure that the home buying experience is as straightforward as possible.

Because our commitment to customer service is at the heart of our proposition we always aim to give speedy and consistent decisions on the applications we receive.

What can customers expect from you?

Our team of more than 40 Home Finance Consultants are trained to help prospective clients to find the right home finance solution for their needs. So whether you are looking to buy your first villa or apartment, wish to trade up to find a larger property for your growing family, or perhaps want to buy land and build your own home, SHL will have a solution for you.

Once the home finance application is received, our back office teams set to work to give a decision and then move to complete the purchase as quickly as possible, keeping our client informed of progress at every stage.

We understand that buying a home is often the largest financial commitment someone will ever make in their life, so our aim is to make that decision, and the process that follows it, as easy and stress-free as possible.

Our commitment to service doesn’t end when the property is finally purchased. We have an award winning Client Service team that supports clients throughout their time with us (we offer home finance terms of up to 30 years), and much of our new business referrals come from existing clients who have recommended SHL to their colleagues, family and friends.

We’re big on data, and we do regular surveys of recent and longstanding clients to measure satisfaction and to seek feedback that will help us to improve and evolve our standards.

How has the home loans sector changed in recent years?

The sector has grown a great deal over the decade since SHL was established. The demand for residential property in Saudi Arabia is large and growing as the youthful population have a great desire to own homes of their own.

As in all property markets, transaction prices will fluctuate over time. But SHL takes a long-term view of the Saudi market, and because of our exclusive focus on residential property, our appetite for supporting the home ownership ambitions of Saudis is not diminished by such price fluctuations. Indeed, our main credit criteria when assessing a new application is about the client’s ability to afford the monthly payment alongside their other commitments, and not the underlying value of the property itself.

As the Saudi residential real estate market is relatively new and it is still developing, over the coming years we expect there will be tremendous growth in the number of property developers and the volume of new properties being built and sold.

Likewise, the supporting industries such as real estate brokerages, surveying and valuation companies, property management and maintenance companies will all change, brought about by both buyers needs becoming more sophisticated and as SAMA or other bodies introducing regulations to standardise aspects of these services.

SAMA regulation of the home finance sector in 2014 was a positive step for our industry. As one of the first finance companies to apply for and be granted a licence, we are committed to working with SAMA to ensure compliance with their regulatory objectives and to help them develop new standards for the mutual benefit of clients and the sector.

SHL will continue to work to improve the robustness and professionalism of the sector for the good of all.

What are your plans for the future?

Looking to the future, remaining at the forefront of industry innovations will be the firm’s core focus as it works with leading regulatory bodies to ensure that it is at the cutting edge of the real estate finance market, and meets the ever evolving needs of its clients.

Moving forward, we expect to make other enhancements to our product range later this year and into 2019. These will help simplify the home buying process, increase the choice of repayment options and allow our proposition to be even more tailored to the needs and circumstances of individual clients. A bespoke service rather than one size fits all solutions is the future for our industry.

Over the upcoming year, a core aspect of our 2018 plans is that we will be working closely with the Real Estate Development Fund (REDF) as they roll out their programmes to assist Saudis with home ownership.

SHL and the REDF have been engaged for several months with these plans, and SHL is a priority partner in the launch of the REDF subsidy programme and Al-Rahan Al-Moyassar programmes. The REDF shares our passion for this vital aspect of the Saudi Arabian economy, and we are committed to working together in its development.

Ultimately, the prospects for SHL are very strong. With the resolute backing of our shareholders, the encouragement of our clients and the ongoing enthusiasm and professionalism of our colleagues, we are set to make the next ten years of our history even better than the first ten.