Marketing & Advertising in the Brunei financial world

Noticed how busy banks in Brunei had been with their adverts over the past few months?

Whether it's a new financial product, a prize-giving ceremony or a financial counselling service, it's not surprising that huge amounts of money are spent in the marketing department, considering the growth of the financial sector in Brunei.

Ok, here's a quick quiz. After oil and gas, what is the next sector that is dominant in Brunei? Take a guess from the following list:

1. Business services
2. Real estate & ownership of dwelling
3. Wholesale & retails sector
4. Construction sector
5. Finance sector

Well, actually, the above list is the top 5 growing sectors after oil and gas. Noted from the Brunei Economic Statistical Yearbook of the Department of Economic and Planning Department used by the International Monetary Fund, these 5 sectors had an annual nominal GDP growth rate of around 3% (on average) between year 2000 & 2005.

Following those statistics, the table below shows the nominal GDP growth percentage of these sectors over the five years.










While the top 4 has it's own interesting stories, the finance sector is the one that interests me. The many different marketing approaches & adverts that banks in Brunei put up in newspapers etc., in my opinion, are signs that the banks are getting increasingly competitive. Here are my reasons why I believe this is the case.

1. Relatively high Gross National Income (GNI) & Gross Domestic Product (GDP) Stats:
The WorldBank Development Indicators puts Brunei in the 'High Income' category based on 2004 Gross National Income (GNI) statistics. Combine that with the 2006 per capita GDP, estimated at around B$49,000 (See the 2006 Key Indicators) which is roughly at US$30,000, these two stats generally indicate Brunei as a relatively well-off country with Bruneians in general, able to purchase more goods & services than some other countries. That must be good for the economy, right?

2. Regulations on personel lending:
Year 2005 saw the Ministry of Finance's (MOF) intention to curb back on personal loans (to a maximum of 12 times the monthly salary), which is not surprising considering the amount of loans that goes bad which according to the International Monetary Board is somewhat high (See para 3). So if there are fewer personal loans than in the past, how can banks make more money?

3. Investment opportunities on the rise:
The issuance of short-term MOF Sukuk, Brunei Liquidified Natural Gas Sukuk and Baraka Investment Deposits are clear initiatives to get Bruneians to investment in Shariah-complaint funds. Financial counselling and consultancy has also been highlighted in some banks to get Bruneians to consider saving and investing in their banks.

Overall, these three points means that banks in Brunei will have to be more competitive and fight it out to get customers.

What does this mean for the average bank customer? In my opinion, this means that Brunei bank customers must ask some interesting questions to the bankers, not just because it's important to know what happens to our money but more important that we are clear on what the costs and other terms & conditions are. This is critical because once we've put our money in the bank, the costs to withdraw/cancel/change may turn out to be very costly.

So the next time we go to the bank to ask about that new product, let's ask some interesting questions. What have we got to lose?

What is the difference between Islamic finance & Conventional Finance?

In the past, there are some questions that friends & acquiantances frequently ask me. Aside from the 'So when are you getting married?' question that some people like to ask (which I must say, is an attempt to see me squirm), other questions are somewhat simpler to answer. This includes that question, 'So what's the difference between Islamic finance and non-Islamic/conventional finance?'

Some people may answer by saying, 'In Islamic finance, interest is forbidden'. That is true because without a doubt, interest is forbidden in Islam but with every prohibition in Islam lies a fundamental reason or effect. And one must understand this effect or reason to appreciate the difference between Islamic finance & conventional finance.

My short version in the prohibition of interest is that it's exploitative because it caters for one side to be at a distinct advantage over another. One side will have their money back guaranteed while the other has to sweat and work hard to make sure he can pay back. Is this fair?

(For a detailed macro-outlook on the effects of riba, check out Taqi Usmani's writeup on the prohibition of riba in Pakistan [Note: See p. 42-47).

An interesting scholar, Umar Chapra in, ‘Towards a Just Monetary System’, says that from the Qur’an and the Hadith of Prophet Muhammad, Muslims are given principles to know what is fair and unfair, or what is ‘justified’ and ‘unjustified’, when it comes to one’s earnings. He goes on to say,

“One of the important sources of unjustified earnings is receiving any monetary advantage in a business transaction without giving a just countervalue.”

So my answer to the difference between Islamic finance and conventional finance is that Islamic finance is fair. Islamic finance advocates financial products that provide 'just countervalues'. In other words, Islamic finance aims to get rid of any unjustified or exploitative financial situation, product or service...not just in a loan transaction but in any bits that are unfair or exploitative in the financial world.

The outcome of this simple aim is asset-backed financial products that provide a ‘just countervalue’ for all parties. If you've read Taqi Usmani's book, An Introduction to Islamic Finance, he describes asset-backed financing as financing which creates real assets...which can then be sold for money and consequently, earns a justified profit.

This is very much different from conventional systems that make money out of money (that is 'interest').

In other words, in Islamic finance, there is an asset that creates the profit, not 'Money + Interest = More money' but 'Money + Asset/Real factor of production = More money'.

[Unfortunately, in the past, I've never been able to answer this question in the manner above, whether it's because of the time constraint that we're in (e.g. In the middle of a meeting or tea break) or I couldn't articulate it in the same manner].

After explaining my answer to friends and acquaintances...I normally catch a glimpse in their eyes or their body gesture that says, 'I understand what you're saying but what about the loans that Islamic banks gives out'.

Hmmph. To be honest, the use of Bai Bithaman Aajil (BBA) and Murabaha in Islamic finance especially for loans hasn't helped me in this explanation. This is a controversial concept where perhaps the implementation has been taken lightly in some institutions.

As I've already rambled on here, I will probably probably discuss BBA some other time. However, anyone interested to read up on BBA/Murabaha could read up Justice Taqi Usmani's writeup on the matter (See #6 & 7).

Till next time.

Saving for retirement

This week, I've been reading on savings in some OECD (Organization for Economic Co-Operation & Development) countries and it seems that savings had generally declined over the years. If people aren't saving as much as they used to, that means spending and/or borrowing has gone up. Everytime I read articles on savings/investing vs. spending/borrowing, I get worried. Have we saved enough for our future including retirement?

I recall reading a book written by Azizi Ali (a finance coach) and how he scared me, by highlighting that if I don't save enough, who's going to support me after retirement. If I have children, do I want to them to financially support me?

Now, that made me think. We, in Brunei are culturally blessed that we take care of our parents and financially support them but I would prefer that in my old age, I'd be financially dependent and let my children enjoy their own finance. And let's not talk about TAP (Brunei's Employee Provident Fund). For now, let's just say that having a TAP account does not guarantee they'll be enough money for retirement.

In Brunei, although no real savings issues had been highlighted, it's evil brother 'Debt' had in the past made news headlines. Year 2005 saw the Ministry of Finance make regulatory changes, restricting personal loans to a maximum of 12 times the monthly salary. Even a Friday sermon that year, highlighted this debt problem, as noted by Brudirect where in that sermon...

"...imams quoted a report saying Bruneians are the largest indebted society in the region and stated that most of the people are in debt to the tune of 60 per cent of the family income."

On the whole, while these 2005 events are helpful to jolt us, I keep thinking, 'Have we saved and invested enough for our retirement, or to leave some inheritance for our children?'

No information on the internet?

Does anyone realize how difficult it is to find certain information on the internet?

Over the past few months, I've been collecting information for work-related purposes and it's been a hassle because the things I want to know about is difficult to find. I have also come across people who tried to find some of these information online and were unsuccessful (I'm glad I'm not the only one...Yesss! There is a nerd in all of us).

Fortunately, I had bookmarked some of those webpages and I'll share some here. This information I keep mentioning includes bits about finance (written in a simple way), Islamic finance (an aspect of finance that is interesting), Islamic finance in Brunei (that's where I'm from & Brunei is not in the Middle East or Africa) and other random bits & pieces that I feel like knowing about.

So while sharing this information around, please let me know if I missed something out on finance or Islamic finance in Brunei, or mentioned something incorrectly here.