TBY talks to Jonathan Holley, CEO of Bank Alkhair, on the bright outlook for Islamic banking, the significance of the Turkish financial sector as a magnet for investment from the Middle East, and FDI.

Jonathan Holley
Jonathan Holley is the Head of Investment Banking at Bank Alkhair, responsible for the bank’s investment activities, including origination, post-acquisition management, and asset realization. He has gained over 20 years of transaction experience in emerging markets in South America, Eastern Europe, and the GCC region, serving in an executive or transaction advisory capacity, including at Andersen Consulting Brazil, Ernst & Young, Internet Capital Group, Matterhorn Capital, and Dubai Group. Between 1996 and 2010, he served as Practice Leader, Transaction Advisory at Ernst & Young in the US and Belgium, a Founding Team Member and Vice-President of Corporate Development at ICG Commerce, CEO at Jasper Asset Management in Dubai, and CEO at Dubai Group Tatweer Capital in Dubai. He is a licensed Professional Engineer with an MSc in Transportation Management from Northwestern University.

What is the appeal of Turkey for Gulf investors, and how does this determine your asset-allocation strategy?

Turkey has begun to represent stability, continued growth, and a strategic presence for the Gulf and its investors. We realize that there are areas in Turkey that could be purposeful investment destinations for the Gulf, and especially Saudi Arabia. Since the country abandoned self-sustainment policies three or four years ago, Saudi Arabia is now one of the largest commodity buyers in the world. Its businesses are acquiring farms and food-processing companies in order to establish direct food security. Considering the agricultural or food-processing aspects of the business, there are major opportunities. We have a food-related supply chain, and we're also active in the resort and leisure real estate arena. Up until the last three or four months, the Gulf, from an investment standpoint in real estate, has been pretty vacant, but Turkey has been excellent. We have many oil and gas investors. Since we are Gulf-owned and driven, in the framework of the purposeful investing philosophy, Turkey was found to be very strategic in the areas of food-related supply chain, leisure and retail, and energy. This is where we will be heavily focused.

How would you characterize the framework for foreign investors in Turkey?

The groundwork for investing here is wonderful. The government understands that in order to attract alternative capital, it has to harness the ability to earn alternative capital returns. Because the savings rate in the country is not high enough to create sufficient liquidity levels in the banks to invest, the government works to attract FDI. The government is making sure that it sets the rules to attract non-sovereign money. In this country, there's not a huge amount of capital available to borrow unless it is private FDI. The government knows that, and it is trying to promote FDI through a variety of mechanisms.

How would you characterize the demand for interest-free finance products in Turkey?

There was recently a sukuk launched by the government, and Turkey is now realizing that there is an appetite for this type of finance product. The appetite might be a little less than perceived, since a sovereign bond is very different from a corporate or a private placement bond, but it is there. We have a presence in Malaysia and a close relationship with Islamic players in that country. They came to us and asked to use our asset management window to create funds for their own placement in Turkey or in Malaysia. We were a pioneer in this industry, and though we would like to create funds for Turkey, I would be perfectly happy running funds for other people as well, since we know the market. It is common to have firm-run funds for other companies. The funds are doing well, and we have experienced another year of positives. Most investors will put their discretionary savings into equities, since most of the yields have money-market aspects. Sovereign rates are down, so even though people have a belief that they will get double-digit returns on everything, it's very difficult if you're involved in low-risk liquid investments. There is an incorrect belief here that in participation banks you get a discount, and a stigma that you will get less with sharia-compliant products, but that's not always the case—it depends on the nature of the funds.

What has made Alkhair a pioneer in its field, and what is your vision for the company over the medium term?

We are in the first generation of Islamic investment banks. Between 2003 and 2007, about 80% of the current Islamic investment bank initiatives were launched. There was a belief that a huge pool of capital was Islamic and wanted to be invested. However, about 75% of the starters failed because they were undercapitalized and did not have the geographic attenuation to invest with expertise. There is a core set of pioneers, such as Alkhair, which got into lending, asset management, and brokerage as a banking model with an Islamic brand. We have the first funds in Turkey and one of the first tradable sukuks in Saudi Arabia. It's been difficult and expensive because the market wasn't there—we had to create it. In 10 years, I expect us to be about three times this size. There might be a consolidation of Islamic investment banks by investment retail banks seeking investment expertise in Islamic banking, and many institutions will expand internationally as retail banks use heavy advertising campaigns globally. Alkhair Capital could be pulled into one of those trends, since we are broad enough and geographically present with the appropriate expertise, licensing, and the executives.