C A T A L I S

Strong SA Participation in Saudi Arabia’s First Independent Specialized Mortgage Finance Institution, with Market Cap in Excess of $500million

Riyadh - The International Finance Corporation (IFC), the private sector arm of the World Bank Group, today signed an agreement with Arab National Bank (ANB), Dar Al-Arkan Real Estate Development Company (DAAR) and Kingdom Installment Company (KIC), to create the first independent, specialised, Shariah-compliant housing finance institution in the Kingdom of Saudi Arabia. The deal, with a market capitalization in excess of $500 million, was conceived and brokered by Simon Stockley, founder and former CEO of SA Home Loans (SAHL), who has spent the last 18 months in Saudi Arabia, structuring the transaction, as an independent consultant.

“We are delighted with the outcome of some intense and at times, difficult negotiations,” says Stockley. “The result of the deal, in a challenging regulatory environment, has led to the creation of the Middle East and North Africa’s (MENA) largest specialist mortgage finance company. The ability of South African Mortgage Bankers to hold their own in the international arena is testament to the level of sophistication and evolution of the local market and our experience in operating in emerging economies,” Stockley adds.

The shareholders of the new venture include Arab National Bank, the Kingdom’s sixth largest commercial bank with an established track record in the consumer banking sector; Dar Al-Arkan Real Estate Development Company, the Kingdom’s largest residential real-estate developer and Kingdom Installment Company, the captive financing arm of DAAR and the pioneer of Shariah-compliant housing finance in the country. The planned initial capitalization of the Saudi Home Loans Company will be SAR2 billion (ca. US$533 million).

“We were able to lever off the experience gained in establishing SA Home Loans, by pairing up a retail bank, a developer, with an established retail footprint and the international technical skill and expertise of the IFC, to create a world class housing institution.”

By increasing the availability and affordability of housing, the new company, Saudi Arabian Home Loans (SAHL), intends making long-term mortgage financing available to Saudi locals in a Shariah-compliant manner, which is expected to promote home ownership to the middle and lower income segments of the Kingdom’s population, which are currently under-served in their access to housing finance. Current providers of housing finance have very limited programmes that do not meet the increasing demands of consumers particularly in structuring lending products that confirm with Shariah principles.

"We are delighted with the establishment of Saudi Home Loans Company,” says Jyrki Koskelo, IFC’s Director for Global Financial Markets. “Our investment provides a strong driver for the development of the nascent housing finance market not only in Saudi Arabia, but for the whole region. Without increasing the availability of long-term funding for housing finance, the lower-income segments of the market will continue to be under-served and denied the chance of home ownership.”

Michael Essex, IFC's director for the Middle East and North Africa adds, “The creation of the first specialized primary housing finance institution in the Kingdom will have a strong demonstration effect and will encourage replication of this initiative by other private sector players in the country. We expect that the entry of this kind of institution will stimulate competition among other local and international players, which will improve market conditions, choices for customers and the delivery of quality financial services.”

Technical assistance to the programme will be provided by Housing Development Finance Corporation (HDFC), India’s leading mortgage finance provider, who will train the new company’s management in the areas of credit risk management, operations and management information systems.

“This dynamic alliance between the parties will allow us to rapidly and aggressively expand our financing program so as to offer consumers greater choice and flexibility in respect of their housing finance requirements, continues Youssef Al-Shelash, Chairman of KIC. “For the first time Saudi consumers will be able to look to the collective skills and expertise of a leading retail bank, a specialist real estate finance company and the experiences gained in the South African market, to structure and make affordable Shariah-compliant financing solutions to purchase residential properties.”

Dr. Robert Eid, ANB CEO, says, “This project is an important part of Arab National Bank’s strategy to develop housing finance as a core growth sector for the bank and to develop and provide Shariah-compliant financing solutions to the bank’s clients in relation to purchase of homes. The insights and experiences learned form the evolution of other emerging property markets (such as in South Africa), will be a key determinant in the success of the venture.”

The area of Shariah-compliant housing finance (i.e. property finance that conforms to the principles of the Koran) is currently undergoing a phase of rapid growth and expansion with a number of local banks in South Africa establishing Islamic finance divisions to serve the demand of their customers for complaint lending products.

“One of the benefits of the transaction from a local perspective,” says Stockley, “is that we anticipate an inflow of technology back into the South African market which is currently undeveloped in respect of Sharia-compliant product.”

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