Muscat Finance (SAOG), the pioneer of non-banking financial services in the country, is celebrating its 25th anniversary this year. Visvas Paul D Karra traces the history and performance of this company in this special report.

Muscat Finance (MF) is the pioneer of non-banking financial services sector in the Sultanate having established itself in October 1987, under the leadership of HE Dr. Omar Zawawi. With a small capital base, MF made a humble beginning but today boasts of having constantly created value for its shareholders by excellent performance and high profit growth every year (except 1990, the year of the Gulf crisis). MF has an unmatched record of dividend payout right from its inception enriching its shareholders by providing significant returns.

As it celebrates its silver jubilee this year, MF officially unveiled a significant change to its corporate identity. The new logo embodies the dynamic spirit of the company that has pioneered the concept of hire purchase, equipment leasing and debt factoring in the Sultanate. A new tag line – ‘Enabling Dreams’ – eloquently summarises the continued promise of being an experienced and professional financial facilitator, fulfilling the dreams and aspirations of many families and businesses over the past two decades.

The new logo is an evolution from the distinctive form of an earlier one and bears testimony to the company’s pioneering status, consistency, dynamism, customer focus, improved products and the innovation that differentiates MF in this industry. The brand promise of ‘Enabling Dreams’ is a simple yet evocative phrase that captures the company’s proactive role in the improvement of lifestyle of local families as well as helping small businesses and enterprises to develop and compete in the business environment of Oman.

Milestones
The major shareholders at present are the Omzest Group, Al Yousef Group and Al Araimi Group. Having pioneered vehicle financing, MF has many firsts to its credit, like being the first to venture into consumer durables financing and equipment leasing. The company was also the first in the Middle East to launch debt factoring.

MF has a vision to be the most preferred finance company in the industry by consistently enhancing value to all its stakeholders. It seeks to contribute to the development of the national economy through innovations in financial products and application of new technology.

The hallmark of MF operations lies in its foresight, innovation, adaptability to change and its skilled Omani and expatriate human resources who have a combined expertise of more than 850 years of experience.

The company’s growth reflects the growth of all the clients whose hopes and aspirations it has helped to realise. It is a matter of great pride that it has more than 80,000 customers who have made the company what it is today. To date, it has disbursed cumulatively over RO422mn to its satisfied clientele. It has a national presence through its wide network of branches at Muscat, Sohar, Barka, Ibri, Salalah, Sur and Nizwa.

Presently, the products offered by MF include corporate leasing, debt factoring and working capital finance, auto finance and corporate deposits.

Enviable track record
According to Ajit Engineer, CEO, the company has been profitable from its inception and has achieved an enviable track record of uninterrupted dividend payments year on year. The company has till date paid cumulative dividends of RO30mn, which is more than four times the original capital infusion of RO7.4mn.

MF has a capital base of RO20.16mn and a net worth of RO26.84mn as of June 30, 2012. The company has always followed a strategy of remunerating the shareholders partly by way of stock dividend and partly through cash returns. This strategy of plowing back part of the profits, strengthens the capital base, provides comfort to lenders and also helps in increasing the capacity to borrow and lend.

In 1992, MF had 15-16 employees with a portfolio of around RO7-8mn. Today the company has a portfolio of RO120mn with more than 115 staff members. In the early days, MF had only one branch in Barka with five more being opened at Sur, Sohar, Ibri, Nizwa and Salalah. Along the way, the company has grown its portfolio with substantial developments and changes in processes, changes in IT systems, changes in experienced staff and introducing new products.

Says Engineer, “When I came in 1992, most of the business (around 99 per cent) was from car financing and remaining was the consumer durable financing (household appliances). Then we developed the corporate leasing product, equipment leasing and slowly introduced debt factoring, working capital etc. As we went on launching new products, some of the efforts which we put in to broad-base our portfolio have now become the industry norm. They get easily copied.”

Continuing further, he says, “We were the first to launch overseas debt factoring between Turkey and India. Such pioneering efforts, process changes, system changes and a conservative and strategic approach have enabled us to deliver superior performance year after year both in terms of assets and profits.”

Weathering competition
Nowadays, all the banks apart from the NBFCs have got into the auto-loan business as well, but MF has weathered competition since inception and managed the challenges posed by them. Over the quarter century, the company has gained substantial experience from multiple business cycles which has helped it to face competition from banks and other financial institutions admirably.

“Despite the economic slowdown, the Sultanate’s prudent fiscal policies, economy’s robust fundamentals and domestic growth drivers and the regulatory authorities’ continued close vigil ensured that the economy continued on the desired growth path. These measures helped us to cope with the challenges and gain experience from the business cycles,” says Engineer.

Today, MF is in an admirable position to capitalise on the opportunities of the coming years which includes the 8th Five-year Plan period where the government is expected to spend almost RO54bn. According to Engineer, a substantial part of government expenditure will be in sectors like oil and gas, health, education and non-oil activities which includes infrastructure projects. This is where a finance company like MF, which has got the required capital, finances, skilled manpower and the systems in place, can capitalise on in the next decade.

Cherishable achievements
Muscat Finance is completing 25 years of service to the nation. Your comments on this achievement

Muscat Finance is the first finance company incorporated in the Sultanate in 1987 and licensed under the banking laws as a non-banking finance company. The remarkable achievements of MF over the past 25 years are thanks to the vision of HE Dr Omar Zawawi, who is the main founder of MF and the first Chairman of the company. Our present strategy today continues based on the vision laid down by HE Dr Zawawi. On this special occasion of MF celebrating its 25th anniversary, I would like to wish HE Dr Zawawi long life and more prosperity.

I also convey my warm wishes to all the shareholders including our major shareholders the Omzest Group, Al Yousef Group and Siraj Investments. My warm wishes also go to our loyal staff, loyal customers and our dealers and bankers who are regarded as our partners in our journey.

Over the last 25 years, in the retail segment, we have helped individuals and local families by providing finance to own their dream car and household appliances to improve their quality of life. We have also nurtured many SMEs in achieving their business goals and growing up to be fairly large corporates. These customer relationships are what we cherish as the true achievements of serving the Omani society and economy over the last 25 years.

In the coming years, what are the opportunities that your company is looking forward to?
I believe MF is poised for more growth given the following factors:

Thanks to the wise policies of His Majesty’s government, Oman is one of the few countries that is expected to weather the storm of economic slowdown expected elsewhere in the world and in fact some readings expect Oman to experience the highest economic growth in the GCC in the next two years.

We are exploring possibility of expanding our funding options, which will enable us to provide even more economic solutions to our customers, thereby improving the feasibility and cashflow of their projects.

With the rise in the government expenditure as identified in the 8th Five Year Plan, we believe that SMEs (who are the main customer focus) will benefit substantially from these projects.

Our staff and partners
The Eighth Plan Period envisages substantial expenditures of approximately RO54bn and a majority of this spending would be requiring capital assets. We would be focussing on corporates in the major areas of expenditures of the government through direct marketing and mailers and conducting business events and seminars addressed to mid-corporate SME clients as well as other segments like oil & gas, healthcare, education, infrastructure, etc

MF has been known to support small entities in their growth. Your opinion on this

MF has always nurtured client relationships and many of our clients have grown with us over the quarter century. We have always had a decent share of the market and with trained manpower, branch network and infrastructure, we are well positioned to capitalise on the opportunities in the coming years.

We have nurtured many small and medium enterprises (SMEs) in their growing stages by providing them finances for all their needs. And of course we will continue to maintain our relationships with the SMEs but the biggest challenge facing the SMEs is cash flow management and housekeeping. But fortunately, we have a very good management team under the CEO which helps the SME clients to study the project feasibility and establish the right funding option for them.

What is your opinion about the performance of the company?
If you see our ratios, the returns on equity is one of the highest in the financial services sector. Consistency is our hallmark. Not many companies in the Middle East can boast of a consistent performance year after year with an upward trajectory both in terms of growth and profitability. MF has, till June 30, 2012, generated 14.91 per cent return on average networth, which is high by industry standards.

We have been paying dividend from day one and it is 25 years of uninterrupted dividends. We have distributed RO30mn of dividends since our inception. And the original capital injection including the rights issue which was done recently is around RO7.4mn. So roughly four times the capital has been returned as dividends and the current holding is also priced admirably well in the MSM.

Focus on helping business clients
What is the unique selling proposition of Muscat Finance?
We refreshed our logo along with a consumer-centric tagline “Enabling your Dreams” which illustrates our focus on helping our retail, SME and corporate customers to fulfill their dreams of growing into larger and more profitable businesses leading to enhanced prosperity. Thus “Enabling Dreams” is at the centre of all our endeavours and very close to our heart.

As deputy chairman, how long have you been with the company?
I have been with the company for about three years. Apart from being the vice chairman, I also chair the audit committee of the company. This audit committee is responsible for clearing all the results and whatever goes to the CBO. Essentially there are two committees. One is the executive committee which is chaired by the chairman and the other is the audit committee headed by me. Each has three or four members. So the complaints, the statutory audits, whetting the quarterly results all this is done by the audit committee. Certain things, depending upon the value, require board approval. So we also participate in that. But my committee concentrates more on the back end.

How is working with MF different from other companies?
I am on the board of other manufacturing companies and they don’t have a regulatory regime, whereas money lending is controlled by the Central Bank of Oman and they track you. And there are a lot of rules and regulations and CBO even has inspections every alternate year and they grade you. This is unique to finance industries like banks and insurance companies. So that is what makes finance companies, banks and insurance companies different. Whereas in manufacturing you don’t have these kinds of regulations although there is competition and challenges like sourcing out raw materials.

What are the challenges you face at MF and how do you overcome them?
MF was the first to start lending. But earlier, the dealers themselves were giving credit as far as possible. Quite recently we were the pioneers in factoring which is a very good method of financing, and at the same time, it is good business because factoring loans are self liquidative. So the initial acceptance for factoring was little slow but once it caught on, people understood and saw how easy it operates for both the lender and the borrower.

But we do face challenges. Firstly, competition from foreign and local banks as well as the finance companies. Secondly, the ups and downs of the economic cycles. The third is consistency in improving our performance year on year. Because you are plowing back your profits, so capital is enhanced. Then, on an enhanced capital you have to deliver superior returns and this poses a challenge. But we have surpassed all expectations.

Moreover, introducing new products and making profits and making them work are also challenges. These are some pioneering challenges. Today it is very easy to do business through a product which is already in the market. But the pains and challenges of introducing a new product is a task which we have successfully done.

Many of our pioneering efforts have become the industry norms. Some new ones will keep coming, but the challenge is to rise to the occasion and swim even in difficult waters.

Tremendous opportunities and potential
What is the split between corporate loans and car loans business? Has it changed over the years?
Muscat Finance commenced operations in 1987 purely as a car financing company. Over the years, it pioneered and introduced many products to diversify its portfolio and offer a comprehensive range of financial services to our valuable customers. In line with the development of the economy under the wise leadership of His Majesty, the company also made substantial foray into corporate business. Currently our portfolio is equally divided between retail and corporate.

The corporate segment primarily consists of leasing equipment. Secondly we are giving working capital financing and factoring. Over the last 25 years, we have nurtured many SMEs to become large corporates and we take pride in the fact that many SMEs started their businesses by taking loans from us. Our corporate and SME businesses are currently doing well and with the pace in the economy picking up, we see a bright future ahead in these segments.

There are a number of SME success stories which have happened thanks to MF. What is your opinion about SME financing?
MF is of the strong belief that SMEs play an important role and are key contributors to the economic growth of any developing economy. With substantial infrastructure development taking place in the country, there is a tremendous potential to set up new business and expand the existing ones. In view of this, we take pride in having clients who have started businesses with their first loan from MF and have grown over the years.

What are your competitive advantages?
Some of our competitive advantages include the fact that we are the oldest NBFC in Oman and pioneers in hire purchase, leasing and debt factoring in Oman. Among other advantages, we have a well qualified and trained manpower and a well established and well connected branch network in all the six regions of Oman. Our brand image, a large customer base and our customer loyalty are second to none.

How long have you been with MF?
I am currently the chief marketing officer of Muscat Finance with overall responsibility for marketing. I have been with Muscat Finance for about three years and my focus is to grow the company by making it more consumer-centric. After my post graduation in marketing and finance from the Indian Institute of Management, Calcutta, I have acquired more than 25 years of experience in financial services including various senior leadership assignments across diverse businesses covering all areas of operations. My previous assignment was as vice president and business head with a global leader in banking and financial services and prior to that as CEO of a finance company in India.

Human resources important for us
As one of the founding member of Muscat Finance, how do you feel after completing 25 years?
I joined the company in 1987 as manager, administration. We have worked hard to bring up the company to the present level. When MF was established it was just for hire purchase of vehicles then we branched out into other activities like electronic and furniture financing. Since the inception of the company, I have been heading the credit and administration functions of the company.

Prior to MF, I served 16 years in the Royal Oman Police as a Lt Colonel and was the Dy Commander and Acting Commander of Police Academy, Nizwa; Dy Commander of Purchasing & Supply; Commander of Hafeet Division; Commander of Seeb Division and Dy Director General of Operations.

Omanisation is both an opportunity and a challenge. Your comments
MF clearly recognises and accepts the fact that human resources is our most important resource and asset. This is reflected in the quality and skills of our staff which always command a premium in the market. The board of directors (BOD) formed an HR committee which reviewed the existing practices and provided directions in enhancing skills, retentions and developing the human resources of the company. In consultation with an external HR consultant, the BOD implemented the following:

Introduced employee grading structure with increase in salary, bonuses and introduction of COLA

Training and development plan for Omani nationals (two batches of 20 Omanis trained for an extensive 10-week programme at the College of Banking & Financial Studies)

Educational scholarship schemes to encourage Omani nationals to acquire a graduate degree and equip them with skills and knowledge to take managerial responsibilities

Covered all Omani nationals under medical insurance scheme

Subsidised car financing scheme and increased the fuel allowance

Interest-free short term loan of a reasonable amount to meet emergency requirements such as health, education, marriage or deaths.

The above initiatives and on-going welfare activities for our Omani staff have helped sharpen their skills, and improved their performance as well as ensured retention and loyalty. The company has always adhered to the directives of the regulatory authority and policies of the government to abide by the Omanisation targets set from time to time.

In terms of Omanisation, we are at 78.69 per cent right now. But, from the beginning, we have aimed to keep the percentages higher than what is required by the government. When the ministry of manpower introduced green card, we were among the first to get that card, thanks to our Omanisation percentages.

Do you face any challenges like employee turnover?
The government has announced a number of job vacancies and the people are hunting for those jobs. In government they may have less salary but they look at timings because they finish at 2.30 pm and then they can go and play football. And also the odd weekends are a hindrance. If they feel that they are getting better facilities somewhere else, they will not stay.

What attracts employees to MF?
The most important thing is our reputation of being the pioneer in the non-banking financial sector.