Branson’s Virgin Mobile Finances Mideast Expansion With Shariah Financing
By Kathleen Caulderwood
on June 03 2014 3:34 PM
A branch of Virgin Mobile has
secured $15 million in Shariah-compliant financing as part of a recent push for
expansion across the fast-growing mobile markets in the Middle East and Africa. Islamic
financing is becoming mainstream these days, as many foreign investors seek to
gain a foothold in some of the world’s most dynamic markets.
While not a requirement, Islamic
banking is certainly “a smart and practical political choice,” for foreign
companies like Virgin that plan to work in the region, according to Saf
Elmansour, Middle East and marketing expert adviser at consulting firm Frontier
Strategy Group. Shariah-compliant financing is in accordance with Islamic
principles, which includes no interest being charged on loans.
“Financing does not necessarily
have to be Shariah-compliant but every effort is made to transition the
majority of the financial sector towards Islamic banking and finance,” he said,
adding that “it certainly looks better to the authorities, the religious elite,
and the public.”
The money for Virgin came from the
Bank of London and the Middle East (BLME,) the largest Islamic bank in Europe,
as part of a Murabaha agreement, one of the most popular types of
Shariah-compliant transactions.
Unlike an interest-bearing loan,
it’s similar to a “rent-to-own” agreement, in which the intermediary maintains
ownership of the property until the loan is fully paid back, and is often used
in asset-based financing.
Virgin Mobile Middle East and
Africa (VMMEA), is actually a holding company owned partially by billionaire Richard
Branson’s Virgin Group, along with
substantial stake for the Gulf Investment Corp., which is wholly owned by the
Gulf Cooperation Council (GCC) countries of Saudi
Arabia, Kuwait,
Qatar, Oman, Bahrain
and the United Arab Emirates.
VMMEA is a mobile virtual network
operator, which means it doesn’t own the networks it uses, but leases them from
conventional operators.
In March, it successfully bid for
one of three licenses from the Communications and Information Technology
Commission of Saudi Arabia. All three foreign firms were partnered with local
providers in a move the regluator said would help increase market competition
in the otherwise nationalized market, according to Reuters.
“I am delighted that we are able
to bring the Virgin Mobile experience to our Saudi Arabian customers,” said Virgin CEO Richard Branson in a public statement at the time.
“I look forward to hopefully
sharing further exciting announcements across the region as we develop in the
business.”
Soon after, more than 35,000
people applied for jobs, something that Virgin Mobile Saudi CEO Karim Benkirane
called “unprecedented.”
The company was first formed in
2006 and renamed in 2012 after partnering with Dubai-based FRiENDi Group, with
plans to launch in more markets across the Middle
East and Africa, targeting a customer base
of at least 5 million subscribers by 2015.
“The new group has ambitious plans
to further strengthen its regional leadership position by launching in more
markets across the Middle East and Africa, and is targeting a regional customer
base of over 5 million subscribers by 2015 across both the Virgin Mobile and
FRiENDi mobile brands,” according to a Virgin spokesman.
The firm now operates in Jordan, Oman
and South Africa.
Last year, VMMEA launched telecom services in Malaysia, another fast-growing
market where mobile penetration passed 100 percent years ago, with an expected
user base of 50 million people by 2015.
Malaysia is also one of six fast-growing markets for Islamic
finance and home to the second-largest Islamic bank. Shariah-compliant banking
assets topped $1.7 trillion last year, a rate that will likely jump to $3.4 trillion by 2018 according to research
from Ernst&Young.
“Islamic banks have played an
important role in financing infrastructure projects in Muslim countries, and
have been a source of funding for foreign companies and joint ventures
operating in the Middle East and Asia,” according to a report from the Council
on Foreign Relations.
Virgin Mobile is based in the United Kingdom and also operates in Australia, Chile,
Colombia, Canada, France,
India, Poland, South
Africa and the United States. For the quarter
ending in March 31 this year, its mobile sector had 2,998,500. Mobile
subscription revenue represents 11 percent of total revenue, up 5 percent from
the same quarter a year earlier.
And if plans in the Middle East go through, the benefits can only grow. Cisco
predicted that the number of mobile phone users in the Middle
East and North Africa (MENA) region is growing at an average rate
of 77 percent every year to reach 850 million in 2017. The region led the world
in terms of mobile data growth, with an increase of 107 percent in 2013.
But there are other
considerations.
“Saudi -- not Iran -- is the
most conservative Muslim country in the world by a long stretch. As a result,
almost all aspects of life operate according to Islamic jurisprudence,” said
Elmansour, adding that it regulates everything from politics and economics to
diet and hygiene.
So far, it seems that the Virgin
brand name hasn’t had any problems. Its website has been up for a few weeks,
and all the regional branding appears to be final.
“Surprisingly, it seems they will
be operating under the Virgin brand … for now. We’ll see if the [Kingdom of Saudi Arabia] religious elite changes
its mind,” Elmansour said.
Richard Branson
Richard Branson
is a co-founder for The Elders, the
founder of the Virgin Group, and the
founder of Virgin Money.
Note: Martti Ahtisaari
is a member of The Elders, and the chair
emeritus for the International Crisis
Group.
Lakhdar Brahimi
is a member of The Elders, and was a
board member the International Crisis
Group.
Kofi
A. Annan is the chairman for The
Elders, a board member the International
Crisis Group, an overseer at the International
Rescue Committee, and a trustee at the Carnegie
Endowment for International Peace (think tank).
George
Soros is a board member for the International
Crisis Group, and was the chairman for the Foundation to Promote Open
Society.
Foundation
to Promote Open Society was a funder for the International Rescue Committee, the Carnegie Endowment for International Peace (think tank), the Millennium Promise, and the Brookings Institution (think tank).
Jimmy
Carter was an honorary co-chairman for the Millennium Promise, is a member of The Elders, and a co-founder & trustee for the Carter Center.
Alwaleed
Bin Talal Foundation is a benefactor for the Carter Center,
and the Islamic Development Bank.
Alwaleed bin
Talal is the founder of the Alwaleed
Bin Talal Foundation, and the prince of Saudi Arabia.
Wilbur L. Ross Jr.
is a trustee at the Brookings
Institution (think tank), and an investor in Virgin Money.
Cyrus F.
Freidheim Jr. is an honorary trustee at the Brookings Institution (think tank), and a member of the Commercial Club of Chicago.
Valerie B. Jarrett
is a member of the Commercial Club of
Chicago, the senior adviser for the Barack
Obama administration, and her great uncle is Vernon E. Jordan Jr.
Vernon E. Jordan Jr. is Valerie B. Jarrett’s great uncle, an
honorary trustee at the Brookings Institution (think tank), a director
at the American Friends of Bilderberg (think tank), a senior counsel for
Akin, Gump, Strauss, Hauer & Feld,
LLP, and a 2008 Bilderberg conference participant (think tank).
Akin,
Gump, Strauss, Hauer & Feld, LLP is the lobby firm for the United
Arab Emirates.
William A. Rugh
was the U.S. ambassador for
the United Arab Emirates, and is a
director at the Middle East Policy
Council.
Abdallah
Bin Abd Al-Aziz Al Saud is a benefactor at the Middle East Policy Council, and the king of at the Saudi
Arabia.
Chas. W. Freeman
Jr. was the president of the Middle
East Policy Council, a U.S.
ambassador for Saudi Arabia,
and is a trustee at the Carnegie
Endowment for International Peace (think tank).
Kofi
A. Annan is a trustee at the Carnegie
Endowment for International Peace (think tank), and the chairman for The Elders.
Richard Branson
is a co-founder for The Elders, the
founder of the Virgin Group, and the
founder of Virgin Money.
Wilbur L. Ross Jr.
is an investor in Virgin Money, and
a trustee at the Brookings Institution
(think tank).
Jessica Tuchman Mathews was an honorary
trustee at the Brookings Institution (think tank), is the president of
the Carnegie Endowment for International Peace (think tank), a director
at the American Friends of Bilderberg (think tank), a board member the International Crisis Group, and a 2008 Bilderberg
conference participant (think tank).
Ed Griffin’s interview with
Norman Dodd in 1982
(The investigation into the
Carnegie Endowment for International Peace uncovered the plans for population
control by involving the United
States in war)
Martti Ahtisaari
is the chair emeritus for the International
Crisis Group, and a member of The
Elders.
Richard Branson
is a co-founder for The Elders, the
founder of the Virgin Group, and the
founder of Virgin Money.
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