Dubai Technology and Media Free Zone Authority
ISSUE 99
T H E A U T H O R I TAT I V E V O I C E O F I S L A M I C F I N A N C E ISSUE 99 ENSURING A BETTER FUTURE Mohammed Qasim Al Ali, CEO, National Bonds
ENSURING
A BETTER FUTURE Mohammed Qasim Al Ali, CEO, National Bonds A CPI Financial Publication
PLUS:
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TECH:
The great enabler
SUKUK:
SRI in Malaysia
AWARDS:
The Islamic Business & Finance Awards 2016
18/09/2016 17:12
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CONTENTS
ISSUE 99
REGULAR SECTIONS
EDITOR'S LETTER
12
Greetings, all
W
elcome to our latest issue of Islamic Business & Finance. Th e d a t e i s f a s t approaching. The Islamic Business & Finance Awards 2016, for the 11th time, will be returning to Dubai. For a look at this year’s categories, please take a look at page 10! This issue is packed with news, analysis and case studies from across the Islamic economy, and across the globe. In our cover story on page 12, National Bonds shares details on its recently introduced Takaful-based product Sanadi. Malaysia and Indonesia took the opportunity at this year’s World Islamic Economic Forum in August to announce multiple initiatives that will see greater collaboration on Islamic finance between the two nations. And in Africa, Sukuk is on the rise, with Togo making its first issuance. Beyond that, there’s plenty more to peruse. I hope you enjoy digging into another great issue. Until next time,
NEWS & ANALYSIS
6
40
NEWS & ANALYSIS
OPINION
8
INTEGRATING THE ISLAMIC ECONOMY
COVER INTERVIEW
12 ENSURING A BETTER FUTURE
Mohammed Qasim Al Ali, CEO, National Bonds
44
SUKUK
40 SRI SUKUK IN MALAYSIA TAKAFUL
44 MAKING TAKAFUL MORE ACCESSIBLE IN UAE
DIARY & MARKET WATCH
William Mullally www.islamicbusinessandfinance.com
page 3-4 contents99.indd 3
7 MARKET WATCH 50 DATES FOR YOUR DIARY Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.
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CONTENTS
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ISSUE 99
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PRODUCT FOCUS
AWARDS
10 THE 11
32 TECHNOLOGY IS THE
ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS TH
GREAT ENABLER
HALAL BUSINESS
COUNTRY FOCUS: UAE
36 BRINGING SHARI'AH TO
18 UAE ISLAMIC BANK
SOCIAL BUSINESS
ASSETS STILL GROWING
THE INSIDE STORY
22 EIBFS
46 TIMEZ5’S NASA-CERTIFIED
Reducing The Labor Gap
PRAYER MAT
SPECIAL FEATURE
36
28 MALAYSIA REAFFIRMS COMMITMENT TO ISLAMIC FINANCE
30 MALAYSIA AND INDONESIA COLLABORATING
Get the next issue of Islamic Business & Finance before it is published. Full details at www.islamicbusinessandfinance.com ISSUE 99 Dubai Technology
and Media Free
Zone Authority
Dubai Technology and Media Free Zone Authority
Dubai Technology and Media Free Zone Authority
ISSUE 96
ISSUE 97
CPI FINANCIAL FZ LLC P.O. Box 502491, Dubai Media City, Dubai, UAE Fax: +971 4 390 9576
R I TAT THE AUTHO
Qasim FUTURE HisMohammed Al Ali, CEO, National Bonds
ENSURING
A BETTER FUTURE
ON TRACK
ENSURING SUSTAINABLE GROWTH Islamic finance in Pakistan looks to continue its upward trajectory
ON TRACK FOR PROJECTED GROWTH Ghulam Muhammad Abbasi, Director, Islamic banking, State Bank of Pakistan
ENSURING A BETTER
ENSURING SUSTAINABLE GROWTH Islamic finance in Pakistan looks to continue its upward trajectory
FOR PROJECTED GROWTH Ghulam Muhammad Abbasi, Director, Islamic Banking, State Bank of Pakistan
National Bonds ed Qasim Al Ali, CEO,
Mohamm
PLUS:
TECH:
Analytics for Africa
SUKUK:
A record quarter
TAKAFUL:
Overcoming challenges
A CPI Financial Publication
A CPI Financial Publication
@IBFMag on Twitter for stories as they're being told
ISSUE 96
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Islamic Business & Finance | ISSUE 99
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A CPI Financial Publication
© 2016 CPI Financial FZ LLC All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the Managing Editor.
PLUS:
TECH:
The great enabler
SUKUK:
SRI in Malaysia
TECH:
Bringing Islamic finance to the cloud
SUKUK:
2016’s expected issuance
TAKAFUL:
Bolstered by sovereign issuance
12/04/2016 17:56
AWARDS: Business
The Islamic 2016 & Finance Awards
14/09/2016 17:11
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15/09/2016 09:45
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M
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CM
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NEWS & ANALYSIS
Bursa Malaysia Berhad launched Bursa Malaysia-i, delivering an end-to-end integrated Islamic securities exchange platform that offers investors the choice to invest and trade Shari’ah-compliant products via a Shari’ah-compliant platform. The shift towards ethical or value-based investing is growing and indeed evident in Malaysia, particularly the demand for Shari’ah investing. Bursa Malaysia-i thus offers investors the choice to invest with their beliefs and invest Shari’ah-compliant from end-to-end. This will elevate the visibility of our marketplace and Islamic POs across ASEAN and on the global stage. DATUK SERI TAJUDDIN ATAN, Chief Executive Officer of Bursa Malaysia
A year has passed since an agreement was made to ease sanctions on Iran. In this new normal for Iran, what can we expect from its contribution to global Islamic finance? The market is looking at this country as a potential new contributor to a renewed era of growth of the Islamic finance industry. The International Monetary Fund (IMF) projects the country’s economic growth at around four per cent in 20172018. Iran has been under sanctions for more than 35 years and its financing needs are reportedly high. However, we think that Iran will contribute effectively to the growth of the industry only after the remaining sanctions have been removed and its regulatory environment has been brought up to speed. It also remains to be seen whether Iran will attract significant interest from traditional Sukuk investors based in the GCC and Asia. MOHAMED DAMAK, Global Head of Islamic Finance, Standard & Poor’s Rating Services
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15/09/2016 09:48
MARKET WATCH
OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 5 SEPTEMBER 2016 The size of the outstanding Sukuk market globally as of 05 Sep 2016
SOURCE: Zawya Islamic
ANNOUNCED SUKUK IN SEPTEMBER 2016 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ADVISOR
Announced
Cahya Mata Sarawak Bhd
Cahya Mata Sarawak Sukuk Ijarah Program
Ijarah
Malaysia
MYR
-
-
-
-
-
Announced
Ministere des Finances - Tunisie
Tunisia Sukuk
Unknown
Tunisia
TND
20-Oct-16
452.489
-
-
-
Announced
SIB Sukuk Company III Limited (SIBIII)
Sharjah Islamic Bank 2016 Sukuk
Unknown
UAE
USD
10-Aug-16
3,000
-
-
HSBC Bank
Announced
Saudi Arabian Airlines
Saudi Arabian Airlines 2016 Sukuk
Unknown
Saudi Arabia
SAR
14-Jul-16
1,333.37
-
-
HSBC Saudi Arabia Limited
Announced
Jordan Dubai Islamic Bank
TAJ Mall Sukuk
Ijarah
Jordan
JOD
13-Jul-16
63.559
-
7 Years
Bank Alkhair B.S.C. Jordan Dubai Islamic Bank Jordan Investment Trust P.L.C
Announced
DSI Perpetual Sukuk Limited
Drake & Scull International Sukuk II
ModarabahMurabaha
UAE
USD
10-Jul-16
150
-
-
Al Hilal Bank PJSC Emirates NBD Capital Limited HSBC Bank Middle East Limited Standard Chartered Bank
Announced
Bank AlBilad
Bank Albilad Sukuk
Unknown
Saudi Arabia
SAR
16-Jun-16
266.709
-
-
-
Announced
FGB Sukuk Company Limited
First Gulf Bank Sukuk
WakalaMurabaha
UAE
USD
08-Jun-16
3,500
-
-
Citigroup Global Markets Limited
SOURCE: Zawya Islamic
www.islamicbusinessandfinance.com
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ISSUE 99 | Islamic Business & Finance
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15/09/2016 09:49
OPINION OPINION
Flying too close Integrating the to the sun Islamic economy IO don’t usually celebrate when I fail to bring a story to our readers, but in this case, that’s n 11-12 October, Dubai will once again exactly what I’m doing. host the Global Islamic Economy Summit Since the launch of Rayani Air, the world’s first (GIES). The aim of that summit is to bring (and hopefully not the last) ‘Halal airline’, I was together experts from multiple sectors in order eager to get an inside scoop at the story. After all, to address both challenges and opportunities it’s the perfect Islamic Business & Finance story—is it facing usmore today. not? For than a decade, our publication has The key phrase is right there in the middle— covered not only the Islamic economy’s history “Islamic economy”. We spend a lot time but also its future, encompassedofby thetalking many about different sectors on own—Halal firsts we’ve experienced as atheir community year business, Islamic banking, Takaful,boldly and soenters forth. after year. And when a business But theaIslamic them all, not as big space aseconomy aviationcontains while also joining the just as a catch-all term, but to imply something Islamic economy, I couldn’t help but cheer. I greater. these different wantedNone to getofthe inside story sectors on not that just make what up the Islamic economy exist on their own—each they wanted to do but how they were going to is to the other. doconnected it—the real, nuts and bolts plans that were GIES exists in order to bring people from all going to make it all happen. different sectors together. Theis key is to make sure Their mission statement still up on their that this is not just to share insights into each, website. “Respect and Serve with a heart—this but to really into what connects them, and is what thedig Rayani Air brand encapsulates. how they can work together. Malaysia’s latest airline is doing what is Standard andright Poor’s, in its recentindustry— report on fundamentally in the aviation its outlook for 2017, highlighted this exact issue. committed to greater passenger satisfaction. “The industry also needs more integration, in While the industry is battling for a bigger share our view,” said S&P. “For example, more Sukuk of passenger load, Rayani Air will instead focus issuance could help Takaful operators to invest on service delivery,” it still reads. lessThe in statement risky realgoes estate and equities, to on to describe theirbanks plans for manage their liquidity, and funds to have some rapid ascension to the top of the aviation world. fixed incomeall revenue andseemingly allocate other funds Big dreams, to happen overnight. to more profit-and-loss sharing I wanted to tell the story. I wasinstruments. going to tell Banks could to offer products the story. Butstart at some pointTakaful this spring, they more systematically if the relevant stopped returning my emails. The regulation CEO went were place. quietinon me. And then bad things started to “Progress would be aided if regulators actedin. to happen. The headlines started to trickle create moreafter, supportive regulatory environment, Then,asoon an outright tsunami. Alleged while scholars, MLIs, and lawyers worked pictures of handwritten boarding cardstogether showed to Universities upachieve online, standardisation. worrying potential customers.could Soon provide the necessary and knowledge after, Rayani reportedlytraining suspended operations all to create the needed new generation of Islamic together, before reportedly having their license finance professionals. allInvestors the sectors that officially revoked this Finally, summer. pulled form the Islamic economy together out. When customers triedcould to getwork refunds, they to achieve more integration.” were reportedly met with shrugs from Rayani.
8 8
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Rayani’s seeming failure has nothing to do with its aspirations of Shari’ah compliance. Instead, it The final line of that section summarises comes down to basic business sense. Big dreams that point elegantly: “Overall, united and more aren’t enough to send you soaring. Big claims may integrated, the industry will grow stronger.” get you headlines, but they won’t make things work We review outlooks for Sukuk, Takaful, out. This an exciting space to be in. But if you just banking and more. We look at how one performs claim something without the proper business sense versus another. Butin if we want toaimprove, to make it happen, thereally end, it’s just claim. if we really want to harness the potential of the The Islamic economy has an astounding Islamic economy, we need to find a way to future before it. But we’re not going to get make there sure that each is looking at how it can help overnight, andone Rayani Air shows us we’d be fools the next. We’re all in this together. to even try that route in the first place. If we’re going to do this, we need to do it right.
William Mullally
Editor
www.islamicbusinessandfinance.com www.islamicbusinessandfinance.com
25/07/2016 15:14 15/09/2016 10:02
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AWARDS
The big day approaches... ON 23 NOVEMBER, THE 11TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS RETURN TO EMIRATES TOWERS HOTEL
T
h i s N o v e m b e r, C P I Financial will proudly host the 11th Annual Islamic Business & Finance Awards ceremony. As we have for over a decade, the Awards aim to honour the best of the best within the Islamic finance industry. Islamic finance’s ongoing success around the world continues to surpass expectations, expanding into new markets as well as further entrenching itself in its established countries from one side of the world to the other. The leaders of this industry still hold innovation as a guiding principle, finding new ways to spur growth and bring Islamic finance to new customers, creating value for investors and service to their respective communities. As is now the tradition, these Awards will be an opportunity t o r e w a r d t h o s e t h at a r e furthering the goals of the industry as a whole. Those that are short-listed, as well as those that win, are truly the stars of the Islamic finance world, and the scope of our categories this year is a reflection of the many ways that different institutions c o n t r i b u t e t o t h e o ve r a l l Islamic economy.
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ISLAMIC BUSINESS & FINANCE AWARDS 2016 CATEGORIES BY COUNTRY:
Best Retail, Corporate & Commercial banks in: ◆ Levant ◆ Bahrain ◆ Kuwait ◆ Bangladesh ◆ Jordan ◆ Egypt
◆ Qatar ◆ UAE ◆ Malaysia ◆ Iran ◆ Sudan ◆ Pakistan
◆ KSA ◆ Oman ◆ Indonesia ◆ Turkey
BY REGION - MIDDLE EAST: ◆ Best Retail Bank ◆ Best Commercial Bank ◆ Best Takaful Operator ◆ Best Finance Company ◆ Best Consumer Finance Company ◆ Best Wealth Management
◆ Best Corporate Bank ◆ Best Investment Bank ◆ Best Sukuk Arranger ◆ Best SME Finance Company ◆ Best Islamic Window ◆ Best Corporate Advisory
BY REGION - ASIA: ◆ Best Retail Bank ◆ Best Commercial Bank ◆ Best Takaful Operator ◆ Best Sukuk Arranger
◆ Best Corporate Bank ◆ Best Investment Bank ◆ Best Asset Manager
BY REGION - AFRICA: ◆ Best Retail Bank ◆ Best Commercial Bank
◆ Best Corporate Bank ◆ Best SME Bank
INTERNATIONAL AWARDS: ◆ Best Training Institution ◆ Best Shari’ah Advisory Board ◆ Best Wealth Management Service ◆ Best Equity Research ◆ Best Institutional Investor Service
◆ Best Consultancy Service ◆ Best Sukuk Deal ◆ Best Investment Fund ◆ Best Savings Product ◆ Best Real Estate Finance
www.islamicbusinessandfinance.com
19/09/2016 10:08
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COVER INTERVIEW
ENSURING A
BETTER
FUTURE
IN ADDITION TO ITS SAVINGS AND INVESTMENT SCHEMES, NATIONAL BONDS HAS INTRODUCED TAKAFUL-BASED SANADI, AIMED AT PROTECTING INDIVIDUALS AND THEIR FAMILIES IN CASE THINGS DO NOT GO ACCORDING TO PLAN. CEO MOHAMMED QASIM AL ALI COMMENTS EXCLUSIVELY ON THOSE DEVELOPMENTS
S
ince we last spoke, how has the savings culture here developed? First of all, let me start by saying that there are certain things that happened here to the economy itself that is either helping the savers or making it more difficult for them. For example, with the equity market being on the quiet side, a lot of people have started to place their funds in banks, or in institutions like National Bonds to safeguard them until they make the next move. Ultimately, we have seen that our business has picked up during this time in the equity market. With real estate gaining momentum, we have also seen a drive to increase savings in National Bonds, as customers want to be able to pay at least the ten to twenty per cent down payments for the assets they will acquire in the future.
Overall, we have seen sentiments improving in terms of the eagerness to save, but there is still a gap. That gap exists between that eagerness and the actual plans that people make. For our customers who are already in the scheme, a lot of them have migrated into a regular savings plan rather than ad hoc saving. For example, in our employee savings programme, the regular savers have picked up around 81 per cent versus last year. In numbers, we have about 17,000 regular savers. For us, that is a big improvement in terms of people who know that saving regularly is part and parcel of reaching their goals. Unless you deduct ten to twenty per cent of your income, you will never reach the target that you want for your savings. You will end up retiring with not enough funds, which will surely impact
Mohammed Qasim Al Ali, CEO, National Bonds
cont. overleaf
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15/09/2016 10:34
(PHOTO: Florante Magsakay)
COVER INTERVIEW
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COVER INTERVIEW
cont. from pg 13
your quality of life. Our advice is to deduct ten to twenty per cent of your monthly income into a savings account, whatever it is, so you build up your first line of defense savings and aim to grow them at the same time. You recently launched Sanadi. Could you tell me more about it? Sanadi was the result of a brainstorm in our focus groups with our customers. We noticed that our customers have certain worries about the impact on their families after passing away, for example, without enough savings for their heirs. People also worry about losing their jobs, as there is such a vast workforce of expats in the UAE, who are the first to feel any impact when there is a correction in the market, as we have seen in the past, due to our direct link to the global economy. So we said, ‘how about if we combined a savings plan with a protection plan?’ Our customers loved that idea. This is what triggered our negotiation with the local Takaful suppliers, and, from that, we ended up securing a very good deal with major Takaful operators whereby we provide six different types of coverage at a rate that, if an individual had gone to an operator on their own, would have been four or five times what we can offer. Sanadi will cover, in case of death or permanent disability, sixty times the monthly salary as a compensation sum for the family members. It also gives up to six times the monthly salary in case of loss of job, God forbid. It also gives cover for serious illness that provides hospital, cash benefits and third party opinion. What insight have you gained into Takaful in this market? In a 2015 survey that we conducted, 90 per cent said they do not have any Takaful cover of this kind. The problem is that the Takaful industry here in the UAE has only five per cent penetration, with 95 per cent going to the conventional sector. It is an ongoing struggle for the Islamic economy to educate the public as well as the businesses of the UAE about the importance of having Takaful cover. The beauty of Sanadi is that it combines the savings plan and the Takaful plan so that customers enjoy annual profits on their
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(PHOTO: Florante Magsakay)
Mohammed Qasim Al Ali, CEO, National Bonds
www.islamicbusinessandfinance.com
15/09/2016 10:36
COVER INTERVIEW
savings plan as well as potential prizes. To reward such good behaviour for those who opted for Sanadi, National Bonds awards four chances for every bond they have in their Sanadi account, which we think will attract more people to avail Takaful cover. So far, we have crossed over 1000 plans since we just launched the product about two months back. What have you achieved with the Employee Savings programme? We have managed to attract about 86 employers to the Employee Savings Programme. We have done 26 seminars, 32 trade shows. There are 7000 subscrubers, in terms of individuals, to this programme. Two years back, we launched the Idikhari, or ‘my savings’, programme. This was launched by the Human Resources division of HH the Dubai Ruler's Court, which allows all 42 Dubai Government entities to participate in the programme on a voluntary basis. What insight has this given you to the savings culture among UAE nationals? In 2015, we did a survey, and 84 per cent of the people responded that their savings was not enough. Unfortunately, 74 per cent of those were UAE nationals. I think the perception that nationals are always looked after by the Government gives them a false assurance that they will be taken care of. But the truth is, by the time you retire, if you do not consciously work towards it, you will not have enough savings. There are many financial commitments that come in building a life, and it is important to add savings for emergencies, marriage, education for children and building your dream house, or else it will create unnecessary stress and will eventually affect your family's quality of life. Every year, there is a HR Government Summit in Abu Dhabi. This year, we are the lead sponsor. There, we will have a better chance to explain to employers the importance of establishing a savings culture with their employees, as they will see attendance, better performance, less stress issues, and many more benefits as well. At the summit, we will be pitching our Sanadi product, as only one to two per cent of
employers give these benefits already to their employees. Those employers who always look for something new for employees will, I’m sure, find this attractive. With the work that you have done with high net worth individuals, what insight have you shared and gained from them in that time? In our business, we have our normal retail side and the HNWI side. Let’s call the first the savers, and the second the investors. Those investors are then broken down into two segments, the individual retail investors and the institutional investors. With the institutional investors, they have used us as part of their treasury operations allocation, placing funds mainly in our Term
The beauty of Sanadi is that it combines the saving plan and the Takaful plan so that customers enjoy annual profits on their savings plan as well as potential prizes. Because they opted for Sanadi, they have four chances for every bond they have in their Sanadi account, which we think will attract more people to Takaful. MOHAMMED QASIM AL ALI, CEO, National Bonds
Sukuk products, as those are the products that are geared towards them. We have our oneyear, two-year, and three-year term Sukuk that offer different indicative rates. For our HNWI clients, we have been doing something a bit different. We now have a townhouse development in Motor City. We offered this to our qualifying clients first. We structured it in such a way that makes it possibly the best plan of its kind in the UAE. If you are an investor, you pay five per cent upon reservation, and another five per cent after three months. You then pay ten per cent before the handover. Most developers ask for 40 or 50 per cent before handover. That 10 per cent is also invested in national bonds, which cont. overleaf
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COVER INTERVIEW
cont. from pg 15
will entitle investors to both annual profits and prizes for the first two years. After this, the 90 per cent remaining starts after the handover on a seven year payment plan. The beauty is that, you are also getting rent from the asset that you are buying in Motor City, meaning an additional 44 per cent of the remaining amount will be paid for by the rent. The actual cash out is about 56 per cent, in total. For people that do not want to have to deal with the hassle of managing and renting the asset, we give them 15 per cent return guarantee in the first two years on the amounts paid. When we launched this in late August, we sold 41 out of 95 units almost immediately. We have also launched Prestige, which is the rebranding of our wealth management wing. Within this, we have broken this down in to silver, gold, and platinum categories. We have also worked hard to certify our relationship managers, as well as certifying them under Shari’ah. Our aim is to have the first Shari’ah-compliant financial advisors in the Middle East. It will be a journey of two years from now, and at the end of that they should be fully Shari’ah certified. Why do you view this as such an important development for you? This is important because there are no Shari’ah compliant financial advisors in the market. Even normal financial advisors are not plentiful enough for this market, which is far different than it is in other global markets. In other regions such as Europe and the US there are hundreds of financial advisors. As a result, we wanted to look after our customers. Part of our mission is to educate, and this is in line with our strategy. What can you share about your investments? Remember that we are a low- to mid-risk investment company, as our nature is a bit conservative. Our priority is to preserve the capital of our bondholders and then grow it. But at the same time, we try to get the maximum returns possible within that level of risk. We have a diversified real estate portfolio, including real estate developments and incomegenerating assets. We also have private equity, listed equity, funds we have placed with banks, as well as large portfolio of corporate Sukuk. Our investment team is very hands on with
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the asset managers who handle our equity portfolio. When the market started going down, we took 60 per cent of that allocation into cash to protect that money for our investors. What we have noticed is that, as of August, we are doing far better than industry benchmarks. When it comes to strategic tie ups in the market, we always use those to find new investments and new ways of investing. When the equity or real estate markets are low, we try to make strategic relationships with blue chip names in the market to mobilise those funds in a better way. For example, we are working with a big name in the UAE about a joint venture in Abu Dhabi, and that should be announced in Mid-October which will bring more growth to our investment portfolio in 2016. We are also working with asset managers to find ways of increasing our yields from our existing portfolio. Part of our investing tactic is to use leverage when necessary to improve yields, while still in the limits set up by the investment committee and the UAE Central Bank. This is part of our approach to certain assets within our investment portfolio. Do you have any other advice you would like to impart to our readers? My advice would be, as we are now in the period of back to school, I would like to take this time to encourage parents to start having a saving plan. We have introduced an educational calculator on our website that people can access, as schooling is perhaps the most important objective that parents have for their children to assure a good life. It is very important that they start with a plan early, and embed that plan with the protection element, Sanadi, just in case something unfortunate happens. If they want to safeguard the education of their children, they have to start now. My message is specifically to young families. Young families often do not pay attention to these problems until their children are school age. That is too late. It is the same as saving in one’s life—you have to start saving at age 25, not age 45, when you will need to save much more of your salary than you should have to. Start early, start planning for your life, look at your objectives, and plan accordingly. Act! A wish is good, but it is not good enough. You have to act!
Mohammed Qasim Al Ali, CEO, National Bonds
www.islamicbusinessandfinance.com
15/09/2016 11:05
(PHOTO: Florante Magsakay)
COVER INTERVIEW
www.islamicbusinessandfinance.com
page 12-17 Cover Interview 99.indd 17
ISSUE 99 | Islamic Business & Finance
17
08/09/2016 14:05
COUNTRY FOCUS UAE
UAE Islamic banks still showing strong growth ACCORDING TO THE CENTRAL BANK OF THE UAE, THE UAE’S ISLAMIC BANKS HAVE POSTED STRONG GROWTH YEAR ON YEAR AS OF JULY 2016
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ccording to the Central Bank of the UAE, There are 50 conventional banks and eight Islamic banks operating in the UAE, as of July 2016. Within that, as of July, the total gross bank assets totalled AED 494.5 billion, which is an increase of 6.5 per cent from the start of the year. Furthermore, this increase is 10.6 per cent higher year on year. Islamic banks are actually outpacing conventional, as, in that same timeframe, conventional banks’ gross assets increased only 0.4 per cent from the beginning of 2016 and 3.1 per cent year on year. In terms of total investment by banks, including debt securities, equities, held to maturity securities and other investments, Islamic banks in July 2016 held AED 57 billion, an increase of nearly 20 per cent year on year. Bank deposits were also up, reaching AED 347.3 billion for Islamic banks, an increase of 8.8 per cent year on year.
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UAE BANK RANKINGS (ASSETS 2015 IN USD '000) National Bank of Abu Dhabi
110,704,917
1
Emirates NBD
110,703,928
2
Abu Dhabi Commercial Bank
62,155,780
3
First Gulf Bank
61,945,915
4
Dubai Islamic Bank*
40,816,203
5
Abu Dhabi Islamic Bank*
32,233,536
6
Mashreq
31,356,618
7
Union National Bank
27,743,094
8
Commercial Bank of Dubai
15,755,994
9
Emirates Islamic*
14,486,638
10
*Shari’ah compliant
Within those deposits, the Government sector, institutions with Government ownership above 50 per cent, and the private sector all saw increases since July 2015, with the private sector increasing most with 13 per cent year on year. Non-banking financial institutions, however, saw their deposits decrease sharply, down 47.7 per cent year on year. Capital and reserves for Islamic banks as of July 2016
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were AED 62.9 billion, an increase of 14.8 per cent year on year, nearly 10 percentage points higher than the growth t h at c o n v e n t i o n a l b a n k s made on capital and reserves in that timeframe. Liquid assets ratio was a 15.8 per cent for Islamic banks in July 2016, a nearly identical figure to their conventional counterparts, whose ratio was 15.9 per cent as of that time.
www.islamicbusinessandfinance.com
19/09/2016 10:10
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SPECIAL FEATURE
REDUCING THE LABOUR DEMAND AND SUPPLY GAP IN ISLAMIC FINANCE BY JAMAL AL JASSMI, GENERAL MANAGER, EMIRATES INSTITUTE FOR BANKING AND FINANCIAL STUDIES
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aving sustained significant growth since 2013, the world Islamic finance industry is estimated to be worth $1.81 trillion and is expected to reach $3.24 trillion by 2020, according to Thomas Reuter’s latest State of the Global Islamic Economy report. As the industry continues to grow, the demand for a highly specialised and skilled workforce capable of meeting industry demands and requirements increases. A rapidly evolving market, the Islamic finance industry has naturally experienced a demand-supply gap in workforce competencies. With limited human resources and cohesion among the academic sector and the Islamic finance industry, education and training institutions often have difficulty providing relevant in-depth instruction in Islamic banking and finance. A fairly nascent industry with new emerging products and services, it is challenging for academic institutions to equip professionals with unique specifications for day to day operations and knowledge on Shari’ah compliance. Th i s , c o m b i n e d w i t h c o n f l i c t i n g interpretations of the Islamic economy and Shari’ah compliant regulations among scholars in the field, further perpetuates uncertainty in the industry thereby hindering innovation and interest in studying and pursuing a career in Islamic finance professionals fearing the risks associated with an unsustainable industry. Further to this, with the majority of Shari’ah and Islamic economy courses taught in Arabic, the industry fosters an entry barrier for non-Arabic speakers interested in the field thereby limiting the industry’s global reach.
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Jamal Al Jassmi
From the perspective of academic professors and industry trainers, a lack of standardised text material in Islamic finance education and the constantly evolving practises of the Islamic economy has made it difficult to create a focused, comprehensive academic curriculum. Instead, education and training experts today are continuously revising course materials and programme objectives to keep pace with local market requirements—their response to the changes a reactive rather than a proactive one. HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates, and Ruler of Dubai, has in recent years expressed his desire for Dubai to be the capital of the Islamic economy. According to a report by Ernst and Young (EY), the Islamic banking assets in the UAE reached $127 billion in 2014 and is projected to reach an estimated $260 billion by 2019. To match these growth projections, the region must develop a skilled and qualified cadre of professionals for a vast range of banking operations. While there has certainly been a lot of work done to help achieve HH Sheikh Mohammed’s vision, there is still room for banks, governments and educational institutions to improve their training services and initiatives and further bolster the quality and quantity of the industry’s workforce.
www.islamicbusinessandfinance.com
19/09/2016 10:11
SPECIAL FEATURE
According to talent recruitment professionals, the majority of the workforce currently employed in the Islamic banking industry have transferred from a conventional background, and while they are performing at a high level, they are unable to keep pace with the specification of the industry and lack the relevant knowledge to deal with the Islamic banking and finance product structure. While those engaged in product design and structure are well-versed in Islamic finance either through education or long-term association with the industry, those who are engaged in operations, sales and marketing pay less attention to the nature of the product—whether Islamic or conventional. Therefore, this gap between product design, structuring and operational sales is where the Shari’ah knowledge and expertise is required. To counter this, banks should promote a more unified structure within their system to ensure innovation in product design and successful articulation of product offerings to the public, highlighting the unique nature of Shari’ah compliant products. For their part, education institutions must ensure that the programmes and courses provided align with industry requirements and demands and equip students and professionals with real time experience. Cohesion and constant communication among the government, academia and financial industry experts and employers will transform the education and training curricula, encouraging up-to-date course materials that incorporate the dynamic demands of the industry. Governments, on the other hand, should increase investments in hard skill education along with technical and vocational training and research and development in the fields of science and technology. Moreover, to guarantee an adequate supply of highly skilled banking and financial professionals, governments and institutions must collaborate to develop corporate financial education – both short term training along with long-term undergraduate and diploma degrees. The UAE cabinet has taken a significant step in this regard with the recent establishment of a new Shari’ah board under the Central Bank. With the objective of unifying Islamic banks in the region, the role of the Shari’ah board will be responsible for setting the standards for Islamic finance products and Shari’ah compliancy in the region.
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The Central Bank will appoint scholars and oversee the board, who will not replace but liaise with the existing individual Islamic bank boards around the region. A report by Deloitte argued that this board could “reduce future disputes and increase transactions”, further ensuring sustainability in the industry. The launch of the Dubai Islamic Economy Development Centre in 2013 has also promoted Islamic finance through various initiatives, including the Global Islamic Economy Summit, forums to educate the public and funds to support small and medium enterprises in the Islamic economy space. Moreover, published reports and studies on the state of the Islamic economy further educate the public on the booming industry and shed light on Dubai’s strategic objectives to become the capital of the Islamic economy. In the end, the cooperation between banks, scholars, the government and educational institutions will foster a stable, mature and attractive Islamic finance industry. As we work together to promote the Islamic economy, from educating the public on product benefits and offerings to demonstrating the value of obtaining a degree in the field, the region will have the human capital needed to sustain both the industry’s growth and Dubai’s position as a central hub for Islamic banking and finance.
Emirates Institute for Banking and Financial Studies: ▪ Imparts Islamic banking and finance education at two different levels, academic and training. ▪ At an academic level, EIBFS has offered the Islamic Banking Diploma Programme (IBD) since 2003. ▪P roduced around 600 graduates since 2003. ▪ 2 -3 day courses at all three campuses, such as: ●Introduction to Islamic Banking ●Islamic Banking Products ●Islamic Accounting Standards ●Risk Management in Islamic Banks ▪ At a training level, EIBFS offers a full range of training programmes covering different areas of Islamic banking and finance, in-house training programmes for banks and specialised programmes for fresh UAE graduates. ▪O ffers a certification programme in Islamic banking in collaboration with a leading Malaysian Institute. ▪ Training department has regular contact with HR and training departments of banks and financial institutions to ensure the courses provided are relevant to the market’s labour demand.
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19/09/2016 10:12
SPECIAL FEATURE
MALAYSIA (Azraf Saip/SHUTTERSTOCK)
FOCUSES ON HUMAN CAPITAL DEVELOPMENT
IN A SPEECH IN MID-AUGUST, BANK NEGARA MALAYSIA GOVERNOR DATUK MUHAMMAD BIN IBRAHIM HIGHLIGHTED THE IMPORTANCE OF HARMONISATION, EDUCATION AND PROPER RECRUITMENT TO ENSURE THE FUTURE SUCCESS OF ISLAMIC FINANCE
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n May 2016, Malaysia saw its long time Governor of Bank Negara Malaysia, the country’s central bank, replaced by Governor Datuk Muhammad bin Ibrahim. Though many wondered what changes this would bring for the country in terms of monetary policy, one thing that the new Governor has done in his time thus far is reaffirm the country’s support for Islamic finance.
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On 15 August, Governor Datuk Muhammad gave a speech at the launch of the educator’s manual on Shari’ah Standard Murabahah, an important development in supporting the educational aspect of Islamic finance. “The Manual is a pioneering effort. Translating the Shari’ah standard and operational requirements into a user-friendly format for adoption in the academic
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syllabus of our local universities will go a long way in enhancing the Islamic finance syllabus by educational establishment,” said the Governor. Malaysia is a leader in Islamic finance, but this was not always the case. In the last 30 years, the country made huge strides to put itself at the front of the pack in terms of Islamic finance, itself not very old in current practice.
www.islamicbusinessandfinance.com
19/09/2016 08:45
SPECIAL FEATURE
Properly educating Malaysia’s students on Islamic finance is a key part of its plans for the future.
The Governor highlighted that in his speech. “For the past three decades, Islamic finance in Malaysia has undergone a j o u r ne y that is marked with various significant milestones. I would like to highlight three major achievements of the industry in terms of its development since inception. Firstly, Islamic finance in the country has become a key segment in the financial system. What was once a novelty is now mainstream. This is a consequence of continuous initiatives to build a solid foundation, focusing on infrastructural, institutional and capacity building measures, as well as robust regulatory and supervisory framework. Th e s e m e a s u r e s a r e t h e cornerstones of Islamic finance industry’s growth.” The astounding growth in the number of players was also given spotlight. “From less than four Islamic banks and Takaful players before year 2000, there are now 27 players that offer over 100 financial products beyond the basic financial offerings. The industry is characterised by increasing competitiveness and innovation. The recently launched Investment Account Platform (IAP) is the latest initiative where the industry has cooperated to further enhance the offerings of Islamic banks. The IAP provides an online marketplace to match potential investors with viable ventures. Islamic banking assets have also grown beyond the targeted 20 per cent as originally intended in Bank Negara Malaysia’s Financial Sector Masterplan.” According to the Governor, Islamic banking now stands at more than a quarter (27 per cent)
of the total banking system. He also highlighted what it does for many segments of society, irrespective of beliefs, race and gender. Takaful’s growth was also highlighted.“There is also greater acceptance of Takaful with its increased penetration rate to 14.8 per cent of the population.”
INTERNATIONAL TIES The Governor pointed out that it is Islamic finance that has helped Malaysia increase its global reach, finding it more international partners than perhaps ever before. “Enhanced integration with the global market has enabled greater trade and financial linkages. Malaysia is now positioned at the forefront of international developments with increasing connectivity between financial centres, and more cross-border Islamic financial transactions. Our Sukuk market constitutes more than 50 per cent of global Sukuk outstanding for the past 16 years. Malaysia as an international Islamic finance marketplace offers an attractive a n d f a c i l i t at i v e p l at fo r m for foreign issuers to tap our domestic Sukuk market. There have been various issuances of multicurrency Sukuk in US Dollar, Singapore Dollar, Chinese Renminbi and Japanese Yen. There are also stronger bilateral ties with various countries such as the United Kingdom, Hong Kong, Turkey, Indonesia and Japan. “These interlinkages open up greater opportunities to introduce and strategically position Islamic finance services globally while providing opportunities for meaningful participation of our
local players as lead arrangers for some of the global Sukuk issuances. The gains are also extended to our ancillary service providers that were able to establish greater connections with the international market,” said the Governor.
INNOVATION For Islamic finance’s future, the Governor sees global collaboration and Shari’ah harmonisation as key to the industry’s growth. “The future growth of Islamic finance, especially cross border, is very much dependent on the harmonisation and mutual recognition of Shari’ah views and rulings across the globe. It is critical if cross border trades are to be strengthened. Numerous efforts are being pursued to narrow the opinion gaps between scholars through symposiums, roundtables as well as bilateral dialogues. However, narrowing of Shari’ah opinions is preferable but not critical. The fact is, differences in views and opinions among scholars are a historical fact, and an accepted facet in the area of Shari’ah, particularly in matters relating to jurisprudence. In fact, my own view is that great Islamic civilisation of yesteryears was possible and the envy of many because of our diversity, tolerance and mutual respect of each other’s view.” Standard and Poor’s echoed this sentiment in their latest report Islamic Finance In 2017: Modest Growth Amid Oil-Price Woes. “The second opportunity lies in the higher involvement of some Multilateral Lending Intitutions in achieving more standardisation in legal structures and Shari’ah interpretation. cont. overleaf
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SPECIAL FEATURE
cont. from pg 25
S o m e m a r k e t o b s e r ve r s think that the standardisation debate belongs to the past. In our opinion, it remains highly relevant. We think that this debate is critical to put the industry back on a strong growth path. MLIs are aiming to show the market how to achieve standardisation through the implementation of standard structures, documentation, or steps that issuers should go through to make Sukuk issuance easier and more efficient. We also think that if standardisation is achieved, stakeholders will have more time to devote to innovation and creating new instruments in Islamic finance, which should foster growth,” said the report. The Governor called less for pure standardisation than for accepting that not everyone will agree 100 per cent of the time. “In the context of the Shari’ah Standards, the dynamic process of its development involves the act of harmonising the differences and embracing diversity. We respect views of others which are different from ours by looking into the wisdom of earlier scholars from all recognised schools of thought. We are also willing to arrive at new rulings where it is appropriate. This broadens the reference scope for Shari’ah scholars to have an enriching debate on the best application of Shari’ah in contemporary finance, based on the customs, legal and operational framework of each market. This is an important principle, as it increases the depth of research that leads to greater understanding of practises through the times while recognising the influence of local
26
tradition, as well as domestic business practises.” It is in schools that the Governor believes this process begins.“I very much believe in the importance of embracing diversity in Shari’ah interpretations within the academic community. Students who are exposed to the teachings of all schools of thought from the very beginning would get to appreciate the intellectual differences and value the flexibility arising from differing opinions. This provides an opportunity to open and sharpen their minds and widen their thinking by exploring issues from multidimensional perspectives. Through this way, the talent that we nurture and produce would not only be equipped with Shari’ah knowhows, but also with intellectual courage that can articulate contemporary Shari’ah issues in the context of domestic customs and business environment.” The Governor also highlighted the importance of not only educating on Islamic finance, but making sure that there is an effective pathway to placing those that have studied Islamic finance into the right jobs. “While it is acknowledged that the role of learning institutions is essential to develop talent with higher skill sets, the industry also has an important role to ensure effective deployment of graduates as they enter the workforce. The number of graduates is indeed increasing at a rapid rate. The general feedback of Shari’ah graduates however is the lack of opportunities for employment,” said the Governor. “But the reality is that the industry still grapples with shortage of the right talent
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I very much believe in the importance of embracing diversity in Shari’ah interpretations within the academic community. DATUK MUHAMMAD BIN IBRAHIM, Bank Negara Malaysia Governor
that can lead and energise innovation. A solution is to reconcile the expectation gaps of the industry and graduates. Talent enrichment programmes are one area where we can pursue to bring out the best of student talent. Enrichment programmes in areas beyond Shari’ah, such as leadership training at the early stage of recruitment would strengthen the confidence of Shari’ah students and provide the required exposure for them to understand and appreciate the intricacies of business environment,” he continued. Bank Negara Malaysia will be spearheading a steering committee in order to combat those issues. “Despite all these achievements, we must admit that there is no room for complacency. We must continue to establish new grounds and set new thresholds for our organisations towards greater success. In this context, I am pleased to inform that the Bank will be forming a Steering Committee made up of representatives from both industry and academia to undertake an in-depth review of the strategic positioning of these important organisations. It is as part of our efforts to re-energise and reinvent the Islamic finance talent development landscape.”
www.islamicbusinessandfinance.com
15/09/2016 11:29
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SPECIAL FEATURE
INDONESIA AND MALAYSIA
Malaysia and Indonesia both have large Muslim populations that help drive their commitment to Islamic finance.
INCREASE COLLABORATION ON ISLAMIC FINANCE
IN EARLY AUGUST, THE 2016 WORLD ISLAMIC ECONOMIC FORUM SAW LEADERS FROM BOTH MALAYSIA AND INDONESIA MAKE NUMEROUS COOPERATIVE ANNOUNCEMENTS REGARDING ISLAMIC FINANCE AND THE ISLAMIC ECONOMY, INCREASING THE INTERACTION BETWEEN THE TWO NATIONS
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alaysia and Indonesia have reaffirmed their ties in order to promote the further development of Islamic finance. At the 2016 World Islamic Economic Forum (WIEF), held 2-4 August 2016, Dato ‘Sri Najib Tun Abdul Razak, the Prime Minister of Malaysia, along with Sri Mulyani, the Minister of Finance of the Republic of Indonesia, Tun Musa Hitam, the WIEF Foundation Chairman, and Bambang Brodjonegoro, M i n i s t e r o f t h e N at i o n a l Development Agency, gathered to exchange ten documents, each affirming different levels of cooperation.
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The Indonesian Minister of Finance, in a press statement, stated four main objectives for the iteration of WIEF 2016 held in Jakarta, Indonesia. “The first one is to achieve improvement in the economic welfare of society in the Muslim countries and countries with significant Muslim population through the creation of trade and investment opportunities. The second is to promote the image of Muslim world as a caucus of profitable trade and investment that will attract FDI and business partners from around the world. The third is to strengthen the partnership network and build strategic alliances through the
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exchange of ideas information and knowledge.And the fourth objective is to promote dialogue and foster cooperation among Muslim and non-Muslim businessmen and businesswomen since business partnerships can serve as a means of establishing peace and prosperity between the Muslim and the non-Muslim,” said Mulyani in the statement. The minister also highlighted Indonesia’s large Muslim population, and the benefits of such. According to the press statement, Mulyani said, “WIEF will serve to benefit this country because we are the largest Muslim population and among the largest
www.islamicbusinessandfinance.com
08/09/2016 16:01
SPECIAL FEATURE
economy in the world. Indonesia is an ideal place for investment. Indonesia offers investment opportunities that will be both Shari'ah-based and common commercial based. Combined with the largest population in the world and the growing middle class, Indonesia has the potential to be the development hub for Islamic financial services as well as the product which is based on Islamic law.” At WIEF 2016, Brodjonegoro launched the Masterplan of Indonesia’s Shari'ah Finance Architecture. The masterplan consists of two main recommendations. The first of these is “the improvement and expansion of Indonesia’s Shari'ah banking, capital market, nonbanking financial services and social funds,” said a statement. “The masterplan [also] consists of an action plan and intervention to these services covering important aspects such as capital adequacy, human resources development, governance, consumer protection socialisation and financial safety net. Some tangible objectives of the masterplan are the establishment of Shari'ah investment banks and retakaful companies, placement of public budget in Shari'ah banking system, improvement of Shari'ah economic and financial education in tertiary education, and enlargement of Sukuk issuance,” the statement continued. The second recommendation is “the establishment of a national committee on Shari'ah finance, a coordinating institution to ensure effective execution of the Masterplan’s action plan by relevant stakeholders.” The committee will be chaired by President of Republic of Indonesia and the Vice President
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as the Vice Chair. The committee will consist of Minister of Development Planning Agency (Bappenas), Minister of Finance, Co o r d i n at i n g M i n i s t e r o f Economic Affairs, Minister of Religious Affairs, Minister of State-owned Enterprises, Minister of Cooperatives and SMEs, Chief Commissioner of Indonesia Financial Services Authority, Governor of Bank of Indonesia, Chief Commissioner of Indonesia Deposit Insurance Corporation and Head of Majelis Ulama Indonesia. Brodjonegoro added that the committee's goal is to synergise all financial development efforts to be conducted by all stakeholders, namely government regulators and Shari'ah financial industry.“We are looking forward to working closely with national and international financial institutions, regulators, investors, and universities in expanding our Shari'ah financial system,” he said. This is not the first time in 2016 that Indonesia has affirmed its commitment to Islamic finance. Firdaus Djaelani, Board of Commissioner of Otoritas Jasa Keuangan (Financial Services Authority)/Executive Head of Non-Bank Financial Institution Supervisory stated in May that, "One of our responsibilities is to develop the Islamic finance industry in Indonesia, as it is still far from its potential. This seminar is a platform for us to give detailed explanations on the support and role of OJK and ICD to non-bank financial institutions to further develop its Shari’ah business. We hope this seminar has provided valuable insight to delegates and sparked interest in the country’s private sector to consider transitioning into Shari’ah-compliant outfits.”
A c c o r d i n g t o M o o dy ’s , Indonesia is still far beyond Malaysia in its Islamic finance infrastructure. "The divergence between the two systems is notable, considering the fact that the two economies have exhibited similar economic and credit growth trends, and banks in Malaysia and Indonesia show far less difference in the performance of their conventional loans," said Simon Chen, a Moody's Vice President and Senior Analyst. "The outperformance of Malaysian Islamic banks as against their Indonesian counterparts in terms of asset growth reflects to a large part the Malaysian banks' more established franchises, deeper market penetration, and long-standing regulatory support," added Chen. In a Moody’s report authored by Chen, Islamic Banking - Indonesia and Malaysia: Market Depth and Regulatory Support Underpin Malaysian Islamic Banks' Resilience in Current Down Cycle, it is stated that the superior performance of Malaysian banks in terms of their Islamic banking portfolios reflects their greater success when compared with other Islamic jurisdictions in integrating this financing channel into their core franchises and establishing themselves as mainstream institutions both for retail and corporate customers. This situation reflects, in turn, Malaysia's pioneering role in establishing comprehensive l e g a l , t a x a n d r e g u l at o r y f r a m e w o r k s t o f a c i l i t at e Islamic finance. Judging from the above moves, Indonesia recognises that it has a lot of work to do, and has reaffirmed its commitment in working towards its goal of being a hub for Islamic finance.
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SUKUK
Sukuk strong on the African continent WITH TOGO ISSUING ITS FIRST SUKUK AND CÔTE D’IVOIRE ISSUING ITS SECOND THIS YEAR, S&P THINKS SUKUK HAS MUCH MORE ROOM FOR GROWTH
A
ugust saw the issuance of two more Sukuk in Africa. For the second time this year, Côte d’Ivoire issued a sovereign Sukuk, valued at XOF 150 billion. With a tenor of seven years and a profit rate of 5.75 per cent, the Sukuk Ijara is backed by the property assets of the state including the building of the International Trade Centre of Abidjan (ICC) in the Plateau district, valued at XOF 98 billion, and administrative towers A and B which are the seat of several Ministries. In January this year, Côte d’Ivoire issued its first XOF 150 billion sovereign Sukuk. Both Sukuk were lead-arranged by the Islamic Corporation for the Development of the Private Sector (ICD), a subsidiary of the Islamic Development Bank (IDB). BNP Paribas also acted as arranger for this latest issuance while Bibe Finance & Securities (BFS), Bici Exchange (BNP Paribas Group) and BNI Finance Ivory Coast acted as co-lead managers. Hot on Côte d’Ivoire’s heels, Togo jumped into the fray. Togo’s inaugural Sukuk, a 10-year offering, aims to raise CFA 150 billion ($255 million) with a 6.5 per cent yield for shareholders. The Sukuk, launched on 20 July with a minimum initial
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deposit of CFA 10 billion ($17 million) was arranged by the Islamic Corporation for the Development of the Private Sector (ICD). Côte d’Ivoire, following the success of their issuance last year, also launched a Sukuk this month with ICD as the lead arranger. Subscription for the Sukuk closed on 31 August. S&P believes that Africa could continue to be a strong market for Sukuk. “We believe African Sukuk can provide diversification benefits for Islamic investors as well as additional financing opportunities,” said S&P Global Ratings credit analyst Samira Mensah. “Moreover, we think sovereign Sukuk issuance could, in the long term, facilitate the development of Shari’ahcompliant private -sector Sukuk on the continent. Given Africa’s significant funding and infrastructure needs, sovereigns there could benefit from an active Sukuk market.” Ye t s o f a r t h e m a r k e t comprises only $2 billion of Sukuk from a handful of issuers. By contrast, 17 Subsaharan African (SSA) governments we rate issued $46 billion of conventional debt in 2015 alone, according to S&P.
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“Despite Sukuk’s widespread appeal to investors, we expect that only a few African countries will tap the Sukuk market over the next 12 months, for several reasons. First, we see a general lack of clear legal and tax regimes to support a thriving Sukuk market, and in many cases, the complexity of structuring Sukuk could deter issuance. However, multilateral institutions could become increasingly important in enabling countries to enter the Sukuk market,” said Mensah. “This was illustrated by Senegal’s issuance of Sukuk in 2014 and 2016, aided by technical support from the Islamic Corporation for the Development of the Private Sector. We see South Africa and Côte d’Ivoire as serious contenders to attract foreign investors because of their large infrastructure projects, which need institutional funding. In addition, these two countries benefit from a well- developed financial infrastructure that could help them become financial hubs for such transactions.” “In our view, the increasing involvement of multilateral institutions is one of the keys to unlock the full potential of the continent’s fledgling Sukuk market,” Mensah added.
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(SHUTTERSTOCK)
PRODUCT FOCUS
Technology is the great enabler
Fintech is an important part of the future of Islamic finance.
NEW TECHNOLOGY PRODUCTS ARE MAKING ISLAMIC BANKING MORE VERSATILE THAN EVER BEFORE, WRITES FADI MEHDI, HEAD OF ABU DHABI REPRESENTATIVE OFFICE, SAXO BANK
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echnology, disruption, digital, fintech, innovation and change. These are the buzz words of this era and highlight the rapid revolution that has swept the financial industry in the last 10 plus years. Digital disruption is on top of everyone’s agenda, and both the challenge and opportunities from financial technology (fintech) are finally dawning on the global financial sector. The audience of banking customers and investors are now predominantly comfortable with digital technology and I expect the demand for multi-asset trading
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and investments will only increase, fuelled by one of the other highly dominant trends—empowerment. One of the most interesting products of technology advancement is that it has opened up an unheralded world of self-empowerment for investors. The drift away from traditional models of investing through a broker or financial advisor to that of self-managed investments has meant that the need for transparency is greater than ever before. Investors demand transparency and technology is the only true system to deliver it in absolute form.
Islamic Business & Finance | ISSUE 99
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We have always known that putting technology at the heart of our business was the way for us to grow. We like to say that Saxo was practicing fintech before the fintech term was even born. What the two founders, Lars Seier Christensen and Kim Fournais, saw back in 1992 was that the internet was becoming a powerful distribution channel and full of potential. They took this a step further when they launched the company’s first trading platform in 1998 enabling clients to trade forex online. We increasingly see ourselves now as more of an enabler for investors.Saxo provides the
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platforms and the tools to enable our self-directed clients to trade and invest in the global financial markets. Saxo Bank is domiciled and licenced as an investment bank in Denmark, but we are a global bank, and one of the largest areas of finance that is a growing focus is that of Islamic finance. The Assets Under Management (AUM) for the Islamic finance industry globally is currently estimated in value at between $1.7 trillion and $5 trillion, and forecast to grow to $5 trillion by 2020. Coupled with that, Sukuk insurance is accelerating the Islamic capital market at an annual growth of 21 per cent, which shows the large and growing appetite for Islamic Finance products. While Malaysia and Indonesia are renowned as world-leaders in Islamic finance, the UAE— and Dubai in particular—is rapidly growing its profile as an emerging Islamic Finance hub. Islamic Finance is no longer a niche or minority part of the financial market, but is increasingly taking a significant position on the world stage. Recognising the need to integrate tools that support clients wishing to invest in Shari'ahcompliant products, Saxo Bank has recently introduced an Islamic stock screening service which makes it fully transparent as to which stocks can be invested in, all the while still staying true to the principles of Islamic finance. I n c o l l a b o r at i o n w i t h IdealRatings, Saxo now offers the Islamic Stock Screening service which is an integrated solution providing both Islamiccompliance status and trading on our proprietar y online trading platforms.
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Based on commonly accepted and transparent Islamic guidelines, the screener enables clients to identify and trade Islamic compliant stocks. Available for more than 19,000 Stocks and 9,000 Single Stock CFDs on 36 stock exchanges worldwide, the stocks are filtered into a short-list of instruments identified according to each client’s particular investment preferences. Compliance credibility is maintained through a researched approach managed by IdealRatings. By utilising 250 advanced screening criteria, including filtering by countries and sectors, stock screening is a perfect example of how to utilise technology to solve an issue and provide a service that is important and valuable to Islamic investors. In order to ensure investments are fully Islamic-compliant, all stocks are checked monthly to ensure they pass as series of asset classes, business and financial guidelines—and that the most recent compliance statuses are used for investment decisions. Only stocks and Islamic ETFs are eligible for Islamic-compliance c o n s i d e r at i o n . D e r i vat i ve or interest-based financial instruments such as bonds, futures, options, Contracts for Difference (CFDs) and conventional ETFs are all to be considered by many financial Islamic scholars to be non-compliant, as with preferred shares. All compliant stocks are checked to ensure the underlying companies of the investment instrument have an appointed Islamic board and state in their bylaws that they operate according to Islamic guidelines. Meanwhile, companies are only considered compliant if the cumulative revenue from non-
compliant activities and nonoperating interest income does not exceed five per cent of their total income. Financial screens also have to be fulfilled to ensure Islamiccompliance is according to defined rules, such as interest-bearing debt, as well as cash, cash equivalents and short term investments over a 12-month average market capitalisation must be less than 33 per cent. Additionally, cash, cash equivalents and receivables over 12-month average market capitalisation must be less than 67 per cent. From an Islamic perspective, trading can only be conducted on investments owned and thus short-selling is widely seen to be non-compliant together with interest-based margin trading. It is the customer who is the real winner of technology innovations such as stock screening. Today, trillions of dollars are inefficiently managed and wealth management clients have not been given access to the requisite technology with which to manage their investments. This is because many traditional financial institutions by their nature are not disruptors. New solutions, however, are changing this and wealth managers and their clients can both benefit from technological advances. Technology is democratising investment and trading through digitisation. I strongly believe that we are not only ready to meet the challenge of technology, but is also ready to profit on the developments. Those companies that embrace technology as a way of offering their clients a better investment experience have nothing to fear of the future.
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14/09/2016 8/30/16 16:53 5:53 PM
HALAL BUSINESS
(A. and I. Kruk/SHUTTERSTOCK)
Bringing Shari’ah to social business
INNOVATIVE MICROFINANCE IN SUDAN RESTS ON A SHARI’AH-COMPLIANT VARIATION OF SOCIAL BUSINESS, WRITES PROFESSOR BADR EL DIN A. IBRAHIM, A MICROFINANCE CONSULTANT IN SUDAN
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n terms of theory and practice, microfinance is evolving, especially when it comes to the shift towards financial inclusion for the poor and social business to solve societal problems. Yet, while the sector is growing stunningly fast, its big expectations have not been met to date. Sudan is an example of a fullyfledged Islamic system that is harnessing its financial resources to achieve the goal of poverty alleviation. Since 2008, the Central Bank of Sudan policy has been that each domestic bank must allocate 12 per cent of its resources towards microfinance, through their counters or the provision wholesale finance to licenced microfinance institutions.
Yet the social goals of Islamic banks in Sudan are also achieved via finance with a human dimension. This concept is different from the 'social business' concept developed by Professor Mohammed Yunus, a banker and entrepreneur who paved the road for microfinance with the foundation of Grameen Bank.
THE CONCEPT OF ‘SOCIAL BUSINESS’ Social business means to harness financial resources through sustainable and profitable investments to address social problems without distribution of profits to the shareholders, according to Yunus’ 2013 book, Building Social Business.
According to the book, there are seven principles of social business—first, that its aim is combating poverty or any other problems threatening society and the community, such as education, health, and environmental issues. But second and third, the company should be financially sustainable, and investors must have the right to get their capital only—but not dividends. Fourth, investment earnings should be retained within the company for the purpose of expansion and improvement. The final three principles focus on social aspects: the company should work to protect the environment; the workers should take the market wage and work in the best environment,
Social business combines profit with community need, while Sudan’s ‘social dimension’ financing adapts it to Shari’ah-compliant funding of projects of a social dimension nature.
cont. on pg 38
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HALAL BUSINESS cont. from pg 36
comparable with the current working conditions; and the work should be enjoyable and amusing. The Islamic Takaful, or ‘micro– insurance’, system is the closest current example of Professor Yunus’ social business principles. It depends on the principle of solidarity in the form of a collective guarantee amongst participants against potential losses that could hurt one or many of them. The Sudanese model of Islamic Takaful is the first model in the world that does not allow the shareholders to have a share in the surplus; they are instead entitled to share in the Shari’ahcompliant investment returns.
FINANCE WITH A ‘SOCIAL DIMENSION’ In the Islamic finance system, microfinance is an integral part movement of money that carries the dual functions of profitability— that is, cycling money for the benefit of the individual and society at the same time. The Central Bank of Sudan recognises the social dimension of funding as wholesale finance that facilitates the implementation of projects that are related to: rural development and infrastructure; women’s empowerment; creation and support for educational, training and health institutions; installation of water and electricity networks; funding for affordable housing services and improvement of homes; and funding university students, as well as consumer goods for cooperatives, associations and federations. The project or programme should satisfy part or all of the following criteria: be initiated and participated in by the local community to achieve the interests of the
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poor and vulnerable; show clearly the ability to meet the necessary needs and priorities at the local level; be based on the principle of self-help; and arise from grassroots community organisations or institutions of financial intermediation. Under the social dimension principle, thousands of homes in peripheral neighbourhoods of the city of Port Sudan and East Sinnar were connected to energy through microfinance funding from banks which were guaranteed by the state governments. Repayments were made in monthly instalments with pre-paid electricity. Work is now underway to extend the same project on a wider scale, with banks to cover all peripheral areas in Khartoum state. The ‘social dimension’ type of microfinance has evolved dramatically and in recent years led to increased rates of finance in targeted communities by Sudanese banks. Previously, banks’ microfinance portfolios did not exceed five per cent, yet by adding a social dimension funding.
THE TWO TYPES OF FINANCE COMPARED Professor Yunus’ idea of social business is not different from the re-formulation of the two of concepts of charity and investment that aims at achieving individual profit. Professor Yunus’ vision is that these investments stand on poor people owning the assets themselves rather than service providers, and it seems to be ideal—but may not be applicable in many other countries. Moreover, there are many ways in which we can achieve the objectives of social business in line with the economic and social conditions of the countries.
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Social business is a meshing of charity and investment that aims to achieve individual profit. PROFESSOR BAD EL DIN A. IBRAHIM
Th e S u d a n e s e I s l a m i c microfinance concept is consistent with the vision of Professor Yunus, in particular the trend towards achieving profits and maintaining social dimensions of investment. However, Sudan’s model does not apply the principle of borrowers’ ownership to the service providers and their investments. This is replaced by funding projects of a social dimension nature from specialised and commercial banks. This funding achieves the same goal—addressing societal and communal problems.
REPLICATING THE MODEL Social business is a meshing of charity and investment that aims to achieve individual profit. The concept is also aimed at achieving individual investment based on making profits while also focusing on community issues. The Sudanese experience in Islamic microfinance is consistent with the vision of Professor Yunus, except that borrowers do not own the assets themselves. Rather, they receive funding from banks for social dimension projects. In the course of its microfinance progress, Sudan applied a system of investment with a social dimension. This concept evolved dramatically and has led to increased rates of microfinance amongst Sudanese banks. The two concepts could be widely replicated worldwide, especially in Africa.
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08/09/2016 14:35
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SUKUK
(ZAINIE KHALILI/SHUTTERSTOCK)
Sustainable and responsible Sukuk in Malaysia
SUSTAINABLE AND RESPONSIBLE INVESTMENT (SRI) IS AN INCREASING FOCUS FOR INVESTORS, AND MALAYSIA’S FRAMEWORK FOR SUCH IS A PATH FORWARD FOR SUKUK IN THE NATION, WRITES SABA’ RADWAN JAMAL ELATRASH, RESEARCH OFFICER AT THE INTERNATIONAL SHARIAH RESEARCH ACADEMY FOR ISLAMIC FINANCE AND NUR SHAIRA MOHD YUSOFF, EXECUTIVE AT ISRA CONSULTANCY SDN. BHD.
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ustainable and responsible investment (SRI) is an investment that advances environmental, ethical, and social justice while employing any investment strategy that achieves both financial return and beneficial impact on the society. The idea of protecting and enhancing the community through investing for a social
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cause and generating a financial return is very appealing to today’s investors. In fact, SRI assets under management in the US alone is said to be worth more than $6.57 trillion according to a 2014 report by the US SIF Foundation. Islamic finance prescribes the principles and elements of social responsibility, profit and risk sharing, as well as ethical
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Investors in Malaysia are increasingly focused on investment that will benefit humanity.
practises in all that is financed and transacted. There is a great emphasis on ensuring Islamic finance transactions do not contain any elements of injustice, oppression, and exploitation. There is no denying that the objectives of Islamic finance and SRI can easily go hand in hand. Developing Shari’ah-compliant structures and products for SRI
www.islamicbusinessandfinance.com
15/09/2016 11:53
SUKUK
is likely to become an important contributing factor to the expansion of Islamic finance in the global market. The rapid growth of Islamic finance and SRI over the past two decades reflects the soaring appetite of investors who are demanding products that not only provide financial return but also bring about social change. However, without an adequate Government structure and proper regulatory frameworks to regulate Shari’ah-compliant investments, Islamic finance instruments with SRI elements such as SRI Sukuk might not develop to its full potential. The challenge is to ensure that its investors have the assurance that while the investment is Shari’ah compliant, it also complies with the SRI’s environmental, social and governance (ESG) set of standards and best practises.
SECURITIES COMMISSION MALAYSIA (SC)’S SRI SUKUK FRAMEWORK To further develop the Islamic capital market and enhance Malaysia’s leading position in the global Sukuk market, the Securities Commission Malaysia (SC) introduced the SRI Sukuk Framework in August 2014 to facilitate the rising trend of SRIs. The SC 2014 Guidelines on Sukuk, in turn, included a specific chapter on the requirements for an issuance, offering or invitation to subscribe or purchase SRI Sukuk. In March 2015, the SC released the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framwork, which superseded the 2014 guidelines on Sukuk concerning making available unlisted capital market products to sophisticated investors in Malaysia or persons outside Malaysia.
F o l l o w i n g t h at i n J u n e 2015, the SC then released the Guidelines on the Issuance of Private Debt Securities and Sukuk to Retail which also superseded the 2014 Guidelines on Sukuk concerning retail investors. Table 1 below illustrates the SRI Sukuk framework issued in Malaysia since 2014. The LOLA Framework laid down the additional requirements imposed on SRI Sukuk in Chapter seven. It is important to note that the rest of the requirements of the LOLA Framework shall apply to an SRI Sukuk regardless of the fact that it has its own chapter in the LOLA Framework. In the Retail Investors Sukuk Framework, issuances of SRI Sukuk must also comply with the requirements under Part E; Chapter 20 which specifies the additional requirements imposed on retail Sukuk in addition to the requirements in Part D, which specifies the other Shari’ah requirements for SRI Sukuk. Of the many important clauses in both the LOLA Framework and Retail Investors Sukuk Framework concerning SRI Sukuk, of note is the requirement that the issuer must ensure that the issuance of the SRI Sukuk will only be utilised
of renewable energy; (iv) reduce greenhouse gas emission; or (v) improve the quality of life for the society. Projects that adhere to these objectives will be deemed to be an eligible SRI project. The discussion on eligible projects also mentions that an eligible SRI Sukuk can undertake to develop Waqf properties and assets. The clarification on what is considered an eligible SRI Sukuk is significant when comparing Malaysia to other countries. Malaysia has successfully created a framework for SRI Sukuk that provides legal and regulatory clarifications on what can be considered as SRI Sukuk. Th i s m o v e i s s e e n a s encouraging the issuers and providing them with guidelines to come up with eligible SRI Sukuk projects. Concurrently, such legal backing from these guidelines or framework provides credibility to foreign and local investors. The SC has taken this a step further by imposing disclosure requirements on the issuer whereby the issuance of a disclosure document in relation to the SRI Sukuk must include: (i) details and impact objectives of the eligible SRI project; and (ii) a statement that the issuer has complied with
Saba' Radwan Jamal Elatrash
Nur Shaira Mohd Yusoff
Table 1: SRI Sukuk Framework Issued by Securities Commission Malaysia
AUGUST 2014
MARCH 2015
JUNE 2015
Guidelines on Sukuk
Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework
Guidelines on the Issuance of Private Debt Securities and Sukuk to Retail Investors
SRI Sukuk Framework in Chapter 21
SRI Sukuk Framework in Chapter 7
SRI Sukuk Framework in Chapter 20
Source: Securities Commission Malaysia
for projects deemed to be eligible SRI Projects as shown in Figure 1. These eligible projects aim to: (i) preserve and protect the environment and natural resources; (ii) conserve the use of energy; (iii) promote the use
relevant environmental, social, governance (ESG) standards or recognised best practises relating to the eligible SRI project. • This is also seen to enhance the credibility of SRI Sukuk since the global investors are assured that cont. overleaf
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cont. from pg 41
Figure 1: Projects that can be deemed eligible SRI projects
NATURAL RESOURCES
RENEWABLE ENERGY AND ENERGY EFFICIENCY
ELIGIBLE SRI PROJECTS COMMUNITY AND ECONOMIC DEVELOPMENT
WAQF PROPERTIES/ ASSETS
issues from Malaysia will have adhered to: • Th e general requirements m e n t i o n e d i n t h e LO L A Framework and the Retail Investors Sukuk Framework (whichever applicable); • The additional requirements specified in the designated chapters of SRI Sukuk; and • The ESG standards on the said SRI Sukuk project.
KHAZANAH NASIONAL BERHAD’S SRI SUKUK The primary aim of the SRI Sukuk Framework is to foster innovation and dynamism in the Islamic finance market. The introduction of the SRI Sukuk Framework has benefited the Malaysian Islamic Capital Market industry through the issuance of the world’s first Figure 2: Khazanah SRI Sukuk Structure
ringgit-denominated SRI Sukuk by Khazanah Nasional Berhad. Khazanah’s vision is to be the leading regional strategic investment house that creates sustainable value for a globally competitive Malaysia. True to its vision, it issued the world’s first ringgit-denominated SRI Sukuk in 2015. Led by a special purpose vehicle (SPV) called Ihsan Sukuk Bhd (Ihsan), the Sukuk programme issued a nominal value worth MYR 1 billion. The tenure of the programme was for 25 years from its first issuance with a remarkable preliminary rating of AAA(s) by RAM Rating Services Berhad. The Sukuk programme was deemed hugely successful with an oversubscription for the first issuance worth MYR 100 million and has a 4.3 per cent return per annum over a seven-year tenure. The structure of the Sukuk can be seen in figure two below. The structure of the SRI Sukuk is in accordance with the Islamic principle of Wakalah bi al Istithmar, which further acknowledges Khazanah’s efforts in intensifying the innovation and evolution of Islamic finance. The issuance proceeds will be channelled to Yayasan AMIR, a not-
for-profit foundation initiated by Khazanah to manage its cashflow for the deployment of the Trust Schools Programme identified in 2015. Yayasan AMIR will, in turn, focus on improving the accessibility to quality education in Malaysia’s government schools. The step taken by Khazanah gives a reason for the stakeholders in the Islamic Finance industry to dream big and anticipate a brighter future. The first issuance of SRI Sukuk in Malaysia has amplified the expectations and hopes of the society to access quality education. This SRI Sukuk could fulfil the needs of both investors and society towards ensuring growth in the community’s economy.
MEETING DEMANDS Ultimately, SRI Sukuk has the significant advantage of providing a package that is very appealing to investors. The ever increasing need for developing and improving transport services, housing, schools, and hospitals, in addition to the necessity of developing alternative energy resources as well as green energy for the future generation, is an outcome desired by socially responsible, ethical, and green investors. Though the SRI Sukuk is seen as cutting edge and progressive in the Sukuk industry, it has a long way to go. To encourage better participation and break new ground in the global market, countries across the world can facilitate the development of SRI Sukuk with a robust legal, regulatory and governance framework such as the SRI Sukuk Framework issued by the Securities Commission Malaysia. It is a leading example of what has to be provided to meet the demands of both retail and sophisticated investors in the Sukuk market.
Source: CIMB (2015)
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15/09/2016 11:56
T H E
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04/09/2016 17:26
TAKAFUL
UAE Takaful gets more accessible SOUQALMAL.COM HAS ADDED THREE TAKAFUL COMPANIES TO ITS ONLINE PLATFORM, WRITES CEO AMBAREEN MUSA
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he global Takaful industry i s g r o w i n g r a p i d l y, demonstrating a doubledigit CAGR of around 14 per cent, according to the Ernst & Young Global Takaful Insights 2014 report. Saudi Arabia, Malaysia and UAE are the three largest Takaful markets globally, with the UAE accounting for 15 per cent of gross Takaful contributions within the GCC. According to a 2014 Deloitte report on the global Takaful market, UAE has the most extensive range of Takaful products in the GCC, across the family and general Takaful spectrum. Over the past half a decade, the UAE has upgraded its regulatory framework to adopt global industry best practises. The Insurance Authority (IA), UAE’s insurance market regulator, had introduced comprehensive laws in 2010 to regulate the local Takaful industry. To further align the industry with international standards, IA brought in new financial regulations in 2014, to standardise and control financial reporting and investment activities of Takaful companies. But from a consumer point of view, the UAE still faces a unique set of challenges, being home to expats from all over the world who make up around 85 per cent
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of its population. There is an obvious need to address the lack of awareness about Takaful products in the market, to be able to capture a wider target audience. The first step towards making sure the UAE Takaful industry is positioned to realise its full potential, is to start right from the basics. This would involve building awareness about the Takaful industry, its principles and products, among consumers. Apart from educating consumers about how Takaful works, it is also important to fix the misconceptions surrounding the topic of Takaful insurance. For instance, many people incorrectly assume that Takaful is only for Muslims or that there is something lacking in the product because of its religious nature. Based on statistics released by the Insurance Authority in 2014, there are 11 Takaful companies, out of the total 60 insurance companies operating in the UAE. Whether you’re looking for a life or non-life plan, there are a number of Takaful products available in the market to meet a wide range of insurance requirements. The product offering within general Takaful includes auto, travel, health as well as other commercial lines.
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Souqalmal.com CEO Ambareen Musa
Souqalmal.com, the UAE’s biggest car insurance aggregator, has welcomed on board three Takaful operators: SALAMA Islamic Arab Insurance Company, Noor Takaful and Dubai Islamic Insurance & Reinsurance Company (Aman), and is hoping to add new Takaful providers in the future too. The aim behind this is to empower users to choose their car insurance plan from a wider and more diverse range of insurance providers.
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Dubai Technology and Media
COMPANY
Free Zone Authority
ISSUE 93
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ISSUE 93
T H E A U T H O R I TAT I VE VOICE OF ISLA MIC FINANCE
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JORDAN RISING JDIB, led by CEO Sami Al-Afghani,
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JORDAN RISING JDIB, led by CEO Sami Al-Afghani, is bolstering the Islamic finance industry in Jordan
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18/04/2016 16:01
Prayer without pain
(SHUTTERSTOCK)
THE INSIDE STORY
AFTER SEEING PEOPLE SUFFER IN THE ACT OF PRAYER, TIMEZ5 FOUNDER NADER AL SABRY AND HIS TEAM DEVELOPED THE FIRST NASA-CERTIFIED PRAYER RUG
What inspired you to make the world’s first NASA-certified prayer mat? The inspiration behind this was that once when I was walking, I saw this old Bedouin man praying. He had such pain while he was praying, that at that moment, I said to my wife, it doesn’t make sense that after 1400 years, in today’s world, an old man should have to pray with this much pain. There must be a solution to this! I started down the path of a lot of research and development. I had a friend who was an ex-NASA scientist who worked with me. He used to work on the astronaut suits in the 1970s. We then put in five years of research and development. That research was critical in shaping our thinking and our brand, not just because we outputted the first physiological prayer mat in the process, but because we discovered a lot of things.
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Prayer should not be a a physically painful process, TimeZ5 said.
Among those discoveries, we discovered that 92 per cent of all the things around us are not ergonomically designed for your physical health. In fact, we initially went in with the hypothesis that prayer might not be physically good for you, and it turned out that is a myth. Our researched shows that prayer is actually very good for you physically. So then the question becomes, why would you experience pain at that point in time? The answer is in those other products—the 92 per cent that are ergonomically bad for us. The chairs we sit in are often built badly in those terms, for instance. As a result, when people pray, they get pain not because of the act of prayer, but because of all the design problems in the products around us. That led us to look more deeply in how to make a prayer mat tailor-made to take into account the
www.islamicbusinessandfinance.com
08/09/2016 16:16
THE INSIDE STORY
physiological problems that people are having in their lives, in order to give them a better prayer experience.
How has the take up been with consumers? We sell the prayer mat in 37 countries. With the research and development that we did, a lot of our technology we took was from astronaut suits. One of them is from chronogenics, an antimicrobial technology that is used in fabric. We became a NASA space-certified company at the end of 2013. They recongnized the level of technology that we were using. We became part of their technology transfer programme in two ways—both taking and giving in. We gave them elements of our microbial technology that they are still testing.
How has consumer feedback been for the prayer mat? The feedback has been phenomenal. About 25 per cent of our customers will buy up to three times in sixty days from their initial purchase, which just shows how sticky the product gets.
Could you tell me more about your customer demographics? Interestingly, 85 per cent of our customers are women. Women completely understand the product and offering a lot better than men. They are, then, the entry point in getting the family to adapt, and they will get the family using the product and purchase several more. Roughly 50 per cent of our purchases are gifted, so we are a high-level gifting item. We have several palaces in the UAE and Saudi Arabia who carry the product in their gifting line and gift it frequently to their VIPs and delegates. We are still doing extensive research to improve the product. We make physiological profiles of our customers, a physiograph, and we are working to develop digital tools that will work to help us continue to develop the physiograph. For that, we can understand our customer better. With each customer we analyse, we can understand what pain profile, their health profile, what lifestyle diseases are linked to those profiles, helping them understand their problems and work to find solutions.
Why are men more sceptical of this product? We looked deeply into this because that surprised us too. What we found is that women have stronger spending power than men in most families that we work with. Women, especially in this region, are a lot more open to trying new things than men, especially when it comes to technology and premium offerings. Men are more sceptical in general—they need to do more research but do not want to put the time in, so it ends up being the wives and daughters who do the research and educate their families.
A look inside the prayer mat.
What other scepticism have you faced? When we started out, we had a lot of scepticism online. The first incident we had can pain the story of many. There was a blogger in France who has around three million viewers a month, and he wrote an article designed to spark negativity towards us. He wrote it as if we were part of a vast conspiracy—implying that we were a non-Muslim company who intended to spy on its consumers. The audience loved what this guy was writing, which really worried us. The audience then started asking him questions, and so, in order to answer them, he had to look into us more. He began researching us, and realised that his attacks were unfair. He then actually recognised that this product might actually help him, so he contacted us, asking for a sample product that he would then review for his blog. We thought that was a beautiful way to bring a happy ending to this story, and provided one. He tried it out, then wrote back saying that it was for real, and not a joke. It went from a very bad situation, to a very good situation! cont. overleaf
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ISSUE 99 | Islamic Business & Finance
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cont. from pg 47
Some people have been sceptical about whether this product is Halal, and we can assure them that it absolutely is.
Who is your most famous customer? HH Sheikh Mohammed bin Rashid al Maktoum is actually a customer of ours. He put us in the Global Islamic Economy Summit, and awarded us as one of the innovation companies in the space.
Being a Muslim entrepreneur focused on innovation, what are some of the challenges of breaking new ground? It’s very tough because we’re breaking ground in a place where people do not expect ground to be broken. As I mentioned before, we have faced scepticism, which is something to overcome. Another thing we have faced is counterfeiting. There are a lot of people who have seen our success and are trying to emulate our product without keeping the high quality that is making it successful. In some ways that is annoying, but in other ways, they’re good news for us, because they validate our concept—if people are copying it, that must mean it’s something that people want. Another side effect is that when people try inferior copies, they really see the quality of our product in that comparison.
Do you worry about real competitors popping up? I welcome true competition. I think it’s good for all of us. I believe in collaboration at all levels. As an innovation company, you cannot operate in that space—you need other people to work on other segments. If you just have people copying one innovation, innovation is stifled. I welcome other innovation players who will bring other innovations to the table, in order to improving this space on a whole.
How else do you help people deal with these physiological problems? This summer, we launched an online course on Muslim physiology to teach people how to overcome these key issues. We call it ‘a lifetime of balance in one minute’. In that, we teach people techniques on things they can do in only one minute that, if practised frequently, will give you a lifetime of balance. We developed this with our medical team. It started in 2013 as a course in person, and that
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became popular with corporations, consulting firms and law firms. It became popular in terms of bridging the gap between spirituality and conventional medicine. There were hospitals in Germany, for example, that had Muslim patients but did not understand how to deal with them and their needs with regards to prayer. The Muslim physiology course was eye opening for them, helping them understand their patients better, in order to better treat and assist them. We digitalized it and brought it public this summer, and it is the beginning of setting up a series of digital training and digital tools to help people with understanding physiology.
TimeZ5 founder Nader Al Sabry
How has the feedback been to these services online? When we look at the general numbers, we have seen that people are finishing the most of the programme. It’s broken down into seven components, to it’s very digestable.
Which component is most popular? Most people are attracted to the knee component, but there is not much of a difference, as most are finishing all of it. It becomes a matter of awareness, and understanding more about their body. From there, it’s about practicing those behaviours to improve oneself.
What are your plans for the future? We see a lot of interesting areas about a lack of innovation in the Islamic space still. We plan to systematically tackle them from our ecosystem. The primary premises of our brand is what we call the physio-spiritual experience, and that is the guiding light in what we do.
www.islamicbusinessandfinance.com
08/09/2016 16:16
11th Islamic Business & Finance
Awards 2016
Excellence through innovation Rewarding pioneers in Islamic finance
23rd November 2016 The Godolphin Ballroom, Emirates Towers Hotel, Dubai 7pm cocktail reception followed by dinner and the awards ceremony
SUPPORTED BY:
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For sponsorship and nominations opportunities please contact: Nap Estampador, Business Development Manager Tel: +971 4 391 4680 or Email: nap@cpifinancial.net bleed guide.indd 1
For other information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net 07/09/2016 09:47
DATES FOR YOUR DIARY
11-12 Oct 2016
05-07 Dec 2016
(Dr Ajay Kumar Singh/SHUTTERSTOCK)
(S-F/SHUTTERSTOCK)
GLOBAL ISLAMIC ECONOMY SUMMIT
Following on Dubai’s intention of becoming the capital of the Islamic economy, The Global Islamic Economy Summit (GIES) is a forum focused on the Islamic economy. It aims to bring together experts in critical industry sectors from across the globe to directly address the greatest challenges and opportunities within the Islamic economy. Venue: Madinat Jumeirah, Dubai, UAE
WIBC 2016
The World Islamic Banking Conference (WIBC) continues to be a key date on the yearly map for Islamic financial professionals worldwide, bringing together those from across the Islamic economy to discuss the most important issues of the day as well as making landmark agreements and announcements. Now reaching its 23rd year, it will be run in strategic partnership with the Central Bank of Bahrain. Venue: Gulf Hotel, Bahrain www.WIBC2016.com
14-15 October 2016
23 November 2016
(Jorge Salcedo/SHUTTERSTOCK)
HARVARD UNIVERSITY MUSLIM ALUMNI ISLAMIC FINANCE CONFERENCE
This conference aims to unite thought leaders, practitioners, scholars and students in a dialogue to assess the role that Islamic finance can play in realising the sustainable development goals adopted by the United Nations in 2015. Venue: Harvard University, Cambridge, MA, US www.harvard.edu
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THE 11TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS
For over a decade, CPI Financial has been gathering the industry’s leaders to honor the best of the best in the field. This November, we look forward to welcoming you to Dubai in order to do it all over again. As always, it will be the must attend event of the season. Keep an eye out in future issues for announcements on when voting will open! Venue: TBA Dubai www.cpifinancial.net
www.islamicbusinessandfinance.com
08/09/2016 16:23
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