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ISSUE 104
ISSUE 104 DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
DEVELOPING ISLAMIC FINTECH Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
A CPI Financial Publication
PLUS:
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26 TAKAFUL:
Kenya’s challenges
34 SUKUK:
KSA’s Sukuk Program pushes forward
46 INSIDE STORY: Halal tourism in South Africa
07/09/2017 14:37
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CONTENTS
ISSUE 104
REGULAR SECTIONS
EDITOR'S LETTER
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Greetings all,
W
elcome to our latest issue of Islamic Business & Finance. This is the 104th issue of the longest-running Islamic finance magazine in the world. I hope you all have had a wonderful summer, and, depending on when you are reading this, had a blessed Eid al-Adha. Fintech has grown from a small whisper to a large shout in the halls of Islamic financial institutions around the world. For that reason, we have decided to dive heavily into Islamic fintech this issue, including the moves that are being made in Dubai and Bahrain, as well as the analysis over potential Shari’ahcompliance issues coming out of Malaysia. I hope you enjoy the analysis herein, and the important voices in the industry who wrote exclusively for us on this subject. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue. Until next time,
NEWS ANALYSIS
6
16
News & Analysis
FINTECH FOCUS
8 GETTING ETHICAL 10 FINTECH TO STIMULATE
GLOBAL ADOPTION OF THE ISLAMIC ECONOMY Abdulla Mohammed Al Awar, CEO, DIEDC
12 GETTING SERIOUS ABOUT FINTECH
24
16 IS FINTECH SHARI’AH COMPLIANT?
20 THE FINTECH REVOLUTION: Innovator or disruptor?
24 THE FUTURE FOR ISLAMIC FINTECH
William Mullally Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.
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CONTENTS
CHAIRMAN
ISSUE 104
SALEH AL AKRABI
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34 KSA’S SUKUK PROGRAM PUSHES FORWARD
38 SUKUK IN AFRICA 42 MARKET WATCH
32 TAKAFUL
ISLAMIC EDUCATION
26 TAKAFUL AFRICA
44 INCEIF
ISLAMIC INVESTMENT
THE INSIDE STORY
28 SEDCO CAPITAL
46 HALAL TOURISM IN SOUTH AFRICA
EXPERT OPINION
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32 “DESPERATE ISLAMIC BANKS
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46 INSIDE STORY
TAKAFUL:
Inside Takaful Africa
SUKUK:
2017 brings new firsts
HE Ahmed Osman, Governor, Central Bank of Djibouti
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KSA’s Sukuk pushes forward
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MALAYSIA:
KFH Malaysia's innovation
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Takaful in Indonesia
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Metito’s experience DIEDC’s updated in Africa strategy
20/06/2017 09:39
Halal tourism in South Africa
15/08/2017 16:59
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Kenya’s challenge
: 34 SUKUKProgram
A CPI Financial Publication
A CPI Financial Publication
PLUS:
26 TAKAFUL:s
KBW LAUNCHES ISLAMIC FUND
ICD’S VISION FOR ISLAMIC FINANCE Khaled Al-Aboodi, CEO, Islamic Corporation for the Development of the Private Sector (ICD)
Islamic Economy Al Awar, CEO, Dubai Abdulla Mohammed (DIEDC) Development Centre
Centre (DIEDC)
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KBW LAUNCHES ISLAMIC FUND An exclusive with HRH Prince Khaled bin Alwaleed bin Talal
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DEVELOPING ISLAMIC
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17/08/2017 12:06
National Bonds Wins BEST SUKUK TRADING PLATFORM FOR 2017
National Bonds is the region’s fastest growing Sukuk Trading Platform established to support shari’a compliant financing, liquidity management and interbank placements. The platform provides conversion solutions of existing portfolios to the Sukuk Trading Platform with convenience and efficiency. The Sukuk Trading Platform is servicing institutions, ranging from Islamic banks, windows and finance houses and has already reached a Sukuk transaction value of over AED 46 billion.
24/7 Availability | Flexibility | Complete Automation with 360 MIS Reporting | Bulk Buying | Core Banking Interface | End to End Solutions
Licensed and regulated by Central Bank of UAE
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+971 4 3848010
www.nationalbonds.ae
stp@nationalbonds.ae
22/08/2017 15:53
NEWS & ANALYSIS
Dana Gas released a statement to Sukuk bondholders after much speculation over the lawsuit it brought against the possible non-Shari’ah compliance of its Sukuk. To summarise, we hope we have set the record straight and addressed some of the misleading press coverage out there that states that Dana Gas is seeking to use the legal status of the current Mudarabah Sukuk as a negotiating ploy. This is categorically untrue. The steps we took to protect the Company’s reputation and assets are in measure with the amount of value at stake, concerns raised by the aggressive communications and threat of default received from the Sukukholders’ representatives, the Trustee and Delegate in late May, and the legal issues of the current Sukuk.”
In the UAE, Islamic banks’ credit to individuals recorded a 7.6 per cent gain to AED 126 billion in the first quarter, compared to two per cent growth in the conventional banks’ credit to individuals that reached AED 224 billion in the first quarter of 2017. This means Islamic banks’ personal finance, Islamic credit card sector is growing at a higher rate than that of the conventional banks’ personal finance and credit card segment. The split between conventional and Islamic banks indicates that the growth in Islamic financing is much steeper than that for the conventional banks’ loans. This effectively means that lending in the Halal sector is going up at a much higher rate than that of the non-Halal sector, as was evident in the first quarter of 2017. Islamic banks’ credit to the business and industrial sector grew 7.6 per cent to AED 151 billion in the first quarter of 2017. This means that the credit growth to the Halal industries and business sector remains higher compared to the non-Halal industries and services sector." RAEES AHMED, Director of Orange Fairs and Events, organiser of the Halal Expo Dubai, 2017
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22/08/2017 12:42
21X27CM .pdf
1
8/17/17
12:49 PM
BANKING EXCELLENCE INSPIRED BY TRADITIONAL VALUES Shari’a Compliant Window of the year
The Banker Islamic Bank of the Year Awards 2017
Best New Islamic Window UAE
Islamic Business and Finance Awards 2016
Our latest accolades further reinforces our commitment to providing innovative Shari’a compliant banking solutions across personal and business needs, that meet every requirement of modern life, whilst still maintaining the time-honoured values on which we were founded. To all our clients and business partners in the UAE and across the region, thank you for your continued partnership, support and trust in National Bank of Fujairah.
www.nbfislamic.ae
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OPINION
Getting ethical
O
ver in the conventional finance world, there is a conversation rumbling louder and louder about sustainable and ethical investment. For many, it seems it’s the first time they have had the conversation at all, as if thinking ethically about investment is a new thing they decided to try after the financial crisis exposed the dark side of conventional finance and chasing money for money’s sake, saying, ‘oh, hey, maybe we should actually try to be good for a change.’ Those that act like they have invented ethical finance or sustainable investment should have been looking more closely at Islamic finance. Because while there is a religious aspect to Islamic finance, it was never about being a financial system only for Muslims—it is about a better form of finance. After the financial crisis, and with the growing threat of global warming/climate change looming over us all, despite what some that live in Washington DC may say (and maybe even think?), ethical finance has come to the forefront of conventional finance as well. According to the Global Sustainable Investment Review (GSIA) 2016, sustainable investment now stands at 26 per cent of all professionally managed assets globally, highlighting the significant potential this industry fosters. Prominent sustainable investing strategies include exclusionary screening, (environmental, social and governance) integration and corporate engagement and shareholder action. This makes now the perfect time for Islamic finance and ethical finance to come together to discuss how they can work in tandem to achieve their shared goals. The Global Ethical Finance Forum is kicking off in Scotland in MidSeptember, with which we at Islamic Business & Finance are partnering. GEFF 2017 is set to spearhead two exclusive case studies focusing on tracking the growth of responsible investment in emerging and developed markets.
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The sessions aim to analyse the cases of Japan and Malaysia, who have separately had ethical finance initiatives, and understand what lessons can be gleaned from them and whether their success can be replicated in other emerging and developed markets. SEDCO Capital has also recently released a white paper about their investment strategy, which you can read more about on page 28, which aims to combine ethical investment and Shari’ahcompliance, in a way that produces huge value. One thing is for certain—for both Islamic and conventional finance, ethical investment is the way forward.
William Mullally
Editor
www.islamicbusinessandfinance.com
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FINTECH FOCUS
Fintech to stimulate global adoption of the Islamic economy ABDULLA MOHAMMED AL AWAR, CEO OF DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE (DIEDC), WRITES EXCLUSIVELY FOR IB&F ON HIS INSTITUTION’S SUPPORT FOR FINTECH INNOVATION
T
he US financial services sector, valued at $1.7 trillion, has been driven by the technological revolution that has changed the way we save, invest, spend and borrow. According to Accenture, nearly $18.9 billion was invested in emerging financial technology (fintech) companies worldwide this year to date, compared to $17.6 billion during the same period in 2016. This makes fintech the engine of the future global economy and a key element in ensuring its sustainability. With the World Bank seeking to ensure that every adult has a bank account by 2020, fintech has the potential to shake up the global financial sector and promote financial inclusion through catering to the needs of low-income families and improving the standard of living for people in developing countries. Islamic finance in particular offers secure solutions to small and medium enterprises, bridging the gap between financial institutions and those that seek project financing. According to the State of Fintech report by Wamda Research Lab and Payfort, the number of startups in financial technology in the MENA region reached 105 in 2015, compared to only 46 in 2013, and is expected to climb to 250 by 2020. The report also stated that among the 12 Arab countries where fintech startups have mushroomed, the UAE is the most dynamic
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hub with a four-year compound annual growth rate (CAGR) of almost 60 per cent. Home to half of the fintech companies that operate in the region, the country provides a well-structured, sophisticated legislative environment in addition to initiatives accelerating the development of the national economy, such as Dubai Future Accelerators and the Fintech Initiative. These trends underscore the importance of establishing the FinTech Hive at Dubai International Financial Centre (DIFC) in collaboration with the Dubai Islamic Economy Development Centre (DIEDC). The FinTech Hive is an advanced incubator for financial technology companies that facilitates the introduction of new financial products, helps attract liquidity and assists in solving legacy challenges that hamper global growth. Combining safe investment and social responsibility with innovation and effective utilisation of available tools, Islamic finance can adopt any contemporary financial instruments and put them to good use. Crucial to the growth of the Islamic economy, the competitiveness of Islamic financial institutions will significantly grow from their cooperation with the fintech sector. Given these promising trends, the FinTech Hive is set to significantly stimulate the adoption of the Islamic economy on the global scale.
ABDULLA MOHAMMED AL AWAR
www.islamicbusinessandfinance.com
15/08/2017 08:35
FINTECH FOCUS
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FINTECH FOCUS
Getting serious about fintech WITH INITIATIVES IN BOTH THE UAE AND BAHRAIN, THE GCC’S ISLAMIC ECONOMY IS MOVING FAST TOWARDS FINANCIAL TECHNOLOGY
E
arlier this year, Dubai International Financial Centre (DIFC) and Accenture announced the region’s first fintech accelerator in Dubai. Launched in the first quarter, FinTech Hive at DIFC, promised to bring cutting-edge financial services technology to the MEASA markets, while providing a platform that brings financial and technology firms together. Its goal is to increase access to,
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and improve customer experience and drive operational efficiencies in the financial services sector. The global fintech sector has attracted more than $50 billion in investment since 2010, but currently the Middle East and North Africa only attract around one per cent of that investment. The DIFC Accelerator intends to bridge the gap by creating a platform that drives innovation and showcases success—Identifying leading
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technology entrepreneurs and companies through a competitive process and then offering them the opportunity to develop, test and modify their innovations in collaboration with top executives from DIFC and regional financial institutions. Since launch, the FinTech Hive received over 100 applications from more than 32 countries for its inaugural programme. The majority of applications
The launch of the DIFC's FinTech Hive.
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FINTECH FOCUS
have come from the UAE, the UK, the US, India, Nigeria and Singapore, and cover a range of concepts including big data and analytics, the blockchain, payments, P2P and crowdfunding, roboadvisors, and mobility.
disruptive innovation supply chain. As part of the agreement, the programme will include institutions such as Emirates Islamic Bank, Dubai Islamic Bank, and Abu Dhabi Islamic
The regulatory sandbox will enable industry players to apply innovative fintech products while maintaining the overall safety and soundness of the financial system.” KHALID HAMAD, Executive Director of Banking Supervision, CBB.
The programme formally began on 21 August 2017. Following 12 weeks of mentorship and co-working sessions with leading local and international financial institutions, successful applicants get to present their work in the form of a demo day among potential investors.
TURNING TO ISLAMIC TECH In July, FinTech Hive made its first explicit call to the Islamic economy to be included in the initiative. Dubai International Financial Centre (DIFC) signed a Memorandum of Understanding (MoU) with Dubai Islamic Economy Development Centre (DIEDC), as part of its commitment to Islamic finance under the DIFC 2024 Strategy and in line with the vision of ‘Dubai: The Capital of Islamic Economy’. Coming off of this collaboration, the FinTech Hive aims to contribute to Dubai’s efforts to become the global hub of Islamic fintech by providing a platform that brings financial firms and technology companies together in one collaborative,
Bank, to mentor participants in the field of Islamic finance technology. In addition, the entity will host an event for the finalists, offering insight into the role of Islamic finance, and the impact of technology on this sector, as part of Dubai and the wider region’s broader economic development. “With the global Muslim population expected to grow by 73 per cent between 2010 and 2050, there will undoubtedly be a subsequent increase in the demand for Islamic Finance services both in the region and beyond. We are continuously investing in our world-class ecosystem at DIFC and that includes an infrastructure that is compliant and in line with best practise for Islamic Finance institutions. FinTech Hive at DIFC is committed to revolutionising financial technologies across all core sub-sectors, and Islamic Finance is no exception. This MoU is an important and progressive step for fintech, for the Islamic economy and for FinTech Hive at DIFC, said Arif
Amiri, Chief Executive Officer of DIFC Authority. The Islamic finance world desperately needs to keep up with the technological trends of the era, which are moving faster than ever. This need is recognised by the leaders in the field. “According to the State of the Global Islamic Economy Report 2016, commissioned by the Dubai Islamic Economy Development Centre, Islamic finance assets valued at around $2 trillion, are projected to reach $3.5 trillion by 2021. However, within the maturing Islamic economy landscape, several segments still need to be tapped. These include mobile banking and payment systems, as well as SME financing. We are confident the FinTech Hive at DIFC will go a long way towards developing these high-potential segments, and are committed to supporting the accelerator programme to guarantee its success,” Abdulla Mohammed Al Awar, Chief Executive Officer of DIEDC, said.
BAHRAIN'S FINTECH INITIATIVE Bahrain has also begun an initiative to support fintech development, with a different strategy from the DIFC. The Central Bank of Bahrain (CBB) has announced new regulations to create a regulatory sandbox that will allow startups and fintech firms to test and experiment their banking ideas and solutions. “The creation of the regulator y sandbox provides an opportunity for fintech businesses around the world to expand and thrive in the Gulf and strengthens Bahrain’s position as a fintech and financial services hub in the GCC, according to the CBB. cont. overleaf
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cont. from pg 13
The framework provides a virtual space for companies to test their technology-based innovative solutions, and is open to existing CBB licensees and other local and foreign firms. The testing duration is nine months, with a maximum extension of three months. In order to be eligible, solutions need to demonstrate innovation, customer benefit, technical testing, and an intention to be deployed in Bahrain after the sandbox period ends. The CBB issued the Regulatory Sandbox Framework directive, which includes the eligibility criteria, filing requirements and timeline for the process. According to the CBB, This initiative is in line with the Kingdom’s efforts to further develop the ecosystem in place to encourage growth in the fintech industry. Most recently, the Bahrain Economic Development Board (EDB) announced a partnership with fintech incubator and ecosystem builder Singapore Fintech Consortium and asset management and advisory firm Trucial Investment Partners to develop a fintech (financial technology) ecosystem and regulatory framework for the Kingdom. The agreement includes support in developing the related commercial and legal infrastructure required to initiate, nurture and sustain Bahrain’s fintech ecosystem. It will pave the way for increased interaction between fintech firms in the Middle East via Bahrain and those in ASEAN via Singapore and will facilitate the entry of Singaporean fintech companies into the Kingdom. “These new initiatives are a continuation of the CBB’s efforts to provide the right
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mix of policies and products to develop and enhance the quality and competitiveness of services in the financial sector. We are living in an era of unprecedented changes mainly brought about by technological advancement, where we are witnessing how technology is defining financial services and CBB remains at the forefront of these developments to enable the industry to advance similarly,” HE Rasheed Mohammed Al Maraj, Governor of the CBB, said. Bahrain also provided o p p o r t u n i t i e s fo r f i n t e c h businesses in 2014, when the CBB initiated two new licence types—payment services and card processing services—marking the entr y of non-banking companies into banking services.
We are confident the FinTech Hive at DIFC will go a long way towards developing these high-potential segments, and are committed to supporting the accelerator programme to guarantee its success.” ABDULLA MOHAMMED AL AWAR, Chief Executive Officer of DIEDC
To date Bahrain has issued 14 licences for these two activities. “The launch of the regulatory sandbox is an initiative that fo l l o ws o n t h e d i r e c t i ve s of HRH the Crown Prince to prioritise innovation that supports sustainable high value job creation in the Kingdom. In order to grow the fintech industry, we know we need to create an ecosystem in which entrepreneurs can innovate and test their ideas— and
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the introduction of Sandbox regulations is one of the key steps towards ensuring that environment. Bahrain has always been an attractive p r o p o s i t i o n fo r f i n t e c h — particularly due to our unique offering in areas such as Islamic finance and payments, and we are looking forward to welcoming more local, regional, and international fintech firms,” said HE Khalid Al Rumaihi, Chief Executive of the EDB. “The regulatory sandbox will enable industry players to apply innovative fintech products while maintaining the overall safety and soundness of the financial system; We are pleased with the introduction of this regulation, which sets a very forward-looking
policy that adapts with the times,” said Khalid Hamad, Executive Director of Banking Supervision, CBB. The call for more fintech in Islamic finance was made clear in Bahrain last December at the World Islamic Banking Conference, where the first day was entirely dedicated to fintech. The CBB also encourages Islamicspecific fintech businesses t o t a k e a dva n t a g e o f i t s latest initiative.
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FINTECH FOCUS
Is fintech Shari’ah compliant? THE ISLAMIC FINANCIAL SERVICES INDUSTRY STABILITY REPORT 2017, PUBLISHED BY THE ISLAMIC FINANCIAL SERVICES BUREAU (IFSB), RAISES INTERESTING QUESTIONS ABOUT THE DEVELOPMENT OF FINTECH IN THE ISLAMIC FINANCIAL LANDSCAPE
T
he global financial crisis that shook the world last decade led to many fundamental changes in the finance industry. While the Islamic finance industry weathered that storm well, the changes that came as a result of the mistakes made by conventional financial institutions will affect Islamic financial institutions as well. In the latest Islamic Financial Services Industry Stability Report 2017, published by the Islamic Financial Services Bureau (IFSB), one of the biggest changes was addressed. Technological developments in the financial industr y, used under the umbrella term ‘fintech’, are increasingly affecting the entire financial landscape. Fintech did not emerge on its own, however—it was the financial crisis of the last decade that caused a revolution in innovation to occur. “The customers’ trust in banks has eroded significantly on the back of perceptions that the greed of bankers was a key factor in the global financial crisis. Global systemically important banks
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were charged with various types of illegal practises—from money laundering and tax evasion to LIBOR manipulations and massive mis-selling—and had to pay fines in unprecedented amounts. While interest rates for savings and investments stayed at an all-time low, the high fees charged for investment products such as funds became more visible and added to customers’ dissatisfaction. Furthermore, the squeezed interest spreads caused many banks to introduce or increase fees for basic services such as the administration of current accounts. Against this background, disappointed bank customers became increasingly willing to use alternative service providers for more convenient and cheaper products—from money transfer to funding platforms and financial advice,” read the IFSB’s report. According to the IFSB, it is because of that dissatisfaction with traditional banks that led to the need for innovation through fintech. New companies used advanced information and communication technologies, including machine learning
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and artificial intelligence, to create new business models, products, and processes in the financial sector, and in 2017, many of those technologies are maturing. Start-ups have been able to offer convenience, affordability, increased quality and investment advice in ways that traditional financial institutions had never been able to before technological innovation pushed things forward. Though Islamic finance did not create the problems that caused these innovation, it is most assuredly affected by their development. “Although Islamic fintech is still very limited in number, scope and size, it may grow rapidly into disruptive technology, especially in the growing number of jurisdictions where Islamic banking has achieved systemic importance,” read the IFSB’s report. Among the technological innovations of recent years, distributed ledger technology (DLT) is often seen as the innovation with the greatest potential disruptive power for traditional banking and beyond, according to the IFSB.
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FINTECH FOCUS
What is that exactly? As the UK Government Chief Scientific Adviser described it in 2016, “A distributed ledger is essentially an asset database that can be shared across a network of multiple sites, geographies or institutions. All participants within a network can have their own identical copy of the ledger. Any changes to the ledger are reflected in all copies in minutes, or in some cases, seconds. The assets can be financial, legal, physical, or electronic. The security and accuracy of the assets stored in the ledger are maintained cryptographically by ‘keys’ and signatures to control who can do what within the shared ledger. Entries can also be updated by one, some or all of the participants, according to rules agreed by the network.” This technology was first seen with the launch of bitcoin in 2008, but fintech companies, global consultancies, law firms and government agencies all over the world have explored its broader possibilities and implications. In fact, one can break down this innovation—blockchain—into two parts: blockchain 1.0, which covers cryptocurrencies, and blockchain 2.0, which covers smart contracts. Are cryptocurrencies Shari’ahcompliant? “Shari'ah scholars have criticised Bitcoin for the very high volatility of its exchange rate against conventional currencies due to widespread speculation. Volatility and speculation do exist, but they are not necessarily inherent flaws of the concept and thus unavoidable. Much of the volatility can be explained by the early development stage of the market, and a more mature market (where Bitcoins are more widely used as a medium of exchange) should be much less
volatile,” read the IFSB’s report. More discussion between Shari’ah scholars is needed, and there is a strong possibility for consensus, if the recent past can be taken as precedent. “Although the legal opinions of Shari'ah scholars on the cryptocurrencies are still far apart, it may be possible and worthwhile to initiate a discussion process with the final aim of a collective Fatwa on cryptocurrencies. There is a recent precedent that initially contradictory opinions can converge and finally allow a collective Fatwa—namely, the AAOIFI Shari'ah standard 57 on gold and its trading,” said the IFSB. In terms of blockchain 2.0—smart contracts—Shari’ah compliance is also still up for debate. “Whether smart contracts are legally binding and enforceable is certainly a major legal issue that is also relevant when smart contracts shall be applied in an Islamic context. The assessment of the legal quality may not be fundamentally different from a secular and an Islamic law perspective. However, from an Islamic law perspective, single smart contracts that create, for example, automatic financial claims and liabilities indicate that there might be a tension between (1) the principle that in Fiqh al-mu'āmalāt innovations are allowed unless they fall under an explicit prohibition, and (2) the rather detailed requirements of Islamic law for the validity of exchange contracts. To support the application of smart contracts in the Islamic finance realm, Shari'ah experts should clarify what formal requirements are indispensable and where creative leeway exists.” “For example, individual sellers of household produced
solar energy may agree with an energy exchange on the rules of the infeed and the pricing mechanism, but neither the transacted quantities nor the respective prices will be known in advance for the whole contracting period. This implies a contractual uncertainty. Islamic banks often conclude framework agreements (such as a master Muraba'ah contract) with their clients, but for each single transaction under this agreement an explicit offer and acceptance is required (even if it is in the most reduced form of “pushing a button”). This implies that by not accepting an offer, the sequence of transactions can be stopped. It would be against the idea of a self-executing smart contract to incorporate a mechanism that requires a confirmation or allows for an interruption after each transaction during the term of the smart contract,” read the IFSB’s report. In the IFSB’s view, this is the key issue—is the‘smartness’ itself non-Shari’ah compliant? “From a Shari'ah perspective it should be clarified whether a smart contract of the outlined type is either a permissible contractual innovation although it does not meet all the formal requirements of classic contracts and actual practises in Islamic banking, or it has to be modified to include a stop mechanism (which would eliminate much of its ‘smartness’).” It only gets more complicated from there. Interlinked smart contracts, or ‘DAOs’, “could assume a different quality and much higher relevance for the use of an elaborate system of smart contracts. “In a stylised form, a DAO as a collective investment cont. overleaf
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cont. from pg 17
Box 4.2.1 Financial Inclusion and FinTech (Continued) Figure 1: Account Penetration, Adults with an account (%), 2011 and 2014 0
20
40
60 2011
East Asia & Pacific
80
100
2014
Europe & Central Asia High-income OECD Economies Latin America & Caribbean Middle East South Asia Sub-Saharan Africa Financial Institution Account only Financial Institution and Mobile Money Account Mobile Money Account only
Source: Global Findex Database, (Demirguc-Kunt et al., 2015)
Despite the improvements, 2 billion adults worldwide still remain unbanked, i.e. they do not have traditional bank accounts or access to banking services. Policy makers, including multilateral development organisations such as the World Bank finance advances, however. venture consists the followingto overcome have a lot to clarify in terms of the 2013, Group have taken of new approaches this major issue. In October as a response to ensure that the mentioned 2(1) billion people gain access an account, the World Bank Group President Kim announced the goal no of “An Jim organisation with elements: a moderator who torights and obligations of partners achieving Universal Financial Access 2020. The UFA goal DAO, envisions by 2020, adults thatbut are currently not only with communicates the idea of the (UFA) in abyMusharakah-like thethat management, part of the formal financial system, have access to a transaction account or an electronic instrument to store money, send providers of funds and holders scheme with some information on issue of majority voting, asmanage well risks and receive payments in order to manage their financial lives and help to and escape poverty.
the envisaged types of investment as mission drift. If, for example, of voting rights (who are not To achieve and this goal, 25 focus countriesthe which represent percent decide of the world’s unbanked adult population were even shareholders in the usual projects; (2) participants minority of 73 investors identified. The World Bank and International Finance Corporation (IFC) have set a target to enable 1 billion people to gain who (a) instal an (open source) that something is not Shari’ah- understanding), is quite different access to a transaction account through targeted interventions. The World Bank has committed to enabling 400 million alla target formstoof partnerships software establishes the compliant, willsupport, be putwhile in aIFCfrom adults to bethat reached through knowledge, technical andthey financial has set reach 600 million new accountholders investment and services. situation, as developed or adopted by Islamic investors’ network through and facilitates veryadvisory uncomfortable the project presentation and they will not have the control over law. However, companies with The approach of the World Bank focuses on introducing transaction accounts, expanding access points, improving limitedsuch liability were also alien selection by majority voting, and their capital they would prefer. programs, financial literacy, and driving scale and viability throughthat high-volume government as social transfers, into those transaction (b) contribute to accounts. the capital of the Furthermore, leaving investment to the traditional Islamic law and are now accepted. Whether this investment pool. The participants decisions to an algorithm. The UFA goal has a strong link with the World Bank twin goals; reducing extreme poverty and promoting shared will also apply to the creation may not know each other andinthe is thesavings issue with this? average prosperity. It enables increase productiveWhat investment, and credit, income and employment as a of a DAO by participation in a individual capital algorithmic DAOis is only result of access to ancontributions account and branch“The expansion. The UFA goal also an important step contributing to accomplish other goals asand it helps manage shocks, food security, enables a more network efficient andwith bettera of thedevelopment other members, they oneincome example of aimproves wider class of decentralised targeted social transfer to the poor, and improves access to services. do not have any contracts among investment vehicles that feature unique non-ownership structure should be by a Shari'ah themselves. They not have elements that investment look similar to, inclusion To accomplish the also UFA do goal and catalyse private sector in financial theclarified World Bank Group has increased engagement key partners. The 30 UFA financial sector partners made concreteread commitments toreport. reach authority,” the IFSB’s an explicit contractwith with the but may in substance be distinct financially excluded people and achieve Universal Financial Access by 2020. Commitments made by these partners include This decision-making process moderator who provided the open from, elements prohibited by banks, credit unions and savings banks, card companies, microfinance institutions and alliances, telecommunication source software organises Shari'ah, such as Gharar or cannot come lightly, or by a single companies, FinTechand and financial institutions (World Bank, 2016b). the presentation of investment gambling. Again, a clarification body, in the IFSB’s view. “This should not be done in projects. The investment projects of the demarcation lines between could be, in principle, of any permissible and prohibited isolation, but in coordination conceivable type, including features of complex transaction with secular legislators and complex high-risk financial models by a recognised Shari'ah regulators who have to answer contracts.” DAOs of this type authority could facilitate the very similar questions, such would pose major challenges to adoption of innovative fintech as: who is contracting with regulators and Shari'ah scholars, solutions in Islamic finance,” whom, what type of contract is ISLAMIC FINANCIAL INDUSTRY STABILITY REPORT 2017 concluded, shall a DAO get a legal according to theSERVICES IFSB’s report. read the IFSB’s report. Th o s e c h a l l e n g e s a r e Islamic finance has a history personality, and should outvoted numerous, and Shari’ah scholars of adjusting as the world of minorities be protected?”
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FINTECH FOCUS
The fintech revolution: disruptor or innovator? MAJED AL-GHANEMI, CHIEF OPERATING OFFICER OF ALAWWAL BANK SHEDS LIGHT ON THE DEVELOPMENT OF FINANCIAL TECHNOLOGY IN THE KINGDOM OF SAUDI ARABIA 20
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consensus is emerging across GCC countries that governments and financial intuitions must invest in the development of fintech ecosystems. These ecosystems are critical to nurturing technological innovation that will improve overall efficiency in financial services. The strong support of financial technology in the GCC from investors, regulators, and banks has resulted in the industry being placed on the verge of uber growth.
While banks need to react and embrace digital as a core value, the digital evolution needs to be integrated seamlessly into a bank’s business model to provide an enriched customer experience.� MAJED AL-GHANEMI
(Montri Nipitvittaya /SHUTTERSTOCK)
Will fintech be friend or foe for the islamic financial community?
F
intech is a term that has been used in the banking sector for years. There are predictions that financial technology will see the demise of traditional banking practises, leading the way for digital-only competitors. With the onset of new financial technologies, the banking sector has been investing heavily in digital infrastructure and is delivering more services through digital channels, but what does this mean for the sector more broadly?
FINTECH INFRASTRUCTURE IN THE GCC Although the majority of fintech investment has taken place in the US and Europe, a
In Saudi Arabia financial technology is being encouraged at a government level as a result of a combination of factors. These include measures to reduce dependence on oil, a growing millennial population (50 per cent of the country is under the age of 30) and Vision 2030’s strategy which places a huge amount of importance on the role of technology and its contribution to the growth of the Kingdom. Regulatory changes have also had a huge impact in creating a positive ecosystem for digital adoption and with the stage set, it is clear the digital revolution is coming, but what impact will this have on the current status quo?
DISRUPTER OR INNOVATOR? According to FICO, a data analytics company which focuses on credit ratings and consumer behaviour in the US, only 25 per cent of millennials display brand loyalty towards financial services. This is the reason fintech companies have been so successful in transforming the existing business model of banks. Fintechs have deconstructed banking into several verticals including robotic money managers, ewallets, and virtual currency. The reality is that fintech is both a disrupter and innovator; it has created pioneering customer experiences around mobile technology. Traditional banking experiences have become outdated. cont. overleaf
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cont. from pg 21
Consumers now expect their financial experiences to be mobile, personalised, customisable, and easily accessible. While the role of banks has not changed since the inception of money management, customer expectations revolved around these services have. Fintech solutions that have emerged have resulted in a range of developments from lower turn-around times for mortgages, to peer-to-peer lending/currency exchange, and crowd funding. This has greatly improved the customer experience, satiated customer demand, and has given scalable access to financial solutions in a manner which previously did not exist.
MAJED AL-GHANEMI
AN INTEGRATED BANKING MODEL The solution? A digital ecosystem in which banks collaborate with fintech companies to provide seamless customer experience solutions. Banks are evolving in many ways to meet customer needs from investment to advisory boards. A collaboration will more effectively integrate supply-side specialisation, from origination to bionic authentication, with the core expertise of banks, such as regulatory frameworks, to meet customer needs. If we identify fintech competencies, integrate, and offer a distinguished user experience, the result would be greater than its parts. The banking industry is all about meeting customer needs and I cannot stress this enough. To be relevant today and in the future, digital innovation linked to customer lifestyle is extremely important; for example, today’s customers demand interaction with banks via their mobile phone and banks that fail to follow will be left behind. History is filled with examples of once great companies that failed to recognise and react to the digital revolution. Alawwal bank recognises this need to innovate. It has a history of doing so and will continue to do so. To demonstrate, Alawwal was the first bank in the Kingdom to offer transactional capability
THE REALITY IS... The current customer experience is outdated– consumers now expect their financial experiences to be: Mobile
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Personalized Customizable Accessible
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on the Apple watch. We have also launched an app which encompasses a fully functional independent banking channel allowing customers to start banking from their mobile devices. Today all transactions are available via Alawwal Mobile and we have material plans to further increase our presence in this domain. More recently, we launched an innovative banking model based on technology and the retail experience. Ibda is a digital branch which offers customers an integrated experience and redefines the traditional banking model into a state-of-the-art café facility. The new branch allows customers to apply and instantly open an account or receive a credit card in under seven minutes while enjoying a selection of beverages and snacks from its partner; Costa Coffee. We expect Ibda to set new benchmarks in how banks engage with their customers across the MENA region. As for the demise of traditional banks to digital models, it is difficult for one to exist without the other. While banks need to react and embrace digital as a core value, the digital evolution needs to be integrated seamlessly into a bank’s business model to provide an enriched customer experience. Traditional banks have strong reputations, invoke trust, and provide security. While technology solutions offer many advantages, traditional bankers are best placed to integrate the technology into existing, established ecosystems to offer the most value to customers.
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The future for Islamic fintech DAVID PARKER, EXECUTIVE DIRECTOR – BUSINESS DEVELOPMENT: FINANCIAL SERVICES AT BAHRAIN ECONOMIC DEVELOPMENT BOARD, WRITES EXCLUSIVELY FOR IB&F ON THE SECTOR
DAVID PARKER
24
I
slamic finance has come a long way in a short time, but when it comes to the technological developments that have been transforming the conventional banking sector—the Islamic fintech sector remains more of an ambition than a reality. The discussions that we are having suggest that this is something that is changing—that more and more Islamic financial institutions are keen to seize the opportunities that are emerging. The growth in Islamic finance, and the structural factors that are likely to support that growth in the coming years, are well known. There are also several factors, such as the young population and high levels of smartphone penetration in the Gulf that make it a particularly opportunity for Islamic fintech.
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There is a young, affluent customer base who are technologically-adept and open to adopting new products and services and who are increasingly aware of and interested in Islamic finance. Of course, that potential is not enough on its own. It can only be realised if there is the necessary support for those businesses and entrepreneurs looking to innovate. For example, as with entrepreneurs and startups in all sectors, access to the funding to start and build a business is vital. Likewise, Islamic financial firms have often faced difficulties in finding skilled professionals as they look to increase the scale of their organisation. Any fintech firm needs regulation that allows for innovation, while at the same time maintaining the stability of the broader sector. At the EDB, we are actively engaged with the Islamic financial institutions in Bahrain as they are increasingly putting innovation at the forefront of their agenda. This involves a number of initiatives that help to provide a supportive ecosystem for fintech businesses—including Islamic fintech companies. We have established a regulatory sandbox, to give financial companies the opportunity to innovate, introduced a national e-wallet and new regulations and laws in a number of sectors, including funds, to help support VC funds among others. We are also looking further steps, such as the development of a dedicated physical space, regulations on crowdfunding and a fund of funds to enhance funding available for entrepreneurs. If these sorts of developments—both in Bahrain and in other major Islamic finance markets— can foster innovation within the sector then there is a real chance to transform the Islamic finance industry.
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TAKAFUL
Overcoming Takaful’s challenges OMAR SHEIKH, CEO, TAKAFUL AFRICA, ON HOW HIS INSTITUTION IS WORKING TOWARDS A BETTER FUTURE FOR ISLAMIC FINANCE IN KENYA
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W
hat are the biggest challenges that Takaful Africa has faced since its beginning? Being a pioneer, the company encountered various hurdles on its quest to enter the market, which has been dominated by conventional insurance for over five decades, since the country achieved independence. Legislation was one of the biggest challenges faced until this year. Although the government welcomed the Takaful concept and licenced it, there was a marked absence of laws recognising Takaful in the country’s insurance acts. This exposed the Takaful concept to risks, since the concept could be discontinued in the absence of laws governing it.
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TAKAFUL
Limited opportunities for investment was another major challenge faced. Since the market was one tailor-made for conventional finance in general, Takaful faced issues in this area. We were thus locked out from many of the areas such as Treasury bills and bonds. We also faced human resource issues. Staff conversant with Takaful was not available at the beginning, and this posed a great challenge in finding insurance personnel trained in Takaful. We hence had to resort to internal training and capacity building in order to build our staff. There were also challenges of market penetration. We had difficulty reaching out to non-Muslim customers who believe that Takaful is only for Muslims, thus mainly limiting our market to Muslim customers only.
Kenya is a burgeoning market for Islamic finance.
How have you overcome those challenges? There has been a concerted effort to have Takaful in the government’s insurance acts, which has now been achieved. This will provide opportunities for filling gaps in the laws, thus providing more opportunities for the growth of Takaful. With our effort to raise the capacity of our human resources, we have invested heavily in the training of our staff, which is composed of both Muslims and non-Muslims. This is because we consider skills as key and then train them on the Takaful concept. This worked for us. To overcome the challenges of market penetration, we have had various media campaigns to popularise the Takaful concept, as well as forums to educate intermediaries. However, it still remains a challenge. What lessons have you learned about customers in Kenya? They are really demanding and expect quick service. They also want quick claim settlements, and expect every claim to be paid and push for it incredibly hard. What are the main challenges facing the broader Islamic finance community in Kenya today? Mainly, there is a lack of adequate legislation for banks and insurance companies.
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OMAR SHEIKH
Though both have been recognised in some way, there are still grey areas facing both. Following the fall of three banks in Kenya in 2015, there is a perception that small and young organisations are not very safe, and as a result, customers tend to be more comfortable with larger companies. Customers love the Islamic concept, however, and continue supporting its institutions. What are your plans to tackle those challenges? To overcome the challenges arising from the gaps in legislation, we shall continue to engage with the regulators and the relevant stakeholders to close up and enhance those gaps with a view of unlocking the full potential of Islamic finance in the country. To win the hearts of customers and give them a better perception of Islamic finance, we will continue to engage them through the media, customer forums, direct engagement and relationship management, among other things.
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ISLAMIC INVESTMENT
Hasan al Jabri, CEO of SEDCO Capital
Introducing ‘PEI’ SEDCO CAPITAL HAS LAUNCHED A GROUNDBREAKING NEW INVESTMENT STRATEGY—PRUDENT ETHICAL INVESTING— WHICH COMBINES TRADITIONAL SHARI’AH PRINCIPLES AND ETHICAL INVESTMENT
S
EDCO Capital, one of the largest asset managers in Saudi Arabia, has launched a new investment strategy called Prudent Ethical Investing (PEI) that integrates its Shari’ah-compliant investment approach with ethical investing.
PEI stresses the importance of due diligence and transparency around investment structures, processes and reporting while also
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integrating the analysis of environmental, social and governance criteria in the investment process. The strategy seeks to avoid high financial risk and aims to enhance long-term risk-adjusted returns. Hasan al Jabri, CEO of SEDCO Capital, said, “We have pioneered a PEI approach that ensures we invest in companies that have strong governance, clear structures, and a
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ISLAMIC INVESTMENT
prudent level of leverage. In short, while we target strong returns and performance, we ensure that our investments benefit society, comply with Shari’ah and ESG investment principles, while avoiding excessive leverage and non-transparent investment structures.” According to al Jabri, the origins of SEDCO Capital’s principles can be traced back to last decade’s crisis. “The world’s approach to investment and finance was revolutionised following the 2007 financial crisis; large companies f a i l e d , i nve s t m e n t f i r m s p e n a l i s e d , several investors lost their capital and most importantly normal individuals in both established and emerging economies suffered great losses. Looking at the situation in hindsight, theories and explanations started surfacing about doubtful investment vehicles, greed and short-term unsustainable models which eventually caused the crash. Like any crisis, many investors will learn from previous mistakes and become more prudent in their investment approach,” said al Jabri. “A couple of aspects came to note for us at SEDCO Capital during and after the crisis. One, the Shari’ah investment universe was more resilient and less volatile than the rest after the market and two, ethical investing which focuses on the ESG (environmentally friendly, socially responsible and governance driven) investing was on a rise. In line with our continuous spirit of enhancement and innovation, we started to explore further these two topics to find out that both ethical and Shari’ah compliant investment embrace sustainable economic development. Our commitment to sustainable economic development for the future generations, our ethical & responsible approach drove us to develop our new investment approach of Prudent Ethical Investing (PEI) the bridges both ESG and Shari’ah to get strong performance and more sustainable businesses and economies around the world,” he continued. The global financial crisis in 2007 highlighted the downside of excessive leverage and the robustness of the Shari’ah investment universe, which proved sturdier and less
volatile to market conditions and shocks. SEDCO Capital has always tried to lead the way in the Islamic investment world. “We have been embracing the goals and objectives of responsible investment from the inception of our business. In 2014, we were the first Shari’ah-compliant and first asset management firm in Saudi Arabia to become a signatory of the UN Principles for Responsible Investment (UNPRI),” said al Jabri. “Responsible investment has turned into a core aspect of our investment process. Financial and non-financial criteria define an investment’s long-term risk-return profile. Thus, it is essential to evaluate non-financial environmental, social and governance considerations in addition to the traditional financial analysis.” The UNPRI was an initiative started by former UN Secretary General Kofi Annan. This principle-based framework called for the incorporation of environmental, social and governance variables when analysing risk for any investment. PEI is an innovation, not an invention. According to al Jabri, it is a development of previous sound strategies. “SEDCO Capital has integrated its responsible investment strategy within its Islamic/Shari’ah-complaint investment approach, which not only restricts investments in sectors considered unethical but also incorporates the quality of the balance sheet. We refer to the incorporation of both approaches as Prudent Ethical Investing (PEI). We regard the concept of PEI as an evolution of responsible investment strategies. “PEI stresses the importance of due diligence and transparency of investment structures, processes and reporting. Thus, it integrates the analysis of environmental, social and governance criteria in the investment process to incorporate nonfinancial aspects. PEI avoids high financial risks and thus aims to enhance long-term risk-adjusted return. The Global Financial Crisis has clearly shown the downside of excessive leverage and financial risk. Through the entire business cycle, the avoidance of excessive financial risk leverage should deliver better risk adjusted returns. cont. overleaf
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cont. from pg 29
PEI is an investment style, which through its prudence element biases its portfolios to better quality, thus avoiding high and undue risks. PEI demands the understanding for the underlying risks, structure and cash flows.” Al Jabri, who has been developing the PEI approach since 2013, recently oversaw the publication of a SEDCO Capital white paper, entitled How Can Responsible Investors Benefit from Islamic Criteria, which looked at the performance of responsible investments, Islamic investments and unconstrained portfolios across the US, Europe and Asian equity markets. The research showed that Shari’ahcompliant portfolios have outperformed unconstrained and responsible investment strategies over the last decade on an absolute return and risk-adjusted basis across all analysed markets. “The reason for the outperformance becomes clear: The PEI portfolios had biases to factor exposures such as growth, lower leverage and higher quality relative to portfolios using only responsible and unrestricted investment approaches,” said al Jabri. Christian Gueckel, Chief Risk Officer at SEDCO Capital and author of the white paper, said,“Our analysis has shown that sector exclusions and balance sheet constraints cause a distinct return profile for Islamic portfolios. The lower financial leverage and better cash conversion result in a bias to quality and growth which adds a prudence element to Islamic portfolios. Our results show clearly that responsible and unrestricted investors would have performed better using Islamic criteria.” SEDCO Capital’s white paper found that over the analysed period from 2006 to 2016, the global Islamic portfolio outperformed the global conventional portfolio by an annualised three percentage points and its Sharpe ratio improved by more than 40 per cent. The trend towards ethical investing which focuses on ESG (environmentally friendly, socially responsible and governance driven) investing has been on the rise over the past decade. SEDCO Capital’s research paper shows how both ethical and Shari’ah-compliant
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investment can embrace a sustainable economic development model and how these two forces have been merged to create the new concept of PEI. SEDCO Capital has set the standard for this investment approach and in demonstration of its appeal, it is now seeing Global partners follow its lead. “We now see PEI as a pathway to propel our business forward with new partners and new projects,” said al Jabri. “Our partners will benefit from a better understanding of how our investment methodology will meet both their performance requirements as well as ESG and responsible investment principles.”
We now see PEI as a pathway to propel our business forward with new partners and new projects,” said al Jabri. “Our partners will benefit from a better understanding of how our investment methodology will meet both their performance requirements as well as ESG and responsible investment principles.” HASAN AL JABRI, CEO of SEDCO Capital
SEDCO Capital has seen a sharp rise in the number of investors seeking out its PEI investment products. International investors can choose from over 14 SEDCO Capital Shari’ah-compliant investment strategies in Luxembourg with total AUMs of $1.8 billion. Shari’ah-compliant asset managers are now recognised globally as providing exceptionally strong platforms. “I am convinced that the concept of PEI has a bright future as it brings together r e s p o n s i b l e i nve s t m e n t a n d I s l a m i c finance with the basic proposition of asset management–enhancing risk-adjusted returns. This represents a compelling proposition in the high risk environment that the global economy is currently facing,” concluded al Jabri.
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22/08/2017 14:51
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EXPERT OPINION
“Desperate ‘Islamic banks’ do desperate things!” MOHAMMED KHNIFER, ISLAMIC DEBT CAPITAL MARKET BANKER AT THE ISLAMIC DEVELOPMENT BANK GROUP (IDB) WRITES HIS OPINION ON NON-SHARI’AH-COMPLIANT ACTIVITIES IN THE ISLAMIC BANKING WORLD
Desperation can cause frustration...the path to the 'dark' side.
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The first time was in 2009 by some treasurers of an Islamic bank. While the main responsibility is being shared by the management, the regulatory authorities are to be blamed as well for not providing their Islamic banks with Shari’ah-compliant instruments (to manage their liquidity). With the spread of Islamic banks/windows across the globe, such isolated incidents are expected to increase. These new jurisdictions to Islamic finance are not catching up to the ‘treasury requirements’ of these newly created ethical institutions. When the entire system is secular, selfmonitoring of your investment almost does not exist. The thinking in this case is to make a profit with conventional investments since the Islamic alternative does not exist. This has to stop and the regulatory authorities have to put an end to it. The portfolio of these banks must be scrutinised by their internal Shari’ah committees. Otherwise, we are no different from conventional banks. Being an Islamic bank means your full operations are Shari’ah-compliant.
(JETACOM AUTOFOCUS /SHUTTERSTOCK)
ome might be startled about the headline. We always come across those rosy stories about our Islamic finance industry. But we barely hear about the non-Shari’ah activities being undertaken by a ‘few’ treasurers of these ethical banks. I was awestruck when I realised that a few Islamic banks in some jurisdictions are literally purchasing conventional financial instruments to manage their liquidity and make profits for shareholders. It is a bit hard to believe that as we are living in an industry that has or about to reach its maturity! This, of course, begs the question of who turned a blind eye to such activities at the top management. This will also involve hiding such investments from the Shari’ah committee and betraying the trust of shareholders. This is the second time I hear of such incidents.
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SUKUK
KSA’s Sukuk Program pushes forward SAUDI ARABIA’S LONG-AWAITED SUKUK PROGRAM HAS KICKED INTO HIGH GEAR, WITH 13 BANKS NOW ELIGIBLE
T
he Saudi Arabian Ministry of Finance, acting through the Debt Management Office, announced that it has established an unlimited Saudi Arabian Riyal denominated Sukuk Program to issue and offer, at its discretion, Sukuk in multiple issuances to investors, pursuant to the
34
Royal Decree approving the budget on 20 July. According to the Ministry of Finance, the terms and conditions of each issuance will set out the details of such issuance including, but not limited to, the types of eligible investors, the size of the issuance and the expected return.
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The Ministry also announces that it has submitted the Sukuk Program file to the Capital Market Authority. The establishment of the Sukuk Program comes as a part of the Debt Management Office’s role in securing the Kingdom of Saudi Arabia’s financing needs with best financing costs.
A view of Riyadh, the capital city of the Kingdom of Saudi Arabia.
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22/08/2017 14:53
SUKUK
Saudi British Bank (SABB) with KSA's Ministry of Finance.
Bank AlJazira with KSA's Ministry of Finance.
Bank AlBilad with KSA's Ministry of Finance.
Arab National Bank (ANB) with KSA's Ministry of Finance.
The Program will also contribute to the fulfilment of the objectives of the Fiscal Balance Program and to the development of the Saudi Sukuk market. The Fiscal Balance Program is a plan to achieve budgetary balance, which is set to be a key component in developing a more effective government, by providing intense scrutiny of government finances and acting as a spur to increased efficiency. Following on this announcement, the Debt Management Office (DMO) of the Ministry of released a statement that it had completed receiving all requirements from 13 Saudi-licenced banks: Alawwal Bank, Alinma Bank, Al Rajhi Bank, Arab National Bank, Bank AlBilad, Bank AlJazira, Banque Saudi Fransi, Gulf International Bank, Riyad Bank, Samba Financial Group (SAMBA), Saudi Investment Bank, The National Commercial Bank, and The Saudi British Bank. The completion of this process enables the participation of these approved banks in the Government of Saudi Arabia Saudi Riyal Sukuk Program. “The DMO would like to thank to all Saudi licenced banks and extend special thanks to Alinma bank who assisted with Sukuk structuring,” read a statement from the DMO. Th e e s t a b l i s h m e n t o f the Sukuk Program and the issuance under it is subject to the Ministry of Finance discretion pursuant to the authority granted under the royal decree.
THE FIRST ISSUANCE
Alinma Bank with KSA's Ministry of Finance.
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Five days after the announcement of the establishment of the Saudi
Arabian Government SARdenominated Sukuk Program, the Ministry of Finance released a statement that it has received significant demand for its first domestic Sukuk issuance under the programme. According to the Ministry, the subscription applications for these Sukuk exceeded SAR 51 billion, with the issuance size set at SAR 17 Billion, resulting in 300 per cent coverage ratio. The Sukuk issuances were divided into three tranches. The first tranche has a size of SAR 12 billion and matures in 2022, the second tranche has a size of SAR 2.9 billion and matures in 2024, and the third tranche has a size of SAR 2.1 billion and matures in 2027. The Ministry noted that that significant interest to invest in the Saudi Arabian Government SAR-denominated Sukuk is a testament to the strength and resilience of the Saudi economy as well as the Saudi capital markets. It also demonstrates the important role the Debt Management Office at the Ministry of Finance plays in fulfilling the objectives of KSA Vision 2030, according to the Ministry.
THE DMO Following that endorsement of the DMO’s role in the Kingdom’s future, the Ministry of Finance announced the appointment of Fahad Al-Saif as Head of the Debt Management Office (DMO) and Advisor to the Minister of Finance. “The Minister of Finance, Mohammed Al-Jadaan, wished Al-Saif success in continuing to build capacity and skills to consolidate the Office’s presence in international debt cont. overleaf
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SUKUK
cont. from pg 35
markets in order to support the aspirations of the Kingdom’s Vision 2030 and contribute to strengthening its position as a leading global investment powerhouse,” read a statement from the Ministry. During his banking career, Al-Saif held several positions at SABB, including as Deputy Managing Director, General Manager of Global Banking and Markets, and Head of Treasury Risk Advisory. During his tenure at HSBC, he held the positions of Head of Capital Markets and Corporate Finance, and Head of Debt Capital Markets. He joined the DMO as a Supervisor in 2016 and participated in the Task Force responsible for issuing the Kingdom’s first Global Bond Program. In 2016, the Kingdom of Saudi Arabia issued $ 17.5 billion in international bonds, the largest emerging market issuance ever. Also in 2016, the Kingdom secured a landmark $10 billion loan. Following this success, the DMO has been integral in the increase in Islamic economy participation from the Kingdom. The DMO was successful in issuing The Kingdom’s first international Sukuk in April 2017, securing a total of $33 billion (SAR 123.75 billion) for the $9 billion issue. The DMO is responsible for securing the Kingdom’s financing needs on the best possible terms, according to the Ministry, and Al-Saif will play an integral role in that future.
POSITIVE FEEDBACK Commenting on the Ministry of Finance’s announcement that it had raised SAR 17 billion ($4.5 billion) in its first domestic Sukuk issuance under a newly
36
established local currency government Sukuk Program, Moody’s endorsed the move. “The issuance is credit positive for Saudi banks because their profitability will benefit from the transfer of their large, lowyielding reserves of cash and placements with the Saudi Arabian Monetary Authority (SAMA) and banks to higheryielding government Islamic bonds. Additionally, the issuance will help address a shortage of Shari’ah-compliant liquidity management instruments for Islamic banks and support the development of a domestic Sukuk market by establishing a yield curve,” said Jonathan Parrod, Associate Analyst for Moody’s Investors Service. “The Sukuk programme comes at a time when Saudi Arabia faces large funding requirements to finance a budget deficit that we forecast will equal 10.7 per cent of GDP in 2017, and follows t h e c o u n t r y ’s i n au g u r a l international Sukuk of $9 billion in April 2017. Following a decline in oil prices, Saudi Arabia has had to draw down its reserve assets and resort to a mix of domestic and external debt to fund its deficit. In July 2015, the government resumed the sale of domestic bonds (SAR 195 billion in total), but suspended the sales in October 2016 after the issuances crowded out privatesector credit and tightened Saudi banks’ liquidity. We expect that Saudi banks will be in better position to absorb domestic Sukuk issuance over the next 12-18 months because their liquidity has improved and credit growth has slowed,” said Olivier Panis, Vice President–
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Al Rajhi Bank with KSA's Ministry of Finance.
Gulf International Bank (GIB) with KSA's Ministry of Finance.
National Commercial Bank (NCB) with KSA's Ministry of Finance.
The Saudi Investment Bank with KSA's Ministry of Finance.
Alawwal Bank with KSA's Ministry of Finance.
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SUKUK
SAUDI BANKS' EXCESS LIQUIDITY VERSUS YEAR-ON-YEAR CHANGE IN CREDIT
NOTE: * Cash and deposits with SAMA in excess of stautory reserves. SOURCE: Saudi Arabian Monetary Authority
Samba Financial Group (SAMBA) with KSA's Ministry of Finance.
Riyad Bank with KSA's Ministry of Finance.
Banque Saudi Fransi with KSA's Ministry of Finance.
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Senior Credit Officer, Moody’s Investors Service. As of May 2017, Saudi banks’ cash balance with SAMA (in excess of statutory reserves) was SAR 109 billion (or more than 6x the amount of Sukuk issuance), up from SAR 53 billion a year earlier. Banks’ credit contracted 0.9 per cent over the same period, after increasing by 9.5 per cent a year earlier, driven by fiscal consolidation affecting economic growth. However, the combination of large stocks of liquid assets and low loan growth took a toll on banks’ net profits. In first-quarter 2017, banks reported a 2.8 per cent drop in net income versus yearago levels, according to Moody’s. “We expect the issuance of Islamic bonds to allow banks to transfer their excess cash reserves to government instruments, which attract a better return and will help banks’ profitability,” said Panis. In addition to boosting profitability, a new Sukuk programme will provide a deeper pool of Shari’ah-
compliant securities to facilitate liquidity management for domestic Islamic banks, according to Moody’s. Facing a shortage of Shari’ah-compliant investments that they can hold for liquidity purposes, Islamic banks tend to maintain higher levels of low-yielding cash and Islamic interbank placements on their balance sheet than their conventional peers, which curbs their profitability. According to Moody’s, as of March 2017, Saudi Islamic banks’ holdings of cash and placements with SAMA and banks equalled 20 per cent of their total assets, versus 16 per cent for conventional Saudi banks, while their investment portfolios accounted for only eight per cent of their asset base, versus 20 per cent for conventional Saudi banks. “ We expect that issued under the programme, like other traditional governmentbacked instruments, will be eligible for repo with SAMA for banks to access cash liquidity,” said Parrod.
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SUKUK
African Sukuk: challenges despite momentum BASHAR AL NATOOR, GLOBAL HEAD OF ISLAMIC FINANCE, FITCH RATINGS LAYS OUT THE FUTURE FOR AFRICAN SUKUK
BASHAR AL NATOOR
38
M
any African countries are working to develop their legislative and regulatory frameworks to establish Islamic finance and Sukuk as a sustainable funding alternative. With Africa’s demand for infrastructure financing solutions and its significant Muslim population, such an opportunity might be well received. Islamic finance is already present in more than 20 African countries, with Sudan having a fully-fledged 100 per cent Islamic financial system. However, the size of the Islamic finance
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industry in Africa is still small in relation to the industry as a whole. For example, Ivory Coast, Senegal and Togo listed Sukuk Islamic bonds worth 766 billion CFA francs ($1.28 billion) on the West Africa bourse in October 2016. Recent activity includes two bonds that are Senegalese, which raised 300 billion CFA francs in 2014 and 2016. Ivory Coast raised 310 billion CFA francs in issues in 2015 and 2016, while Togo raised 156 billion CFA francs in 2016. In comparison, Sukuk total issuance was $21.74 billion in 1H16 across the Gulf Cooperation Council, Malaysia, Indonesia, Turkey, Singapore and Pakistan. A notable development in North African Islamic banking was in June this year when Morocco’s central bank granted its first licences to Islamic banks, referred to as ‘participation banks’. This will likely provide a modest stimulus to deposit growth in the country. Fitch-rated banks indicate that the ability to offer Islamic banking products could expand their deposit bases by five to 10 per cent. The ability to grow the deposit base is positive for Morocco’s economic development because deposits represent about 70 per cent of banking sector funding. We expect growth of ‘participation banks’ to be high initially, as we saw following the introduction of Islamic banking in Turkey and Indonesia. The ability to access Islamic products will ensure that customers have access to a more comprehensive range of services. Customers who have avoided transacting with conventional banks for Shari’ah-related reasons can now move into the formal banking sector.
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SUKUK
(Marianna Ianovska/SHUTTERSTOCK)
A view of Morocco, the latest African country to embrace Islamic finance.
FACTORS BEHIND SLOWER GROWTH IN AFRICA Africa is less developed in its Islamic financial system for two main reasons. The first is the complexities of Sukuk and the second is the emerging capital market infrastructure of African countries. Both factors pose significant challenges for Sukuk in general, particularly in establishing a legal structure and legislation that is acceptable to governments, investors and Shari’ah boards. Also, structuring Sukuk compared to issuing a traditional Eurobond remains a relatively complex and time consuming process. Two main examples of these Sukuk complexity challenges are tax neutrality for Sukuk and the ability to establish a special purpose vehicle (SPV) that acts as a single issuer for the Sukuk. Although this is not Africa-specific, taxation is often challenging for Sukuk due to their assetbacked/based nature. What this means is several asset transfers for a Sukuk transaction, creating
a dense tax load for issuers when there is not special Sukuk legislation in place. Regulations often need to be amended to provide some sort of exemption to taxable gains on the transfer of assets and tax on rental income earned by a Sukuk issuing SPV. This is also true for withholding taxes linked to the transfer of underlying assets in Sukuk transactions. As an example, we have previously discussed possible VAT implementation in the GCC as soon as 2018. In most African countries, there are no specific comprehensive Sukuk laws, though some initiatives have now materialised. One example is South Africa, which has introduced Islamic compliant financial structures with further amendments to the Taxation Act to widen the definition of Sukuk. This comes following the issuance of its sovereign Sukuk during 2014. Regarding the second theme of the nature of Africa burgeoning capital markets, there are encouraging signs. However, the development is cont. overleaf
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At Fitch Ratings, we have been providing independent and objective credit ratings to the Islamic Finance market for over a decade. With a strong track record in Islamic Finance, we rate more Islamic banks than any other global credit rating agency. We currently rate 95 outstanding Islamic Finance instruments worldwide and 31 Islamic Finance based issuers. Fitch’s SUKUK Islamic Finance Group coordinates all Islamic Finance activities and expertise across the Sovereign, Financial Institutions, Corporates, Structured Finance, Infrastructure, and Insurance teams. In addition to being involved in the rating process of Islamic Finance instruments, the group monitors and reports on this rapidly growing sector through specialised research and commentary, as well as criteria development. The Islamic Finance team spans various continents and time zones and brings a combination of local knowledge and a strategic global cont. from pg 39 perspective to this evolving sector.
FITCH RATINGS' ISLAMIC FINANCE COVERAGE
Fitch Ratings’ Islamic Finance Coverage EUROPE
ASIA
2 Islamic Finance Based Issuers 11 Sukuk Issues $7,910,000 Volume of Sukuk Issuance (USD 000s) 6 Sukuk Programmes/SPVs
5 Islamic Finance Based Issuers 36 Sukuk Issues $17,629,980 Volume of Sukuk Issuance (USD 000’s) 8 Sukuk Programmes/SPVs
NORTH AMERICA 1 Sukuk Issue Volume of Sukuk $500,000 Issuance (USD 000’s) 1 Sukuk Programme/SPV
MIDDLE EAST AFRICA 1 Sukuk Issue Volume of Sukuk $500,000 Issuance (USD 000’s) 1 Sukuk Programme/SPV
Islamic Finance Based Issuers by Sector
Volume of Sukuk Issuance by Sector
24 Islamic Finance Based Issuers 48 Sukuk Issues $48,071,023 Volume of Sukuk Issuance (USD 000’s) 26 Sukuk Programmes/SPVs
Islamic Finance Based Issuers by Region
Volume of Sukuk Issuance by Region
(USD 000’s)
7% <1% <1% 26% 3% 16% has highlighted the limitations of heavily relying still modest relative 2 Issuersto their potential and compared $19,027,928 58% 1 Issuers on foreign investments alone and to more developed countries. There are numerous $42,956,090 7% regional and local
limitations and challenges in developing bonds and Sukuk alike. However, the regional/local currency Sukuk market is an area where we have seen increased Sukuk activity. 90% <1% The choices in issuance are usually domestic 28 Issuers $60,000 versus international and the currency denomination Corporates Financial Institutions of their Sukuk (or bonds) are local versus foreign. Insurance These two features are often interlinked, as many Sovereign/Supranational issuances are denominated in the currency of the market in which they are issued.
SUB-SAHARAN AFRICA ADVANCEMENT Africa has seen success in issuing Sukuk in Sub Saharan Africa, and West Africa in particular in the West African CFA franc (XOF), which minimises exposure to FX risk for domestic issuers and investors. The continuation of Sukuk activity is a positive development that allows Sukuk growth to widen and foster greater acceptance of this instrument globally. With global financial reform, we have seen the transformation of banks’ willingness and ability to lend. This, combined with recent events and uncertainties globally (such as interest rates increase and appetite of investors to emerging markets),
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24%
currency could make this complex process easier.
CONCLUSION
64%
11%
77%lie ahead for the African Sukuk market Challenges 17% despite continued momentum. Africa The time needed to $12,566,984 tackle these obstacles will in turn Asia lead to a longer time frame of Islamic financeEurope implementation Middle East and potentially higher costs inNorth relation to more America conventional forms of funding until a standardised framework is established. However, several Data as of May 2017 important trends could provide the necessary impetus for the development of Islamic finance in Africa. This includes growing government support for Islamic finance, increasing acceptance of Sukuk and Islamic finance more broadly and existing large investment and financing requirements in Africa. Furthermore, Islamic finance could enable African sovereigns to broaden their investor base while providing some diversification away from traditional Eurobond investors and towards regional/local market participants. As African governments tap the Islamic finance market, it is anticipated that other issuers such as state-owned companies and African banks could, in time, benefit from this additional source of funding.
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22/08/2017 14:56
Excellence through innovation Rewarding pioneers in Islamic finance
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SUKUK
OUTSTANDING SUKUK MAP OUTSTANDING SUKUK MAP
THE SIZE OF THE OUTSTANDING SUKUK MARKET GLOBALLY AS OF 15 AUGUST 2017 The size of the outstanding Sukuk market globally as of 06 Nov 2016
SOURCE: Zawya Islamic
ANNOUNCED/OPEN SUKUK IN AUGUST 2017 STATUS
ISSUER NAME
SUKUK NAME
SUKUK STRUCTURE
COUNTRY
CURRENCY
SUBSC. DATE
ISSUE SIZE ($M)
MARGIN
TENOR
ARRANGER/ADVISOR
Announced
Aplya Star Holding III Limited
Alpha Star Hldg III Ltd 6.25% 20-04-2022
Ijarah
UAE
USD
20 April-17
500
-
Five Years
-
Announced
Dar Al-Arkan Sukuk Company Ltd.
Dar Al Arkan Sukuk Co. 6.875% 10 April 2022
Unknown
Saudi Arabia
USD
10 April-17
500
-
Five years
-
Announced
Hong Kong Sukuk 2017Limited
Hong Kong Sukuk Ltd 3.132% 28 Feb 2027
Unknown
Hong Kong
USD
27-Feb-17
1,000
-
15 years
-
Announced
Warba Tier 1
Warba Tier 1 Sukuk Ltd 6.500% PRP
Unknown
Kuwait
USD
14 March-17
250
-
-
Warba Bank
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - Reg S
Unknown
Indonesia
USD
29 March-17
1,725.4
-
15 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 4.150% 28 Mar 27 - 144A
Unknown
Indonesia
USD
29 March-17
274.6
-
15 years
-
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - Reg S
Unknown
Indonesia
USD
29 March-17
855.62
-
10 years
-
Announced
Perusahaan Penerbit SBSN Indonesia III
Indonesia III 3.400% 29 Mar 22 - 144a
Unknown
Indonesia
USD
29 March-17
144.38
-
10 years
-
Announced
IDB Trust Services Limited
IDB Trust Services Ltd 2.393% 12 April 22
Unknown
Saudi Arabia
USD
12-April 17
1,250
-
10 years
IDB
Announced
DIB Sukuk Limited
DIB Sukuk 14 Feb 2-22
UAE
USD
15-Feb-17
1,000
Dubai Islamic Bank
SOURCE: Zawya Islamic
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ISLAMIC EDUCATION
A passing of the baton… WITH INCEIF’S PRESIDENT AND CEO STEPPING DOWN, INCEIF IS FOCUSED ON THE INSTITUTION’S, AND THE INDUSTRY’S FUTURE
DAUD VICARY ABDULLAH
I
NCEIF’s second President & CEO Daud Vicary Abdullah has retired effective 31 July 2017. He has been at the helm since August 2011 when he took over from INCEIF’s first President & CEO, Y.Bhg. Dato Agil Natt.
“I have decided to retire but I am not retiring from life and I am sure I will have many opportunities to continue interacting with INCEIF staff and students in the future. It has
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been my privilege to serve at INCEIF. I have learned a great deal, made new friends and have had an ever evolving vehicle to promote the values of Islamic finance. I am confident that progress will continue to be made at INCEIF and it has been my great pleasure to be part of that journey,” he added. In his final blog post for INCEIF, Daud Vicary Abdullah wrote, “It has been my privilege and pleasure to serve at INCEIF for the last six years. I would ask you to please forgive my many shortcomings and transgressions. I have always tried to do the best job that I possibly could. To echo the lyrics of the Roy Harper song: ‘When an Old Cricketer leaves the crease, well you never know whether he’s gone. It may be that you’re catching a fleeting glimpse of a twelfth man at silly mid-on!’” INCEIF is now focused on its future. “With two of our senior leaders retiring, we can either reminisce or look forward. Whilst the former will allow us to emotionally re-live some of the growth pangs, that took place in the past years, it will not result in striding forward to deliver on our mandate of being a knowledge leader. It’s time for the leadership team to look forward and provide the direction, guidance and clarity in taking ourselves to our 2018 goal of being a reference point for the Islamic finance industry,” said Joy Abdullah, Head of Strategic Planning & Corporate Affairs, INCEIF. “Strategically in the past two years we have focused on developing leaders and driving the industry through research based thought leadership. Today we are starting to see the first signs of returns of the strategic focus as more of our alumni are moving up the corporate ladder and
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ISLAMIC EDUCATION
a fair number undertaking strong entrepreneurial businesses,” Joy Abdullah continued. INCEIF is working to further the work of its past leaders, pushing the institution, and Islamic finance, forward. “Getting to a goal in business is not a sprint. It’s a marathon. To keep pace with the returns of our strategic focus and to ensure we achieve our 2018 organisational goal the management committee of the organisation, which is the leadership team of the organisation, is now focused on ensuring delivery of tangible social impact in association with its industry and academic partners,” said Joy Abdullah. “Whilst there is a planned transition in the C-suite, it is business as usual for the management team who are focused on the next phase of institutional sustainability.” These changes come at a period of transition for Islamic finance. Fintech and the global economy make this a pivotal point for the entire industry. “The Islamic finance industry is under a tremendous onslaught from technology, changing regulations, differing national and global economic climates and a rising clamour for more positive social impact of business. In this backdrop there is a clearly felt need for applicable practical knowledge that would aid the industry in creating value for its stakeholders,” said Joy Abdullah. “Understanding these changes and developing strategic initiatives, that are targeted to create value benefit both for the industry and the stakeholders, the INCEIF management team is now in the midst of charting a course for 2018.” That path forward will have to be one that the industry takes together. “Working with our industry and academic collaborative partners, locally and globally, the management team is creating action plans to deliver on initiatives that directly impact the quality of knowledge and the practicality of its research with the objective of providing the industry the knowledge leadership to enable it to tackle the changes and ensure sustainability. It is not a task that one organisation alone can undertake. But when many believe and take up a cause it is but a matter of time and effort before the positivity
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of the efforts translates into the magic of great results,” said Joy Abdullah. The new President & CEO of INCEIF will be announced in due course. In the interim, INCEIF Deputy President Operations, Dzalin Ayub, has been appointed as the Acting President & CEO with immediate effect. Dzalin said, “I would like to thank the Board for entrusting me with this responsibility. I look forward to steering INCEIF during this critical period to bring the university to greater heights. The focus will be in enriching the learning quality and optimising our resources. INCEIF will continue to use our talent and knowledge to make a meaningful impact on the industry and the society at large, both in the country and globally.”
The Islamic finance industry is under a tremendous onslaught from technology, changing regulations, differing national and global economic climates and a rising clamour for more positive social impact of business. JOY ABDULLAH, Head of Strategic Planning & Corporate Affairs, INCEIF
Dzalin, who joined INCEIF in January 2015, brings with him vast experience in the areas of corporate planning, strategic development as well as change and operations management. He has over 20 years of work experience particularly in the oil & gas industry, with focus on operations, change management and business transformation. In his previous role as the Country Sales & Marketing Manager at one of the largest multinational oilfield service companies, Dzalin was responsible for the Malaysian market in driving and strategising business plans and framework for the organisation. Prior to that, Dzalin had a long stint with MISC Berhad Group of Companies where he devised and implemented the turnaround, amongst others, of a professional training establishment.
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THE INSIDE STORY
Halal tourism in Africa KHALID VAWDA, MD, ISLAMIC TRAVELS & TOURS SOUTH AFRICA SPEAKS ABOUT HIS EXPERIENCES IN THE BURGEONING HALAL TOURISM MARKET
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THE INSIDE STORY
S
ome three years ago Khalid Vawda, MD, Islamic Travels & Tours South Africa opened shop to deliver tourism packages exclusively for Muslim travellers looking to explore South Africa. “Having travelled South Africa extensively and being quite familiar with the country I started looking into [setting up the business], and did a lot of homework and research,” said Vawda. “There isn’t anyone that is specialised in dealing with Halal tourism, so we looked at the market and realised that it’s a market that can be serviced and being Muslim myself I know something about catering for the needs of Muslim travellers.” Vawda receives queries from all over the world for his packages aimed at the Muslim market. To date the bulk of his clientele have originated from countries such as the UK and Germany, the USA, Saudi Arabia and Malaysia. The company receives further global inquiries originating in Singapore, Indonesia, the Arabian Gulf states, and others from South East Asia.
HALAL SOUTH AFRICA
Spectacular view from Chapmans Peak Drive within the Table Mountain National Park, South Africa at sunset with Noordhoek beach background.
As our readers know, Muslim travellers have specific needs unlike that of others. The most important element is that of Halal food, says Vawda, “We have delicious food in South Africa.” South Africa is well suited to meeting the Halal needs of Muslim travellers, with four organisations working on Halal certification in the country—Halal foods can be found in most major supermarkets. Vawda went on to add that access to clean prayer facilities and ease of prayer are also important components in easing the travel experience for a Muslim traveller. cont. overleaf
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cont. from pg 47
In terms of the content of the trip itself, due to restrictions on alcohol in Islam itineraries need to be made to suit a Muslim traveller in a way that might be different from a conventional tourism package. “We cater for itineraries full of activities that would suit them. You not only visit sites of interest in South Africa, of which there are many, but also visit sites in which there is a Muslim element.” There is a long history of Islam in South Africa, added Vawda, beginning with imported Indonesian slaves in the 1600s, and arrival of Indian labourers in the 1800s. “You have both a diverse and rich history of Muslims [in South Africa] and wherever their struggle has taken them are places that many of our clients will visit as well,” said Vawda. Other than Islam-themed areas of interest, one of the bigger attractions for travellers is South Africa’s wildlife. Islamic Travels & Tours South Africa often include a trip to Kruger National Park in their packages. “Wildlife is a big part of [South Africa’s attraction], so we do the Kruger National Park. The park is huge in terms of the species with over 100,000 species, and the area of the Kruger Park is huge. It’s something that people rarely get to enjoy because the animals are in their natural habitat, unlike zoos or certain types of game reserves.”
THE HALAL INDUSTRY “The worldwide Muslim population, and particularly those with disposable income, is on the rise—wherever they may be,” said Vawda. “It’s not something that can be ignored, and whoever ignores it will be at a loss. Whoever is able to offer the services that Muslims require, in whichever area of life it is, will obviously benefit immensely.” This dynamic has already become self-evident in Islamic banking, with new Islamic banks setting up shop across the continent and conventional banks looking to offer Shari’ah-compliant products. In the South African tourism industry Vawda has found the environment helpful in regard to setting up Islamic Travels & Tours South Africa. “All of my guides that do the tours are non-Muslim but they are, however, extremely sensitive to Muslim needs and so understand the needs of the Muslim travellers. It’s a new experience for the guides as well—they love lapping up this new
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information and meeting new types of people. I think that’s why the guides do what they do—they enjoy meeting new people and they’re proud of their country.” Further assistance in streamlining the business was found from the umbrella agency for tourism in South Africa, the South African Tourism Services Association (SATSA), said Vawda. “The advice and training we received there was invaluable. It helped us streamline a lot of the ideas we had, to chip away the rough edges and be able to offer something more viable and polished.” Across Africa, Vawda is expecting to see a rise of Halal tourism. He pointed to Kenya and Tanzania as examples of countries looking to invest in the Halal tourism industry whilst offering important wildlife experiences. Although North Africa has traditionally been a hub for Halal tourism, due to the rich Islamic history of the region, the image of tourism in the region has been dented by regionally upheaval in recent years, Vawda added. For the future he is optimistic. Whilst growth is the main objective he is also hoping to be able expand his offerings to as many Muslims abroad as possible. The North American market was highlighted as an area that the company has left largely untouched and now represents significant opportunities for growth. Vawda also added that the company is busy with increasing numbers of inquiries from South East Asia, a region the company already has experience of dealing with. “We’re looking at moving into servicing large companies who might want to send their employees for a break, or for airlines—we’re looking to try and service airline staff as well when they do business in South Africa, so there’s a lot of work to get done, it’s exciting and it’s something that we’re really looking forward to over the next couple of years.” The broader Halal industry has a lot of work to do, however, before it is truly developed, according to Vawda. “The Halal market is more than just food. Food is a big part of it, but it’s more a lifestyle for Muslims and given that the Muslim population has grown significantly and is continuing to grow significantly globally, it’s a market that can’t be ignored. You’re finding now that a lot of banks, major banks, are looking at Islamic finance as a viable option, offering these products to clients because it’s a growing market and the Muslim
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THE INSIDE STORY
Bontebok pair standing in golden grass at sunset, Golden Gate Highlands National Park, South Africa.
population, those with disposable income, are on the rise. In terms of pure finance it’s not something that can be ignored, whoever ignores it will be at a loss, whoever can offer the services that Muslims require in whichever area of life it is, they will obviously benefit immensely.” Vawda expects Halal tourism to rise across Africa. “The areas that are frequented—Tanzania, and Kenya obviously for wildlife—have positioned themselves quite well. In terms of infrastructure they don’t compare to South Africa though. That’s a bit of a back foot. I have seen some reports of Kenyan authorities who are actively looking at the tourism market. North Africa has always been a hub of tourism because of the rich Islamic history there, but Tunisia, Morocco, Egypt, Libya, Tunisia have recently faced difficulties. Unfortunately I think with what’s been happening in the world recently with terrorist attacks and these types of things, it’s dented the image of tourism to these countries. They still remain popular destinations, but I think they offer something different from South Africa.” Vawda has advice for other Halal businesses as well. “Ensure that the needs of your clients are fully met and deliver on what you promise.
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In working with the clients I’ve found through my experience and through all types of work I’ve been through in my life, there’s no better service you can offer than the service you offer personally. Clients love that. Clients need to feel as though you genuinely care, and they’re not just there to fill out your bank account. It’s the service. Once you have clients who have received excellent service, they are going to talk to others about you and that’s the best form of marketing—word of mouth.” The business hasn’t sought out funding, Islamic, or otherwise—Vawda hopes he does not have to seek financing from banks in the future. “We haven’t received any financing yet because we haven’t approached anyone for financing. The business has managed to sustain itself since inception. I had some savings which I used to start it up, but the model that we’re using right now is one of self-sustainability. I’m trying not to get into any traps of loans or financing. And hopefully I won’t ever get to that stage. We are looking at partnership with some government sectors which are looking to develop tourism, but those would be more grants than loans.”
ISSUE 104 | Islamic Business & Finance
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DATES FOR YOUR DIARY
13-14 September 2017
23-26 October 2017
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GLOBAL ETHICAL FINANCE FORUM
With a focus on sustainable capitalism, the second annual GEFF will continue to promote collaboration and cooperation amongst stakeholders from the traditional ethical and Islamic finance sectors, whilst deliberating on key strategies to mainstream ethical finance. VENUE: Royal Bank of Scotland’s Headquarters in Edinburgh
IFSB SUMMIT
The IFSB Summit aims to bring together industry leaders and experts from across the globe. In particular, participants of the previous Summits have included key players of the Islamic Financial Services Industry (IFSI), especially members of the IFSB from among regulatory and supervisory authorities, international inter-governmental organisations, scholars in the field, and market players. VENUE: TBD Abu Dhabi
18 September 2017
8-9 November 2017
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HALAL EXPO DUBAI
Halal Expo Dubai focuses on a number of business verticals, including, Halal food, Halal beverage, Halal fashion, Halal cosmetics and personal care products, Halal travel and tourism, Halal hospitality, Halal banking and finance. VENUE: Roda Al Bustan, Airport Road, Dubai
INTERNATIONAL ISLAMIC BANKING SUMMIT AFRICA
This year’s Summit has confirmed a powerful keynote session featuring leading industry players who will address the three key catalysts that are driving the progress of Islamic finance in Africa: Sukuk & Infrastructure Finance - Trade & Investment - Financial Inclusion & Innovation. VENUE: Djibouti Palace Kempinski http://islamicbankingafrica.megaevents.net/
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TodayÕs Choices Shape TomorrowÕs Legacy As we celebrate our 75th anniversary in Kuwait, Ahli United Bank is honored to stand strong on a solid foundation of our clients’ trust. From one generation to the next, we have endeavored to bring you great success and satisfaction.
YEARS
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