#113 - February 2019

Dubai Technology and Media Free Zone Authority

ISSUE 113

ISSUE 113 FULFILLING VAST POTENTIAL IBRAHIM AL MHEIRI, CHIEF EXECUTIVE OFFICER, MASHREQ AL ISLAMI

FULFILLING VAST POTENTIAL Ibrahim Al Mheiri, Chief Executive Officer, Mashreq Al Islami, speaks exclusively to Islamic Business & Finance on his institution’s roadmap for the future

A CPI Financial Publication

PLUS:

page 3-4 contents 113.indd 1

28 MALAYSIA:

BNM’s 2019 vision

32 ISLAMIC BANKING: Outlook positive for Middle East banks

46 HALAL BUSINESS:

A bridge between the Islamic economy and China

28/02/2019 14:16

BEST ASSET MANAGER IN SAUDI ARABIA by the Islamic Business & Finance Awards 2018.

Alkhabeer Capital

Best Asset Manager

Alkhabeer Capital

The asset manager specialized in alternative investments, founded in 2008.

P.O. Box 128289, Jeddah 21362, Kingdom of Saudi Arabia Alkhabeer Capital is regulated by the Capital Market Authority (CMA), license no. 07074-37 bleed guide.indd Islamic Business1& Finance Awards 2018 award 50x32.indd 1

alkhabeer.com 28/02/2019 14:47 MP 01:6 24/12/18 6:10 PM

CONTENTS

ISSUE 113

REGULAR SECTIONS

EDITOR'S LETTER

10

Greetings, all

W

elcome to Islamic Business

& Finance.

This is the 113th issue of the longest-running Islamic finance magazine in the world. I hope you all have had a wonderful start to the year.

There’s a lot to get into in this issue. First, our cover story on page 10 features a profile of Mashreq Al Islami, one of the leading Islamic windows in the world. This is an interesting time for Islamic windows in particular, which was a conversation I also have often had recently with windows in Malaysia, so please enjoy this insight into the institution’s strategy.

Furthermore, we have a number of experts looking more closely at how things will play out in 2019, including in the global Sukuk space, in the Malaysian market, and the GCC as well. Also, a fascinating event held in Hong Kong gives insight on how Islamic finance could play a part in connection the UAE with China.

Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue.

Till next time,

OPINION

6

18

Growing Indonesia and Malaysia’s Islamic financial markets

NEWS + ANALYSIS

8

News & Analysis

COVER STORY

10 Fulfilling Islamic banking’s vast potential

28

EXPERT OPINION

18 Sukuk issuance expected to remain subdued in 2019

ISLAMIC TECH

22 Brave new world SUKUK

MALAYSIA

26 GCC Sukuk more resilient on

28 The 2019 vision for Islamic

secondary market

William Mullally www.islamicbusinessandfinance.net

page 3-4 contents 113.indd 3

finance in Malaysia

Log on to www.islamicbusinessandfinance.com for news, polls, events, analysis, blogs, features, commentary and more.

ISSUE 113 | Islamic Business & Finance

3

03/03/2019 16:47

P.O. Box 502491, Dubai Media City, UAE Tel: +971 4 391 4681 Fax: +971 4 390 9576 islamicbusinessandfinance.com

CONTENTS

ISSUE 113

FEATURES

CHAIRMAN

SALEH AL AKRABI CHIEF EXECUTIVE OFFICER

STEVE LEE steve.lee@cpifinancial.net Tel: +971 4 391 4681 EDITOR - ISLAMIC BUSINESS & FINANCE

WILLIAM MULLALLY william@cpifinancial.net Tel: +971 4 391 3718 EDITORS

NABILAH ANNUAR nabilah.annuar@cpifinancial.net Tel: +971 4 391 3726 MATT AMLÔT matt@cpifinancial.net Tel: +971 4 391 3716 WEB EDITOR

JESSICA COMBES jessica@cpifinancial.net Tel: +971 4 364 2024 EDITORIAL ASSISTANT

ISLAMIC BANKING Islamic banks positive in 2019

BUSINESS DEVELOPMENT MANAGERS

SHARI’AH FOCUS

NEEMA SAJNANI neema.sajnani@cpifinancial.net Tel: +971 4 391 3717

38 Is Shari’ah human

DANIEL BATEMAN daniel@cpifinancial.net Tel: +971 4 375 2526 AKASH AMBALE akash.ambale@cpifinancial.net Tel: +971 4 433 5320

KUDAKWASHE MUZORIWA kuda.muzoriwa@cpifinancial.net Tel: +971 4 391 3729

32

32 Outlook for Middle Eastern

governance important for Islamic financial institutions?

40

ISLAMIC INVESTMENT

42 Building a holistic Islamic

capital market ecosystem

HALAL BUSINESS

EDITORIAL

ADVERTISING

editorial@cpifinancial.net

sales@cpifinancial.net

LONDON BUREAU

ISLA MACFARLANE isla@cpifinancial.net Tel: +44 7875 429476 CHIEF DESIGNER

SENIOR DESIGNER

BUENAVENTURA R. JALUAG, JR. jun@cpifinancial.net Tel: +971 4 391 3719

FLORANTE MAGSAKAY florante@cpifinancial.net Tel: +971 4 391 3724

46 Building a bridge between the Islamic economy and China

46

50 World Takaful & InsurTech Conference

DIGITAL MANAGER

SIYA PAINAYIL siya@cpifinancial.net Tel: +971 4 391 3722 EVENTS MANAGER

FINANCE & DATA MANAGER

SHAIK MANSOOR shaik.mansoor@cpifinancial.net Tel: +971 4 365 4538

SHAIS MEMON, ACCA, CMA shais.memon@cpifinancial.net Tel: +971 4 391 3727

EVENTS MARKETING MANAGER

FINANCE & DATA EXECUTIVE

CRIS BALATBAT cris.balatbat@cpifinancial.net Tel: +971 4 391 3725 HR & OFFICE MANAGER

RIZZA INFANTE rizza@cpifinancial.net Tel: +971 4 391 4682

KHALED TAHA khaled.taha@cpifinancial.net Tel: +971 4 433 5322

Get the next issue of Islamic Business & Finance before it is published.

Full details at www.islamicbusinessandfinance.com

ADMINISTRATION & SUBSCRIPTIONS

ISSUE 113

CAROL BASA carol@cpifinancial.net Tel: +971 4 391 3709

Dubai Technology

and Media Free

Zone Authority

ST

AL ISLAMI

FULFILLING VA POTENTIAL

A CPI Financial Publication

A CPI Financial Publication

PLUS:

18 MALAYSIA: Looking beyond profits

24 INVESTMENT: brings access Wahed Invest to the masses

NCB...IS THE EMPLOYER OF CHOICE

CAPTURING

GROWTH

Mutlaq Al Anezi, Senior Executive Vice President (SEVP) Head of Human Resources Group, The National Commercial Bank – Saudi Arabia

Special Report: Ranking the top institutions from across the Islamic economy

David Power, Chief Executive Officer, KFH Malaysia A CPI Financial Publication

exclusively Mashreq Al Islami, speaks future Chief Executive Officer, n’s roadmap for the Ibrahim Al Mheiri, Finance on his institutio to Islamic Business &

CAPTURING GROWTH DAVID POWER, CHIEF EXECUTIVE OFFICER, KFH MALAYSIA

NCB...IS THE EMPLOYER OF CHOICE Mutlaq Al Anezi, Senior Executive Vice President (SEVP) Head of Human Resources Group, The National Commercial Bank – Saudi Arabia

OFFICER, MASHREQ

page 3-4 contents 113.indd 4

CHIEF EXECUTIVE

Islamic Business & Finance | ISSUE 113

IBRAHIM AL MHEIRI,

4

FULFILLING VAST POTENTIAL

PUBLISHED BY CPI FINANCIAL FZ LLC REGISTERED AT DUBAI MEDIA CITY, DUBAI, UAE.

@IBFMag on Twitter for stories as they're being told

ISSUE 111

ISSUE 112

ISSUE 113

Printed by United Printing & Publishing – Abu Dhabi, UAE

ISSUE 111

ISSUE 112

enquiries@cpifinancial.net ©2018 CPI Financial. All rights reserved. No part of this publication may be reproduced or used in any form of advertising without prior permission in writing from the editor.

Dubai Technology and Media Free Zone Authority

Dubai Technology and Media Free Zone Authority

PLUS:

bleed guide.indd 1

S: 54 AWARD Business & th

18 MALAYSIA: Looking beyond profits

24 INVESTMENT:

Wahed Invest brings access to the masses

54 AWARDS:

The 13th Islamic Business & Finance Awards nominees

31/10/2018 16:10

The 13 Islamic nominees Finance Awards

26/02/2019 14:14

page 3-4 contents

113.indd 1

www.islamicbusinessandfinance.net

03/03/2019 16:47

Full page bleed size- 21.6 cm x 27.6 cm.pdf

1

2/21/19

1:21 PM

www.wtc19.com

Key Speakers

C

M

Y

H.E. Ebrahim Obaid Al Zaabi Director General Insurance Authority (IA)

Abdulla Mohammed Al Awar Chief Executive Officer Dubai Islamic Economy Development Centre (DIEDC)

Dave Matcham Chief Executive The International Underwriting Association of London (IUA)

Zia Zaman Chief Executive Officer LumenLab & Chief Innovation Officer MetLife Asia

CM

MY

CY

Puan Nurul Izza Idris Deputy Director of Jabatan Perbankan Islam dan Takaful Bank Negara Malaysia

CMY

Reena Vivek Chief Operating Officer Zurich International

K

Platinum Partner

Associate Partners

AI Technology Partner

Legal Partner

@WorldTakaful #WorldTakaful19 #WTIC19

Official Broadcast Partner

/meglobaladvisors

To explore partnership opportunities: +9714 4414 946 partnerships@meglobaladvisors.com or bleed guide.indd 1

27/02/2019 11:23

OPINION

Growing Indonesia and Malaysia’s Islamic financial markets

I

have spent the beginning part of this year so far travelling across the world to meet with many of you, the leaders of the Islamic finance community. Spending time in both Malaysia and Indonesia particularly, I gained even deeper insight into the current challenges in both markets at the moment, as well as the way they interact with each other.

In Malaysia, Islamic finance is well on its way to achieving the 40 per cent market share that Bank Negara Malaysia has outlined as its goal for 2020, with Islamic banks continuing to grow and innovate across the board. The entire Islamic economy, including human capital development, continues to grow, and it is heartening to see Malaysia continue to develop. Also exciting is the potential for more partnerships coming with institutions around the world, with a lot of focus for Malaysian institutions on what they could possibly do to work more with Islamic financial institutions in the Middle East— something Middle Eastern Islamic banks are also looking into more these days.

One interesting insight came from a conversation I had with a leading figure at one of the top banks in the country—that, at least regionally, Malaysian Islamic banks are not sure where to expand next outside of their home market. The most obvious market, of course, would be Indonesia—Malaysia’s neighbor, and the most populous Muslim country in the world. There, estimates put Islamic finance at a six per cent market share—still hugely underdeveloped.

It seems to be the perfect place for Islamic finance to reach its potential, and for Malaysian banks in particular to help the country’s development.

This particular bank, however, expressed skepticism that Indonesia would be welcoming of another Islamic bank—thinking that the country would rather develop its own institutions without the help of major foreign banks. If this is the case,

6

Islamic Business & Finance | ISSUE 113

page 6 Opinion 113.indd 6

I wonder how quickly Indonesia will be able to develop. Though the government has, more recently, taken an increasingly top-down approach to fostering Islamic finance’s growth, much like Malaysia did some decades ago, it is my belief that Indonesia can still gain a lot from partnering with Malaysia, and that a partnership could be the fastest way for Indonesian Islamic finance to grow.

Indonesia, however, has a number of innovative institutions itself, and I have great faith that it will be able to achieve its ambitious goals either way. I look forward to watching both these important and fascinating markets continue to develop.

William Mullally

Editor

www.islamicbusinessandfinance.net

03/03/2019 16:48

23 October 2019 Dubai Join the leaders of the industry to trace the future of Islamic finance

For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net

bleed guide.indd 1

28/02/2019 12:25

NEWS & ANALYSIS

Bahrain-based Rain has passed Central Bank of Bahrain’s (CBB) regulatory sandbox stage and is in the process of applying for the relevant licence.

This is a major milestone in the cryptocurrency and Islamic markets. This is the implementation of Rain’s mission to provide the Middle East with a cryptocurrency exchange that meets the highest standards in terms of regulation, accessibility, security and trust. We are excited to open the Islamic markets to cryptocurrency with a Shari’ah compliant exchange and a suite of cryptocurrency investment opportunities.

We could not be more excited to have graduated the sandbox and are very close to our public launch now.”

The Registration Authority of Abu Dhabi Global Market (ADGM) and the Casablanca Finance City Authority (CFCA) have signed an MoU to foster closer collaboration among the United Arab Emirates, Morocco and Africa and jointly promote the development of financial services in the respective markets. Morocco recently introduced Islamic finance.

- ABDULLAH ALMOAIQEL, co-founder of Rain said

As the International Financial Centre in Abu Dhabi, ADGM plays an integral role in supporting the UAE’s initiatives to bolster the growth and diversification of the economy.

We look forward to working closely with Casablanca Finance City to bolster knowledge sharing initiatives and achieve sustainable development in all respective markets, in addition to supporting international relations. We will work closely to develop a robust financial services sector that is supported by green finance and innovative financial technologies.”

The Governor of Saudi Arabia Monetary Authority (SAMA) said that he does not see more bank mergers for the time being beyond those already announced, reported local daily Arab News.

I do not think there will be any deflation, all data reflect optimism, we will soon publish real estate financing and you will see a big leap, and as you know real estate is one of the main drivers, as for the consumer sector it is active.”

- HE AHMED AL-KHOLIFEY, the Governor of SAMA

8

Islamic Business & Finance | ISSUE 113

page 8 News Analysis 113.indd 8

- DHAHER BIN DHAHER AL MHEIRI, CEO of the ADGM Registration Authority

www.islamicbusinessandfinance.net

03/03/2019 17:40

Presented by

Organised by

Unlocking Growth in a Changing World Join our expert line-up of esteemed speakers and be part of the conversation.

SPEAKERS INCLUDE:

Nicolas Cary Co Founder and Vice Chairman, Blockchain

Sir Gerry Grimstone Chairman, Barclays Bank

Dato’ Mohamed Rafique Merican Group Chief Executive Officer, Islamic Banking, Maybank

Mark Mobius Partner, Mobius Capital Partners

Bahren Shaari Chief Executive Officer, Bank of Singapore

Martin Wolf CBE Associate Editor and Chief Economics Commentator, Financial Times

Places are extremely limited. Apply for your complimentary VIP ticket now to avoid disappointment.

Read more and apply online:

live.ft.com/globalfinancialforum Platinum Sponsors

Gold Sponsor

Attendance is complimentary, subject to meeting the criteria and approval from the publisher.

11 March 2019 | Dubai

bleed guide.indd 1

28/02/2019 12:58

COVER INTERVIEW

(Florante Magsakay/CPI FINANCIAL)

FULFILLING ISLAMIC BANKING’S 10

VAST POTENTIAL

Islamic Business & Finance | ISSUE 113

page 10-17 Cover Interview 113.indd 10

www.islamicbusinessandfinance.net

03/03/2019 16:51

COVER INTERVIEW

IBRAHIM AL MHEIRI, CHIEF EXECUTIVE OFFICER, MASHREQ AL ISLAMI, SPEAKS EXCLUSIVELY TO ISLAMIC BUSINESS & FINANCE ON HIS INSTITUTION’S ROADMAP FOR THE FUTURE

W

hat is the vision of Mashreq Al Islami?

When the CEO of Mashreq Group Abdul-Aziz Al Ghurair decided to launch an Islamic financial services arm branded as Mashreq Al Islami, the idea was not to be another follower in the Islamic space, or merely to offer Shari’ahcompliant banking. The vision was, and remains, to offer the region’s most progressive Islamic banking experience. One that enables innovative possibilities for our clients, colleagues and the communities we serve.

IBRAHIM AL MHEIRI, Chief Executive Officer, Mashreq Al Islami

www.islamicbusinessandfinance.net

page 10-17 Cover Interview 113.indd 11

How has that vision evolved since it was first founded?

Ever since Mashreq Al Islami was founded, we have endeavored to offer the most pioneering Shari’ahcompliant products and services. Our goal has always been to be the most innovative provider in the market and we are proud in having delivered superior service to all our Islamic banking clients by continually investing in our systems, processes, and people.

Additionally, we have been active contributors to society; engaging with communities across a variety of CSR activities.

ISSUE 113 | Islamic Business & Finance

11

03/03/2019 16:51

COVER INTERVIEW

Innovation is the DNA of the Mashreq group.

Needless to say, all Mashreq Al Islami products offerings today, are available on the most advanced banking platforms. While there is an intrinsic demand for Islamic banking in the UAE, owing to the population mix, we always seek to maximise clients’ benefits, offering community services, and working towards creating the best shareholder value.

How does Mashreq Al Islami differentiate itself from the competition?

Our investments in technology have been significant, and the speed at which we deliver products has been unmatched. This is also true for our Shari’ah-compliant products, where the general belief amongst consumers is that Islamic products can take more time to be delivered; the perception being that they have sets of contracts, more intensive processes, and more hand-offs.

Our investment in people, processes, and systems ensures that we deliver the products faster than any other established multi-national bank, while not compromising Shari’ah credibility and authenticity.

We are fortunate to have some of the best Shari’ah scholars to guide us. Our extensive engagement with the Honorable Scholars, including Shaikh Sleiman Al Manei, Shaikh Dr. Ali Elgari, Shaikh Nizam Yaqubi, allow us to differentiate our offering from our competitors.

Our market leading online, mobile banking platforms, instant service branches, and digital branches were some of the very first in the region. In addition, Mashreq Al Islami is the only Islamic player that offers Salaam Rewards on our customers’ entire banking relationship, and these rewards can be redeemed instantly across UAE at 1800 POS machines, an experience which no other service provider in the region offers.

What are Mashreq Al Islami’s key products and services?

Mashreq Al Islami offers a comprehensive range of retail banking products and services including Qard-al-Hasan-based current accounts, Mudarabah based savings & term investments, Wakalah deposits with attractive profit rates, Murabahah-based personal auto-financing solutions, Ijarah-based home financing solutions for individual and commercial needs with competitive profit rates, and an Islamic Credit Card, which offers attractive Salaam Rewards and additional benefits across the UAE.

12

Islamic Business & Finance | ISSUE 113

page 10-17 Cover Interview 113.indd 12

For business banking clientele, Mashreq Al Islami also offers a comprehensive suite of products, current accounts, trade and working capital financing solutions, and financing against collateral.

Mashreq Al Islami also offers premium banking services with dedicated CISI-qualified & Shari’ahcertified relationship managers through its 50 branches across the UAE, along with leading Takaful offerings for life coverage and saving plans from the region’s leading providers.

On the wealth management side, Mashreq Al Islami offers the region’s top performing Islamic income fund and a distinguished Mashreq Al Islami Arab Tigers Fund, focused on equities and leveraged financing on sukuk & fund, is also offered to the customers who are looking for Shari’ah-compliant investments.

What have been the most important milestones for Mashreq Al Islami in the last two years?

Our focus on offering enhanced and nextgeneration banking solutions has seen Mashreq Al Islami acknowledged for two consecutive years by the prestigious Islamic Business & Finance Awards.

The bank has made wide-ranging digital investments to provide faster financial advice to clients - 13 Mashreq branches have been converted into smart branches. With less reliance on paper-based processes clients can enjoy selfservice banking.

How was the bank’s performance in 2018?

With the introduction of new regulations from the Central Bank, we are seeing a greater regulatory focus on responsible lending. Consequently, banks have enhanced their due diligence around onboarding new customers. Since new employment growth has been relatively flat across the region, most of the large players are competing for the same business. As a result, growth in lending hasn’t been as significant as in previous years, but this has seen a move towards more sustainable lending; delivering extended financing facilities and an overall improvement in performance.

At Mashreq Al Islami, we strive to achieve a percentage of new business via the Islamic route.

Leveraging Mashreq’s brand name, we aim to make inroads with Islamic banking clientele. With our diverse portfolio we were able to achieve 15-25% sourcing via this route. cont. on pg 14

www.islamicbusinessandfinance.net

03/03/2019 16:51

(Florante Magsakay/CPI FINANCIAL)

COVER INTERVIEW

IBRAHIM AL MHEIRI, Chief Executive Officer, Mashreq Al Islami

www.islamicbusinessandfinance.net

page 10-17 Cover Interview 113.indd 13

ISSUE 113 | Islamic Business & Finance

13

03/03/2019 16:51

COVER INTERVIEW

With the changing needs of customers, most notably amongst millennials we are continuing to invest heavily in digital, specifically when it comes to onboarding and servicing. We are also establishing the foundations for a new wealth management platform, introducing new products aimed at building long-term customer relationships.

IBRAHIM AL MHEIRI, Chief Executive Officer, Mashreq Al Islami

What are the biggest challenges facing Islamic finance community now?

The Islamic finance community, despite developing itself over the last 10-15 years in the UAE, still lags behind in terms of the market share, reach, and impact when compared to large conventional banks. With consolidation in the banking sector in recent times, the top three banks now control almost 50 per cent of the market. This poses a huge challenge for the Islamic financial sector, which has largely been seen as reactive to, rather than leading the change.

Many consumers believe that Islamic products are simply conventional products wrapped in an Islamic wrapper with a change in terminology.

This is far from the truth but there is a clear need to better educate and engage the new and existing customers on how Islamic financing is different to that of conventional banking.

Islamic finance is just a part of a broader Islamic economy, as envisaged by the vision of Dubai’s Ruler it includes, the Halal food market, Halal Tourism, the Islamic digital economy and the Islamic arts. The wider industry needs to have a more cohesive approach to work towards, and take the opportunity to leverage the support provided by the Ruler of Dubai to help achieve his vision.

What do you have planned for the future? What are your key priorities?

At Mashreq Al Islami, we strive to meet the demands of our customer’s everyday lives by providing them with a diverse suite of Shari’ahcompliant products and services. Islamic Banking continues to evolve and we are ideally equipped to adapt to these changes.

Dubai is well on track to achieve its goal of becoming the global capital of the Islamic economy. The Emirate has a seized the opportunity and has developed a robust Islamic Banking system to maintain the momentum. cont. on pg 17

14

Islamic Business & Finance | ISSUE 113

page 10-17 Cover Interview 113.indd 14

www.islamicbusinessandfinance.net

03/03/2019 16:51

(Florante Magsakay/CPI FINANCIAL)

COVER INTERVIEW

www.islamicbusinessandfinance.net

page 10-17 Cover Interview 113.indd 15

ISSUE 113 | Islamic Business & Finance

15

03/03/2019 16:51

(Florante Magsakay/CPI FINANCIAL)

COVER INTERVIEW

16

Islamic Business & Finance | ISSUE 113

page 10-17 Cover Interview 113.indd 16

www.islamicbusinessandfinance.net

03/03/2019 16:51

COVER INTERVIEW

The key for Islamic banks is not to just position themselves as providers of Shari’ah-compliant solutions, but also to provide all the banking services for which international banks are known.

IBRAHIM AL MHEIRI, Chief Executive Officer, Mashreq Al Islami

The next two years will see us deliver a long list of digital initiatives across our Islamic banking platforms aimed at enhancing the experience that our Islamic banking customers will enjoy.

Millennials are an increasing population and a target of most banks. Mashreq expects millennials to be key to the digital future and since technology is a concern for this segment, Mashreq Al Islami is focusing its efforts on digitisation and innovation to meet the growing demands of our customers.

We have chosen to invest heavily in Snapp, our mobile application to target millennials. Snapp allows customers to access all Mashreq Al Islami’s products, view the benefits, choose the product they want, apply for it and receive it at their home, all without stepping into a branch. The bank is also reaching out to millennials via social media. We recognise that the most important thing is being part of their daily life.

IBRAHIM AL MHEIRI, Chief Executive Officer, Mashreq Al Islami

What do you feel that the Islamic finance community as a whole needs to focus more on moving forward?

The key for Islamic banks is not to just position themselves as providers of Shari’ah-compliant solutions, but also to provide all the banking services for which international banks are known.

In many markets, we see that Islamic banks are directly competing with large conventional banks. Islamic banks need to not only provide

www.islamicbusinessandfinance.net

page 10-17 Cover Interview 113.indd 17

a comprehensive range of products, but also to enhance their overall customer experience to attract both Muslim and non-Muslim customers.

I believe that the Islamic banks in the UAE have done a reasonable job of growing their market shares and attracting both non-Muslim and Muslim consumers. Still, there is huge untapped potential for the Islamic providers, as many more customers could be attracted to Islamic banking, if their perceptions of service and relationship management could be overcome.

This is true not only in the UAE, but also in large population centers of the Muslim world such as, Indonesia, Egypt, Pakistan, Bangladesh, and Turkey. The largest market shares of consumers are still held by conventional banks. This is undoubtedly a result of their long established roots in communities and their strong history of good service and wide ranging distribution networks.

What is your personal management style?

If you ask my team, they would tell you that I am a very hands-on manager, I like to delve into details, research the facts and numbers myself, and then discuss with my team for a collective decision. I feel success is a collaborative effort, however I place significant emphasis on providing leadership to my team.

I believe in having an open door policy, sharing what you expect from them and what they can expect from you, support the team by enabling and providing the resources and the tools to do their job, and always praise their success. Failure is mine only.

I started my career as a product manager for lending products at Mashreq. Afterwards I moved on to Premium banking with another leading bank, Abu Dhabi Commercial Bank (ADCB), developing my knowledge of wealth management before moving to National Bank of Abu Dhabi (NBAD) to head the commercial banking product vertical, which was a thrilling experience. I have a fairly well-rounded exposure on the product and proposition side across most areas of retail banking. In my last role I headed commercial banking sales for Al Masraf as well.

This provides me with an in-depth understanding of both the Dubai and Abu Dhabi markets. I spend my time interacting with stakeholders, top government functionaries, and exploring possibilities and propositions to offer better and more innovative customer solutions.

ISSUE 113 | Islamic Business & Finance

17

03/03/2019 16:51

EXPERT OPINION

Sukuk issuance expected to remain subdued in 2019 18

Islamic Business & Finance | ISSUE 113

page 18-21 expert opinion 113.indd 18

www.islamicbusinessandfinance.net

03/03/2019 16:53

EXPERT OPINION

TIGHTENING GLOBAL LIQUIDITY, HIGH GEOPOLITICAL RISK, AND THE COMPLEXITY OF SUKUK ISSUANCE, POINT TO ANOTHER YEAR OF SUBDUED SUKUK MARKET PERFORMANCE IN 2019, ACCORDING TO S&P GLOBAL RATINGS’ GLOBAL HEAD OF ISLAMIC FINANCE, DR MOHAMED DAMAK

(Simon Dawson/BLOOMBERG)

F

www.islamicbusinessandfinance.net

page 18-21 expert opinion 113.indd 19

ollowing bumper issuance in 2017 of $120.6 billion, Sukuk issuance dropped five per cent in 2018 to $114.8 billion with an even more pronounced drop for foreign current Sukuk issuances of 15.1 per cent. While a significant drop in the price of oil could lead to higher demand for funding in most GCC countries, S&P expects another mild Sukuk market performance in 2019, with total issuance estimated between $105 billion and $115 billion for the year.

With issuance from Saudi Arabia and Qatar down 40 per cent in 2018 v 2017, the subdued 2018 performance of the Sukuk market could have even more pronounced if it was not supported by the issuances from the Central Bank of Kuwait, Turkey and an increase in private sector issuances in the United Arab Emirates (UAE). Malaysia and to a lesser extent, Indonesia, collectively contributed about 52 per cent of new issuance in 2018.

Given European and US based investors generally account for around one quarter to one third of Sukuk holders, issuance is expected to be impacted by the tightening global liquidity trend continuing into 2019. As central banks continue to close the liquidity tap this year, investors will be left with less funding to invest in Sukuk, and liquidity from developed markets channelled to the Sukuk market will reduce and become more expensive. Liquidity conditions in the GCC improved in 2018 but the picture in 2019 will depend largely on where the oil prices stabilise.

Geopolitical tensions in the Middle East do not seem to be abating, which is also impacting

ISSUE 113 | Islamic Business & Finance

19

03/03/2019 16:53

EXPERT OPINION

investors’ views of the region. The boycott of Qatar, developments in Saudi Arabia, and reinstatement of sanctions on Iran pushed geopolitical risk at the top of investors’ agenda. A de-escalation could certainly help reduce investor concerns—and thus increase foreign investment in the region—In 2019.

The complexity of Sukuk continues to be a key issue for investors and issuers alike. While it is true that some issuers may have a natural preference for Sukuk, the difficulties of putting together the instrument mean Sukuk issuance is often relegated to second place behind simpler forms of refinancing, especially if funding needs are acute.

This is why standardisation is key to unlocking the market’s potential.

At the moment, even 18 years after the first Sukuk, the market remains concentrated in a handful of countries, with the contribution from Malaysia, the GCC and Indonesia exceeding 90 per cent of total issuance volume. The local market remains small in absolute and relative size, excluding Malaysia which has a broad and deep local currency capital market.

Greater standardisation of process and legal documentation as well as incentives to Sukuk issuers could be used to deepen the GCC’s local current Sukuk market. In Malaysia for example, issuers benefit from tax relief if they choose Sukuk over conventional bonds. While corporate tax doesn’t exist yet in the UAE, other incentives such as the requirement for Islamic financing for government projects or waiving of government levies could encourage Sukuk issuance.

The Dana Gas case shone a light on Sukuk’s inherent risks and points to the potential difficulties of enforcing foreign judgements in local jurisdictions.

Standardisation could prevent potential uncertainty after a transaction closes, which would give investors a greater sense of comfort and clearer understanding of the risks involved. Sukuk also lack standard legal documentation that provides clarity on the recourse options available in the event of default.

Standardisation is beginning to happen across the market, however, it is slow. Sukuk standardsetting bodies agreed in the last quarter of 2018 to collaborate to devise a smoother process, which, while significant, reiterates that the ultimate aspiration of Sukuk issuance being no more complex than issuing a conventional bond is a long way off.

Issuers have a considerable number of additional steps for Sukuk, from identifying an underlying asset to choosing the best suitable structure and lengthy legal documents.

20

Islamic Business & Finance | ISSUE 113

page 18-21 expert opinion 113.indd 20

Dr Mohamed Damak, S&P Global Ratings’ Global Head of Islamic Finance

Greater standardisation of process and legal documentation as well as incentives to Sukuk issuers could be used to deepen the GCC’s local current Sukuk market.

In Malaysia for example, issuers benefit from tax relief if they choose Sukuk over conventional bonds.

It is true that there is a certain level of standardisation for some of the more common structures, however new instruments still need refinement as does clarity on the risks attached to the Murabahah – Mudarabah structure in particular.

Greater standardisation will result in a smoother, faster issuance process and increased clarity for investors, restoring its attractiveness and boosting issuance volumes. However, until that happens, the Sukuk market is expected to maintain its softened performance, without reaching its full potential.

www.islamicbusinessandfinance.net

03/03/2019 16:53

Islamic Business & Finance

MIDDLE EAST AWARDS 2019

Save The Date for Dubai!

23 October 2019

For more information please contact CPI Financial’s events team Tel: +971 1 4 391 4682 or Email: events@cpifinancial.net

bleed guide.indd 1

28/02/2019 16:20

ISLAMIC TECH

22

Islamic Business & Finance | ISSUE 113

page 22-25 Islamic Tech_DIB 113.indd 22

www.islamicbusinessandfinance.net

03/03/2019 16:54

ISLAMIC TECH

Brave new world THE BANKING SECTOR IS UNDERGOING A DRAMATIC TRANSFORMATION AND THE FAST GROWING ISLAMIC FINANCE INDUSTRY LOOKS SET TO HAVE AN INCREASINGLY IMPORTANT ROLE TO PLAY IN THIS EVOLUTION, WRITES DUBAI ISLAMIC BANK

I

(SFIO CRACHO/SHUTTERSTOCK)

t is no secret that the popularity of Islamic banking is growing at an unprecedented pace.

And this is not merely the case in its traditional markets, but also worldwide in countries which do not have a majority Muslim population. This will continue to remain the case thanks to the high level of liquidity amongst investors in GCC and other predominantly Muslim markets who tend to lean towards the Shari’ah-compliant financial system as long as the requirements are met. Consequently, what has also helped matters is the variety and diversity of products and offerings available today from Islamic financial institutions, effectively leading to the shattering of the myth that Shari’ah-compliant banking is exclusively for Muslim populous.

www.islamicbusinessandfinance.net

page 22-25 Islamic Tech_DIB 113.indd 23

DIGITISATION WILL PLAY AN IMPORTANT ROLE IN ISLAMIC BANKING While digitisation will play a key role in growing the influence and wider adoption of Islamic banking, it is the emergence of new Halal economies that will have a profound effect on

ISSUE 113 | Islamic Business & Finance

23

03/03/2019 16:54

ISLAMIC TECH

the Islamic banking sector in the near to midterm. The Dubai government is at the forefront of this transition, providing the infrastructure, incentives, reforms and platforms to attract investment in areas of healthcare, fashion, tourism, food and other related products in its bid to become the capital of global Islamic economy.

Universally, the halal market industry, which is projected to grow geometrically in the coming years, has soared to $6.4 trillion, according to some estimates. This naturally puts Islamic banks in an advantageous position compared to their conventional counterparts. Whilst digitalization appears to be more consumer or retail driven today, the development of Islamic economy is dictating a shift that requires digital capabilities in the commercial and corporate sector.

Here, the challenges facing a Shari’ah-compliant bank is not hugely different from its conventional counterparts. The emergence of the halal economy will see trade as a major driver forcing the financial institutions to incorporate technologies and build alliances focused around connectivity, efficiency, and end-to-end solutions for corporate clients, just as is happening today for retail.

At Dubai Islamic Bank, we believe that innovation is vital for our growth strategy.

The digital transformation within the bank is driven by client- centric strategy and focuses on enhancing the customer experience across all businesses. While we are firm believers in continuous innovation, our every move is dictated by customer feedback. That remains key for the sustainability of our successful growth strategy.

With every new product or initiative we launch, we expect it to tangibly improve customer experience, whilst simultaneously improving profitability through higher revenues and lower costs.

Only working together helps both reap the full benefits of innovation in global financial industry.

And that brings us to some of the challenges that have risen with the fourth industrial revolution getting underway. As the lines between the digital, physical and biological realms become increasingly blurry, the changes to almost all spheres of our lives will be profound, especially as disruptive technologies such as robotics, blockchain and artificial intelligence become increasingly more common place.

It is essential for banks to prepare for the approaching shift in not only the technology, but also customer mindsets. Banks can use digitisation to grow their business and diversify their revenue streams. However, it can also be used to eke out further efficiencies. It’s a call that every bank will have to make.

So, in this end it comes back to the customer again.

Working with fintech companies, we can enhance customer engagement through digitalisation.

Digitisation of banking services and processes do not only enable smoother customer journey but also in fine tuning internal processes. In future, with the advent of Internet of Things and proliferation mobile

Dubai Islamic Bank headquarters in Dubai, UAE

FINTECH WILL TRANSFORM THE GLOBAL BANKING SECTOR The global fintech industry is also expected to significantly increase in size in the next five years.

We as a fast growing Islamic bank are fully aware of the implications. We know that it is all about the approach and the right attitude towards this sudden surge. We need fintech startups just as much as they need us, so banks should view them as an opportunity—to build partnerships that can bring huge synergies and save years of effort and investment. Banks and fintechs should be complementing each other rather than competing.

24

Islamic Business & Finance | ISSUE 113

page 22-25 Islamic Tech_DIB 113.indd 24

www.islamicbusinessandfinance.net

03/03/2019 16:54

ISLAMIC TECH

devices, banking will be integrated in the day-to-day activities of the consumer, not requiring a separate interface for banking.

USAGE OF DATA AND ANALYTICS WILL GROW Meanwhile, key to ensuring a robust business model in the future will be the use of data and analytics to identify customer pain points, thereby giving banks the ability to use their digital tools and solutions to address these issues.

The big challenge for Islamic banks will be to keep up with the changes due to the emergence of fintech in the fourth industrial revolution and yet retain their core principles, by building a flexible business model that has enough room to maneuver within its Shari’ah-compliance boundaries.

As with any industry these transformations are also altering consumer behavior, particularly the much talked about millennials and would require banks to change rapidly or be left behind.

As an Islamic bank that does not have legacy infrastructure, we can adapt quicker and devise fresh digital initiatives, arguably faster than non-Islamic banks.

MOVE TOWARDS A CASHLESS SOCIETY As digital banking products and services continue to gain popularity, our market still has a fairly large usage of conventional banking methods. However, that will not remain the case for too long. Banks will have to reevaluate their strategies with the millennials in mind. In our view, it won’t be in too distant future that our young customers will do their entire banking from their smartphones; from opening an account to spending through touchless transaction from their digital wallets – the ubiquitous plastic card may even cease to exist.

But to build a strategy, and then products and services, banks need to understand these customers better. According to most surveys, millennials seek instant gratification. They are no longer willing to wait for traditional services that may take days for delivery. Understandably then, they gravitate towards brands and services that more agile and quicker.

This means that traditional banks need to rapidly evolve to meet the needs of this evergrowing segment of customers. Any bank that does not approach the future with a fresh strategy and increased flexibility risks becoming irrelevant.

Traditionally banks are viewed as very serious

www.islamicbusinessandfinance.net

page 22-25 Islamic Tech_DIB 113.indd 25

organisations with a distinct lack of creative ideas, which couldn’t be further from the truth given the innovations that are already happening in the industry. Thankfully, this perception is changing.

The region has a youth population of about 60 million, which has better access to global media and technology than ever before. According to EY, mobile-banking usage in the UAE stands at 34 per cent, followed by 27 per cent in Kuwait, 19 per cent in Qatar and 15 per cent in Saudi Arabia. While these numbers aren’t as large as other developed market, the trend is apparent.

Islamic banks will need to leverage their positioning as financial institutions that are driven by principles of fairness, while remaining agile when it comes to developing new digital solutions.

All in all, Islamic banking is about to enter a golden era of growth. However, this is not something that will be trivially accomplished.

Islamic banks will need to leverage their positioning as financial institutions that are driven by principles of fairness, while remaining agile when it comes to developing new digital solutions.

In light of the fourth industrial revolution, the many disruptive technologies, the changing mindset of the customers, there is also a need for Islamic banks to reassess their policies and processes. This is crucial given the fact that Shari’ah-compliant financial institutions will have an increasingly bigger role to play as the banking industry goes through this remarkable phase of transformation.

The future is full of challenges and opportunities, and the banks that adapt the inevitable digital age will be the ones to thrive!

ISSUE 113 | Islamic Business & Finance

25

03/03/2019 16:54

SUKUK

Abdulrahman Abdullah/BLOOMBERG

GCC Sukuk more resilient than bonds on the secondary market

26

Islamic Business & Finance | ISSUE 113

page 26-27 Khnifer Sukuk 113.indd 26

www.islamicbusinessandfinance.net

03/03/2019 16:56

SUKUK

MOHAMMED KHNIFER, DEBT CAPITAL MARKETS (DCM) BANKER AT SUPRANATIONAL BANKING INSTITUTION WRITES ABOUT HOW THINGS HAVE SHAPED FOR SUKUK RECENTLY IN SAUDI ARABIA

O

ne thing to note about last year’s market turbulence is the fact that Sukuk is more resilient than bonds in the secondary market. Middle East Sukuk returned 0.9 percent by end of 2018, compared with a 0.1 percent return for conventional bonds, according to JPMorgan Chase & Co. indexes. The same also goes to GCC bonds performance versus the emerging market. Gulf bonds have returned an annualised 0.6 percent by end of 2018, compared with a 4.6 percent loss for emerging markets, according to JPMorgan gauges.

International investors, who are likely researching GCC credits more after JPM inclusion, should be aware of these figures for their portfolio diversification.

MOHAMMED KHNIFER

REACHING BANKS’ LENDING LIMIT PUSHES BORROWERS TOWARD DEBT From GCC perspective, the main drivers for Sukuk issuance would be due to at least two things: First, the suitable cost of borrowing environment which we are witnessing in the early start of 2019,i.e. the low yields from US Treasury bonds, had a positive affect across all GCC securities in the secondary markets. This is compared with the last two months of 2018 when some investors decided not to subscribe into new securities from the primary market and wait until it traded in the gray/secondary markets and then buy it at a discount due to market turbulence. Unlike other Emerging Market (EM) countries whose currencies are floated, GCC currencies are pegged to dollar.

Second, some GCC borrowers have exposure to all their relevant local lenders. Thus, these banks can not exceed certain lending limits, prompting borrowers to seek external/internal funding sources via debt issuance. Note that in Saudi Arabia, the preferable/ prevailing debt instrument among investors is Sukuk.

CHANGING MENTALITY

A foreign investor looks on at Tadawul, Saudi Arabia's stock market.

There are no concerns that sovereign Sukuk issuances are crowding-out the corporate ones. For instance, in Saudi Arabia the Debt Management Office monitors the local debt capital market (DCM) and make sure there is no crowding-out effect. The challenge we

www.islamicbusinessandfinance.net

page 26-27 Khnifer Sukuk 113.indd 27

The challenge we have in Saudi is how to change the mentality of corporates to tap the DCM market instead of over-relying on banks’ lending.

have in Saudi is how to change the mentality of corporates to tap the DCM market instead of overrelying on banks’ lending. Local lenders also share the blame in not developing the corporate side of DCM.

LOCAL GCC REGULATORS SHOULD BE PROACTIVE While greater standardisation in the Sukuk market would be welcomed, I can see that the industry has adjusted to that shortcoming. Standardisation would be much needed in the local DCM market by capital market regulators in order to cut the cost of transaction documentation to borrowers.

Mohammed Khnifer can be reached at mkhnifer@gmail.com and on twitter at @mkhnifer

ISSUE 113 | Islamic Business & Finance

27

03/03/2019 16:56

MALAYSIA

(Samsul Said/BLOOMBERG)

The 2019 vision for Islamic finance in Malaysia

28

Islamic Business & Finance | ISSUE 113

page 28-31 Malaysia 113.indd 28

www.islamicbusinessandfinance.net

03/03/2019 16:57

MALAYSIA

2018 Malaysian National Day celebrations in Kuala Lumpur.

ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, ASSISTANT GOVERNOR, BANK NEGARA MALAYSIA LAYS OUT THE LANDSCAPE AND PRIORITIES FOR ISLAMIC FINANCE IN MALAYSIA

I

slamic finance is an established industry in Malaysia. Islamic banking assets stood at MYR 874 billion or 30.4 per cent of total banking assets as at end September last year, with an annual growth of 10 per cent over the past three decades.

The end of Q3 last year also saw Takaful contributions amounting to MYR 1.7 billion with market penetration at 15 per cent. Growth of Islamic finance in Malaysia has been resilient and supportive of social and economic developments. What underlies this growth is the robust foundation and building blocks that the government and Bank Negara Malaysia, together with the industry, have worked towards, namely in infrastructure development, institution building, robust regulatory framework and product development. We are now at a stage where we view that the foundations are solid and the industry is ready to deliver solutions to meet needs.

THE FULL SPECTRUM A recent survey Bank Negara Maaysia did revealed that almost 60 per cent of SMEs were not aware of the availability of Islamic business financing facilities. Indeed, most SMEs adopted conventional financing. Some may still have the misconception that Islamic finance is only for Muslims. We hope

www.islamicbusinessandfinance.net

page 28-31 Malaysia 113.indd 29

ISSUE 113 | Islamic Business & Finance

29

03/03/2019 16:57

MALAYSIA

to dispel this and create more awareness about what Islamic finance is and has to offer.

There is now a wide-ranging spectrum of Islamic financial products to meet the needs of businesses.

These include supply chain finance, which enables businesses particularly SMEs, to leverage on the creditworthiness of their anchor suppliers or buyers who are mainly MNCs, to obtain financing at a more affordable rate which may not be possible through direct approach with banks. Additionally, coverage in Takaful products at competitive prices, which for example include coverage for loss or damage to goods shipped on all types of conveyances from manufacturing to trading.

The Investment Account Platform or IAP, established by six Islamic banks in 2016 as the world’s first Islamic bank-intermediated fintech platform that offers more competitive financing terms and variations in financing structures for ventures.

To date, the IAP has supported eight ventures worth MYR 161.3 million and Sukuk as an alternative form of financing for businesses, such as green ukuk for green businesses. To date, five green Sukuk have been issued by Malaysian solar companies to finance solar power projects, amounting to MYR 866.8 million since July 2017.

Developing Islamic finance and the growth of SMEs are key national strategies, as reflected in the recent 2019 Budget – ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, Assistant Governor, Bank Negara Malaysia

NATIONAL POLICY FOR NURTURING SMES At the national level, the government is indeed supportive of the role of Islamic finance as an important tool to assist businesses and SMEs to flourish. Developing Islamic finance and the growth of SMEs are key national strategies, as reflected in the recent 2019 Budget. The SME ShariahCompliant Financing Scheme of MYR 1 billion was established to strengthen SMEs. SMEs can enjoy lower financing costs offered by this scheme with a 2 per cent reduction in financing rate. Sukuk issuers also benefit from the three-year extension of the double tax deduction for additional expenditure incurred for Sukuk issued under Ijarah and Wakalah principles. Other cost savings for Sukuk issuers include reduction in professional fees relating to due diligence, drafting and preparation of prospectus; and various fees charged by Securities Commission Malaysia and Bursa Malaysia.

ISLAMIC FINANCE IS ANCHORED ON SUSTAINABLE VALUES BEYOND PROFIT The unique propositions of Islamic finance are drawn from its underlying Shari’ah principles that have

30

Islamic Business & Finance | ISSUE 113

page 28-31 Malaysia 113.indd 30

ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, Assistant Governor, Bank Negara Malaysia

www.islamicbusinessandfinance.net

03/03/2019 16:57

MALAYSIA

Any financial conduct or transaction relating to goods or services that are contrary to Islamic principles are prohibited, thus promoting fairness, equality and justice.

– ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, Assistant Governor, Bank Negara Malaysia

What is VBI? In March 2018, Bank Negara Malaysia issued a strategy paper on Value-based Intermediation incollaboration with the members of the VBI Community of Practitioners (CoP).

According to Bank Negara Malaysia,VBI is defined as an intermediation function that aims to deliver the intended outcomes of Shari’ah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders‘ sustainable returns and long-term interests Bank Negara Malaysia facilitates the implementation of VBI by establishing key enablers such as the CoP, VBI Network, VBI Scorecard and series of guidance. In addition, the bank promotes proactive transparency on the optimal set of information that aims to trigger intended reaction, which ismarket discipline, from relevant stakeholders towards existing banking practices & offerings.

Bank Negara Malaysia has outlined a two– pronged approach in facilitating VBI adoption

by Malaysia’s key industry players: creating an enabling environment through regulatory guidance, and enhancing quality of transparency to trigger intended stakeholder activism.

www.islamicbusinessandfinance.net

page 28-31 Malaysia 113.indd 31

universal applications, which fundamentally advocate the prevention of harm or attainment of benefits.

All Islamic finance transactions must reflect Islamic values, which are ethical and fair. Any financial conduct or transaction relating to goods or services that are contrary to Islamic principles are prohibited, thus promoting fairness, equality and justice. As such, Islamic finance practitioners are duty-bound to observe the norms of high ethical conduct to uphold the values and the sanctity of Shari’ah.

Businesses can therefore take assurance that their financial needs are well served, managed and protected. For the Halal industry, players could benefit greatly from appropriately raised funding and protection, which ultimately nurture an endto-end Halal ecosystem.

Beyond this, the Islamic financial system also promotes value-based Intermediation (VBI). Through VBI, Islamic financial institutions are encouraged to adopt more structured frameworks to assess how they create value and impact, particularly in response to changing economic, social and environmental conditions. In going beyond profit, VBI is set to be one of the drivers for Islamic financial institutions to assist entrepreneurs to grow their businesses.

This would require an understanding of the entrepreneurs’ specific needs and circumstances prior to recommending a particular product or service, rather than focusing on a predetermined range of services. Islamic financial institutions are also expected to assist and guide businesses to adopt sustainable business practices. The financing model for businesses and SMEs will be more holistic, including provision of environmentalfriendly business solutions, entrepreneurship training and consulting services. This model can better assist aspiring businesses to improve efficiency and reduce costs, which will lead to greater sustainability.

I would like to emphasise that the practice of Islamic finance is not and should not be exclusive to Muslims. Many of its underlying ideas, the pursuit of economic justice and risk sharing align with traditional and conventional economic thinking.

Mutual insurance companies, which derive from risk sharing, limited-purpose banking which moves away from interest-based or fractional banking and equity financing, are all ideas consistent with Islamic finance principles, and are practised across the world without any reference to the religion.

Indeed, Islamic finance is for all.

ISSUE 113 | Islamic Business & Finance

31

03/03/2019 16:57

ISLAMIC BANKING

(Ibrahim muhamed/SHUTTERSTOCK)

Outlook for Middle Eastern Islamic banks positive in 2019

32

Islamic Business & Finance | ISSUE 113

page 32-36 Islamic banking 113.indd 32

www.islamicbusinessandfinance.net

03/03/2019 17:07

ISLAMIC BANKING

Kuwait City, Kuwait

WITH ZAKAT CLARIFICATION IN SAUDI ARABIA, STABILITY IN ACROSS THE GCC, REGULATORY DEVELOPMENTS IN KUWAIT AND STABILITY IN TURKEY, THE ISLAMIC BANKING LANDSCAPE REMAINS STRONG

T

he 2019 sector outlook for Gulf Cooperation Council (GCC) Islamic banks is stable, according to Fitch Ratings, reflecting stronger economic growth led by higher oil prices. Fitch Ratings expect to contribute to credit fundamentals. Credit growth will remain weak at about five per cent, still above financing growth at conventional banks, and will continue increase from 2018 levels in most countries.

Asset-quality metrics, on the other hand, are expected to deteriorate slightly. Otherwise, the story remains positive.

“We expect liquidity to remain strong. We expect capital levels to remain mostly unchanged in 2019. Earnings still remain high, benefiting from increasing interest rates in most countries.

Fitch has stable outlooks on all rated Islamic banks in the GCC. This predominantly reflects stable state ability to provide support to domestic Islamic banks,” says Bashar Al Natoor, Head of Islamic Finance for Fitch Ratings.

In terms of investment, all Issuer Default Ratings (IDRs) assigned by Fitch to Islamic banks in the GCC are investment grade, 89 per cent of which are

www.islamicbusinessandfinance.net

page 32-36 Islamic banking 113.indd 33

ISSUE 113 | Islamic Business & Finance

33

03/03/2019 17:07

ISLAMIC BANKING

Arabia’s General Authority of Zakat and Tax (GAZT).

There is still some unanswered questions. The settlement amounts for 2018 will be disclosed separately, and the calculation method for future years’ Zakat is not yet clear. Some banks could still face pressure on ratings if future Zakat assessments appear likely to structurally weaken their internal capital generation, according to Fitch.

Zakat is an annual payment obligation under Shari’ah on wealth, used for charitable and religious purposes. Zakat is one of the five pillars of Islam and obligatory once certain eligibility criteria are met and Nisab , or Zakatable wealth level, is achieved. In Saudi Arabia, it has historically been set at 2.5 per cent of a company’s ‘Zakat base’.

For banks, the Zakat base is their net worth, calculated based on a complex set of directives issued by the Ministry of Finance and the GAZT. Banks were in discussions with the authorities for some time over the calculation of historical Zakat liabilities, backdated in some cases as far as 2002.

Some banks made provisions for the extra Zakat, but most did not disclose their size.

Al Rajhi Bak reported the largest outstanding amount of SAR 5.4 billion, followed by Riyad

driven by potential sovereign support and 11 per cent by the banks’ standalone credit worthiness.

The distribution of IDRs mostly reflects that of the sovereigns. Downgrades from 2015 to 2018 (YTD) are almost all linked to weaker sovereign ability to provide support following weaker oil prices, rising government debt diplomatic disputes, said Fitch Ratings.

SAUDI BANKS REMOVE KEY UNCERTAINTY This year has already held developments that have worked in regional Islamic banks’ favor. In Saudi Arabia, confirmation of Saudi banks’ extra Zakat payments for years up to and including 2017 removes a key near-term uncertainty that could have pressured some banks’ ratings, according to Fitch Ratings.

“The extra amounts, due to a backdated change in the Zakat calculation, will not materially deplete banks’ capital buffers and therefore do not affect their ratings. We do not expect a significant impact on liquidity or profitability as we believe the banks will be allowed to spread payments over several years,” according to Natoor.

Banks disclosed their extra Zakat amounts last month after reaching a settlement with Saudi

SAUDI BANKS - ZAKAT ASSESSMENTS Bank

Ratings (Longterm IDR/Outlook/ Viability Rating)

Al Rajhi Bank

A-/Stable/a-

Alawwal Bank

BBB+/RWP/bbb**

Arab National Bank

BBB+/Stable/bbb+

Bank Aljazira

BBB+/Stable/bb+

Banque Saudi Fransi

A-/Stable/bbb+

Zakat Assessment (SARm)

5,400

Reported Impact on Shareholders' Equity (SARm)

Reported Impact as % of End-3Q18 Shareholders' Equity*

-5,400

-10.2%

375

-100

-0.7%

649

1,113

4.4%

551

-551

-4.8%

1,511

-1,511

-4.7%

National Commercial Bank

A-/Stable/a-

183

105

0.2%

Riyad Bank

A-/Stable/bbb+

2,970

-787

-2.1%

Saudi British Bank

A-/Stable/a-

1,628

-1,128

-3.5%

775

-775

-6.1%

2,316

-1,816

-4.2%

Saudi Investment Bank

BBB+/Stable/bbb-

SAMBA Financial Group

A-/Stable/a-

* Including non-controlling interests ** Alawwal Bank's Viability Rating is also on Rating Watch Positive (RWP) Source: Fitch Ratings, banks

34

Islamic Business & Finance | ISSUE 113

page 32-36 Islamic banking 113.indd 34

www.islamicbusinessandfinance.net

03/03/2019 17:43

ISLAMIC BANKING

Fiscal Break -Even Oil Prices Expressed in Brent Terms (USD/bbl) 140 120 100 80 60 40

Brent (annual avg.)

Oman

2013

2014

Bahrain UAEb

2015

2016

Kuwait Saudi Arabia

2017

2018Fª

2019Fª

140 120 100 80 60 40

Fitch Ratings forecasts b Source: IMF - REO Source: Fitch Ratings a

GDP Growth Per Country (%) 8 6 4 2 0 -2 -4 2013

Bahrain

Kuwait

2014

2015

Saudi Arabia

2016

Oman

2017

UAE

2018ª

2019ª

ª Fitch Ratings forecasts Source: Fitch Ratings

Bank at SAR 3 billion and SAMBA Financial Group at SAR 2.3 billion. Al Rajhi’s settlement is also the largest in terms of capital impact, equivalent to a 10.4 per cent reduction in end-3Q18 Fitch Core Capital (FCC), but this is not enough to affect the bank’s rating given its strong capital buffers and capacity to generate capital internally, according to Fitch.

“Al Rajhi’s end-3Q18 FCC ratio of 20.6 per cent was one of the highest in the Saudi banking sector and we estimate it would be just over 18 per cent net of the settlement amount,” said Natoor.

The capital impact for other banks is modest (under 10 per cent of shareholders’ equity). Alinma Bank was the only bank to report that it would not have to pay a settlement but that it would receive a credit of an undisclosed amount from the GAZT.

KUWAIT SHOWS STRENGTH Asset-quality metrics remain solid at Kuwaiti Islamic banks but concentration remains their biggest risk, according to Fitch Ratings.

Kuwaiti Islamic banks had a 38 per cent market share of total banking system assets at the end of the first half of 2018. Islamic banking activities

www.islamicbusinessandfinance.net

page 32-36 Islamic banking 113.indd 35

are only undertaken by Islamic banks as the Central Bank of Kuwait (CBK) does not permit conventional banks to operate through Islamic windows.

Impaired financing ratios have improved since the global financial crisis. The average impaired financing ratio remained stable in first half of 2018. Financing impairment charges (FICs)/average gross financing ratios fell in the first half of 2018 due to better underwriting standards and as banks no longer needed to build high financing loss allowances.

Islamic banks are typically more exposed to the real estate sector as they are allowed to establish non-financial real estate subsidiaries according to Fitch.

Operating profitability metrics have improved due to lower FICs and remain above conventional banks’. The net financing margin also remains above conventional banks’ and improved slightly in 1H18, mainly due to Kuwait Finance House (KFH), which has significant high-margin nonKuwaiti activities, particularly in Turkey. KFH is the largest Islamic bank in Kuwait, with 60 per cent of Islamic and 26 per cent of total banking

ISSUE 113 | Islamic Business & Finance

35

03/03/2019 17:07

(Repina Valeriya/SHUTTERSTOCK)

ISLAMIC BANKING

sector financing. The discussed merger between KFH and Bahrain’s Ahli United Bank would create one of the largest Islamic banks in the region.

The average gross financing/deposits ratio has been almost flat, benefitting from Islamic banks’ strong retail franchises, based on Fitch’s calculations, particularly KFH and Boubyan.

Term corporate-customer deposits are the main source of funding, which includes profitsharing investment accounts (PSIAs). Deposit concentration remains high, except for KFH due

36

Islamic Business & Finance | ISSUE 113

page 32-36 Islamic banking 113.indd 36

to its high proportion of retail deposits. Islamic banks rely less on market funding. The CBK deposit guarantee covers Islamic banks including unrestricted PSIAs, according to Fitch.

Fast financing growth has resulted in a reduction in capital ratios, which remain adequate for the banks’ risk profiles, said Fitch.

“While the equity/assets ratio was 1.5 per cent higher for conventional banks at end-1H18, Islamic banks tend to have higher regulatory capital ratios due to a 50 per cent Alpha factor applied to risk-

Istanbul, Turkey

www.islamicbusinessandfinance.net

03/03/2019 17:07

ISLAMIC BANKING

as the Alpha factor and direct investment in real estate,” said Natoor.

Asset quality will remain sensitive to concentration risk and volatility in the real estate sector in 2019. Financing growth is expected to remain above that of conventional banks’ in the mid-single digits as Islamic banks build their franchises and as Islamic banking is gaining momentum in Kuwait, in particular with retail customers, according to Fitch.

LOOKING TO TURKEY

weighted assets to account for the loss-absorption capacity of PSIAs,” said Natoor.

In 2018, the CBK Shari’ah Supervisory Governance instructions went into effect, introducing best practice for Islamic banks. The CBK is working on a draft law to create a centralised shari’ah board to oversee Islamic banks, following the UAE and Bahrain in this initiative.

“This is likely to increase standardisation and lead to greater market confidence. CBK regulations take account of Islamic banks’ specificities, such

www.islamicbusinessandfinance.net

page 32-36 Islamic banking 113.indd 37

Outside of the GCC and into the broader middle east region, the market share of Turkey’s participation Islamic banks has remained broadly stable and growth is set to remain subdued in the short term due to the weaker growth outlook, the high interest-rate environment, the end to FC-indexed financing and asset-quality pressures.

However, the segment continues to offer reasonable medium-term growth prospects considering the strategic importance of participation banking to the Turkish authorities, its current low base, the recent establishment of two new stateowned banks and also of a centralised Shari’ah board, to facilitate product growth, according to Fitch.

Participation banks’ non-performing financing (NPF) ratio was 3.8 per cent at of the first nine months of 2018, above that of conventional banks’ 3.2 per cent. Credit risk remains high due to SME exposure, significant FC financing and exposure, to varying degrees, to risky sectors such as construction. Capitalisation is moderate but capital ratios are sensitive to Turkish lira depreciation and further NPF growth, according to Fitch. Segment internal capital generation is set to weaken, according to Fitch.

“The reliance of Islamic banks on wholesale funding is below that of conventional banks.

In the first nine months of 2018, 26 per cent of total funding versus 40 per cent. Refinancing risks, however, are high due to high short-term maturing FC liabilities. FC liquidity at the foreignowned, Fitch-rated banks is underpinned by shareholder support,” said Natoor.

“Fitch-rated participation banks Issuer Default Ratings are sensitive to a change in shareholders’ ability or willingness to provide support. A further deterioration in the operating environment would be negative for standalone credit profiles and could lead to downgrades of Viability Ratings,” Natoor continued.

ISSUE 113 | Islamic Business & Finance

37

03/03/2019 17:07

SHARI'AH FOCUS

Is Shari’ah human governance important for Islamic financial institutions?

38

Islamic Business & Finance | ISSUE 113

page 38-40 Shari'ah Focus 113.indd 38

www.islamicbusinessandfinance.net

03/03/2019 17:00

SHARI'AH FOCUS

DR AISHATH MUNEEZA, ASSOCIATE PROFESSOR, INCEIF WRITES FOR ISLAMIC BUSINESS & FINANCE ON THE ISSUE AND ITS POTENTIAL PRACTICALITY FOR ISLAMIC FINANCIAL INSTITUTIONS

H

uman governance is a prerequisite to have effective corporate governance.

The reason is simple. The brain of any corporation or a company is the people that runs it.

As such, we need humans that have ethical values in addition to the common criteria of specific skill set, knowledge, expertise and experience to run it. The undeniable truth is at the end of the day the personal characteristics of those who run the corporation or the company matters.

Human governance in this context refers to the implementation of good ethical values within humans. It might be hard to find a precise definition of good ethical values; but as humans we often have the ability to know what is right and wrong using our common senses or intuition. The word ‘ethics’ derives from the Greek word ethos, which means ‘character’ or ‘custom’. Intrinsically humans have the capability to understand good and bad. Shari’ah human governance refers to the implementation of Shari’ah ethical values within a person. The Arabic term for ethics is Akhlaq (disposition) and Adab (manner). According to al-Ghazali, akhlaq defines the science or study of the human soul in terms of qualities and characteristics that are congruent with methods of behavioral application (Al-Ghazali, 2014).

Islamic financial institutions follow Shari’ah governance principles in addition to the corporate governance principles. However, we often neglect the governance of humans who run the Islamic financial institutions. Corporate culture plays a vital role in shaping the heart, mind and attitude of humans working in the Islamic financial institutions. There are some exemplary financial institutions that give paramount consideration to build a corporate culture which is consistent with Shari’ah values.

For instance, some Islamic financial institutions give time off for their staff to perform the obligatory

www.islamicbusinessandfinance.net

page 38-40 Shari'ah Focus 113.indd 39

ISSUE 113 | Islamic Business & Finance

39

03/03/2019 17:00

SHARI'AH FOCUS

daily prayers, have special arrangements for congregation prayers at work including Friday prayers. Some even have a peer calling system for special prayers in addition to the obligatory prayers.

It is true that Islamic finance matters are Muamalat matters. However, for Shari’ah human governance it is imperative to instill Ibadat (worship) values in a person to ensure that the person based his inward and outward intentions and actions according to the Shari’ah values. Some may question: Isn’t Shari’ah human governance achieved via Shari’ah governance mechanism? The answer, not necessarily. This is because normally in Shari’ah governance mechanisms, it is only the Shari’ah functions that are dealt with including the composition and qualification of Shari’ah related officers and Shari’ah committees. It does not regulate the conduct of all staff working at the Islamic financial institutions.

Some may ask how we could impose human Shari’ah governance on non-Muslims working in the Islamic financial institutions if we were to emphasize on Ibadat matters. The answer is, there are parts of Shari’ah human governance that could be applied to non-Muslims as well. Shari’ah ethical values could be applied to all irrespective of their faith convictions.

Now the probing question is what exactly is Shari’ah human governance? The following diagram summarises what it is in a nutshell

It is imperative to note that Islamic financial institutions have their own code of ethics for the staff. Shari’ah ethical values need to be integrated with that code.

DR AISHATH MUNEEZA, Assoc Professor, INCEIF

FOR MUSLIM STAFF ONLY • Must adhere to all ibadat activities including daily prayers

FOR BOTH MUSLIMS & OTHER FAITHS STAFF • Ethical values promoted in Shariah must be adhered to. They include ma’ruf (approved), khayr (goodness), haqq (truth and right), birr (righteousness), qist (equity), ‘adl (equilibrium and justice), and taqwa (pious). Furthermore, Muhlikāt (all bad morals such as arrogance, pride, self-appreciation, anger etc.) must be avoided and Munjīyyāt (all good morals such as love, hope, gratitude, patience) must be promoted.

It is not only the products offered by Islamic financial institutions that must be aligned with Shari’ah. All staff working in Islamic financial institutions must be bound by Shari’ah ethical values and therefore, Shari’ah human governance

40

Islamic Business & Finance | ISSUE 113

page 38-40 Shari'ah Focus 113.indd 40

shall be adopted. There is a need to enact a code of ethics in this regard. It is imperative to note that Islamic financial institutions have their own code of ethics for the staff. Shari’ah ethical values need to be integrated with that code.

Definitely the bedrock of Shari’ah human governance is derived from the following verse of Quran: “God enjoins justice (and right judgment in all matters), and devotion to doing good, and generosity towards relatives; and He forbids you indecency, wickedness, and vile conduct (all offenses against religion, life, personal property, chastity, and health of mind and body). He exhorts you (repeatedly) so that you may reflect and be mindful!”

(Quran, An-Nahl, 16:90)

www.islamicbusinessandfinance.net

03/03/2019 17:00

Islamic Business & Finance

SOUTHEAST ASIA AWARDS 2019

Save The Date for Kuala Lumpur!

November 2019

For more information please contact CPI Financial’s events team Tel: +971 1 4 391 4682 or Email: events@cpifinancial.net

bleed guide.indd 1

28/02/2019 12:54

ISLAMIC INVESTMENT

Building a holistic Islamic capital market ecosystem 42

Islamic Business & Finance | ISSUE 113

page 42-45 Islamic Banking 113.indd 42

www.islamicbusinessandfinance.net

03/03/2019 17:01

ISLAMIC INVESTMENT

DATUK SYED ZAID ALBAR, CHAIRMAN, SECURITIES COMMISSION MALAYSIA WRITES ON THE INVESTMENT LANDSCAPE ACROSS THE ISLAMIC ECONOMY

(Sanjit Das/BLOOMBERG)

O

www.islamicbusinessandfinance.net

page 42-45 Islamic Banking 113.indd 43

n the global scale and despite heightened competition, Malaysia continues to be a leader in the Islamic capital market, with Sukuk and Islamic fund markets which are among the largest in the world. As at end-2018, the Islamic capital market was valued at MYR 1.88 trillion, representing approximately 61 per cent of Malaysia’s overall capital market.

It is supported by a vibrant industry comprising local and foreign fund management companies, stockbrokers and advisors with comprehensive Islamic capital market capabilities. Industry-led innovation in tandem with Securities Commission Malaysia (SC)’s developmental initiatives also resulted in a diverse range of Islamic investment products including unit trust funds, wholesale f u n d s , p r i vat e r e t i r e m e n t s c h e m e s , E T F s and REITs. Such an achievement was decades in the making, and rooted in Malaysia’s holistic approach towards developing an Islamic capital market ecosystem. Driven by the SC, the approach drew on the insights of Shari’ah experts, industry professionals, as well as stakeholders such as institutional investors. The outcome was a facilitative regulatory apparatus within an institutionalised Shari’ah governance framework,

ISSUE 113 | Islamic Business & Finance

43

03/03/2019 17:01

ISLAMIC INVESTMENT

which is supported by a Shari’ah-cognisant tax, legal and accounting framework that provides clarity and commercial certainty.

These efforts consolidated interest from investors, issuers and intermediaries in what was then a nascent industry, and enabled Malaysia to leverage its competitive advantage in this area.

The SC, in particular, recognises the Islamic fund management industry as an important channel for mobilising capital into Shari’ahbased investments, and the industry landscape has changed significantly over the past decade.

Consider, for example, that in 2008 there were only five Islamic fund management companies and 30 fund management companies with Islamic windows. Today, the numbers have grown to 22 Islamic fund management companies with a further 31 fund management companies operating through Islamic windows, with assets under management of MYR 158.8 billion.

This expansion was supported by SC’s initiatives to grow Malaysia’s Islamic fund management industry by providing a conducive regulatory and commercial environment. These include the introduction of the Guidelines on Islamic Fund Management in December 2007, tax exemption on fees received for managing Islamic funds, and liberalisation of foreign ownership in Islamic fund management companies without any restrictions on overseas investments. All these initiatives provided clarity and a conducive business environment for the industry to develop and grow, especially on the domestic front.

At the same time, we strove to internationalise the Islamic fund management industry by establishing linkages with other jurisdictions to facilitate the industry’s cross-border expansion.

For example, the SC has signed mutual recognition agreements with the regulatory authorities of Dubai and Hong Kong to enable cross-border Islamic fund transactions.

We have also instituted arrangements with the regulatory authorities of Ireland and Luxembourg to facilitate the offering of Malaysia’s Islamic Undertakings for Collective Investment in Transferable Securities (UCITS) products. As part of our regionalisation strategy, the SC as part of the ASEAN Capital Markets Forum has also launched the ASEAN Collective Investment Scheme framework with participation from Malaysia, Singapore and Thailand in 2014 to facilitate cross-border offering of CIS, including Islamic CIS.

44

Islamic Business & Finance | ISSUE 113

page 42-45 Islamic Banking 113.indd 44

DATUK SYED ZAID ALBAR, Chairma, Securities Commission Malaysia

Having grown so prodigiously, what is the next step for this industry?

In January 2017, the SC has launched the Islamic Fund and Wealth Management Blueprint with a vision to establish Malaysia as a leading international centre for Islamic fund and wealth management. It charts the medium and longterm strategic direction for the industry while mapping out strategies and recommendations to strengthen the country’s competitive edge. The Blueprint outlines three mutually reinforcing strategic thrusts, namely strengthening Malaysia’s positioning as a global hub for Islamic funds, establishing Malaysia as a regional centre for Shari’ah-compliant sustainable and responsible investments, and developing Malaysia as an international provider of Islamic wealth management services.

It is pertinent to highlight the concurrent focus on and the commonalities between the principles of Islamic Finance and SRI including the emphasis on ethical business practices and positive social outcomes. Internationally, SRI is gaining momentum, particularly among institutional funds and investors, as illustrated in the 25% growth in global sustainable investment in AUM from $18.28 trillion in 2014 to $22.89 in 2016.1 With Islamic funds recognised as part of the SRI universe, Malaysia is currently the largest market for SRI funds in Asia ex-Japan, with a 30 per cent share.

www.islamicbusinessandfinance.net

03/03/2019 17:01

ISLAMIC INVESTMENT

Given this structural pivot in investor preference, the SC has identified SRI and as well as the closelyrelated Islamic fund and wealth management segment as one of growth drivers for the next phase of Malaysia’s capital market development. In 2017, the SC has issued the Guidelines on Sustainable and Responsible Investment Funds to facilitate and encourage further growth of SRI funds in Malaysia. Moreover, the growing pool of SRI assets represents potential scope for fund administration and investment support services firms to serve both the Islamic and SRI funds segments.

As we look ahead, digitisation and demographic changes will continue to reshape markets, and it is critical for market participants to adapt to opportunities and risks arising therefrom. A key driver of future industry growth is the shift in investment preferences an emergent generation of investors. The Millennials, in particular, are accounting for a growing share of the investor base, with studies identifying their greater awareness on SRI and their propensity to align investment decisions with social causes and personal values. Millennials also see businesses as agents for socioeconomic change, and the ability of our intermediaries to respond to this trend and cultivate this generation of socially-aware digital natives will enhance the value proposition and competitive advantage for Malaysia’s fund management industry.

When properly harnessed, technology can also strengthen business intelligence through data analytics, enhance investor experience and drive efficiency, for example through the use of technology to manage Shari’ah and SRI portfolios by integrating the relevant processes into the fund management system. Alternative financing channels and new business models such as equity crowdfunding, peer-to-peer financing and digital investment management also offer new opportunities for both entrants and incumbents, thus providing for more inclusive access to the capital market.

While the asset management industry remains one of the fastest-growing segments in the Malaysian capital market, it is important to assess the industry’s readiness in the face of structural shifts in the market landscape.

I am pleased to report that Institute for Capital Market Research Malaysia (ICMR), an independent research institute established in November 2017, has collaborated with the Nomura

www.islamicbusinessandfinance.net

page 42-45 Islamic Banking 113.indd 45

Institute of Capital Markets Research to prepare a joint report on structural frontiers in the asset management industry, and the efforts required to surmount them.

In line with this initiative, ICMR and NICMR has also entered into a Memorandum of Understanding to collaborate in areas pertaining to capital market development. These include providing a platform for the exchange of expertise and technical knowledge, as well as capacity-building through engagements among regulators, the industry and academia.

When properly harnessed, technology can also strengthen business intelligence through data analytics, enhance investor experience and drive efficiency, for example through the use of technology to manage Shari’ah and SRI portfolios by integrating the relevant processes into the fund management system.

Insights garnered from initiatives such as today’s forum and this research report will help to illuminate our path as we seek to accelerate the development of Malaysia’s Islamic capital market, including its fund and wealth management industry. The growth achieved so far would not have been possible without the contribution of various stakeholders, including institutional investors as well as Shari’ah experts and industry professionals. To take the Malaysian Islamic capital market to the next level, we must harness the same ethos of collaboration and spirit of innovation, and the SC looks forward to continue working with all stakeholders to drive this development agenda.

ISSUE 113 | Islamic Business & Finance

45

03/03/2019 17:01

HALAL BUSINESS

(pickbiz/SHUTTERSTOCK)

A bridge between the Islamic economy and China

46

Islamic Business & Finance | ISSUE 113

page 46-48 Halal Business 113.indd 46

www.islamicbusinessandfinance.net

03/03/2019 17:37

HALAL BUSINESS

THE FIRST-EVER EVENT JOINING LEADERS FROM THE CHINESE FINANCIAL COMMUNITY AND THE ISLAMIC FINANCIAL AND BUSINESS COMMUNITIES, HELD IN HONG KONG, HIGHLIGHTED A PATH FORWARD FOR BOTH THROUGH THE BELT AND ROAD INITATIVE

I

n the last six years, China has been promoting an ambitious Belt and Road Initiative, also known as the ‘One Belt One Road’ Initiative. With it, China hopes to create an infrastructure for trade, business and investment across the historical ‘Silk Road’, linking Asia, Europe the Middle East and Africa. As the Islamic economy exists predominantly throughout that same territory, the question has been raised: Could the Islamic economy work with the Belt and Road Initiative?

Recently, a roundtable was organised in Hong Kong between the UAE and China in order to discuss this issue further. Centered around Islamic banking and finance, the roundtable also looked into the pivotal role of the UAE in China’s ambitious initiative, which aims to economically & commercially link more than 60 countries. The event was a signal joint efforts between the UAE and China to cooperate in the recruitment of promising opportunities within the Islamic economy, in light of the Chinese initiative to connect the markets of

www.islamicbusinessandfinance.net

page 46-48 Halal Business 113.indd 47

ISSUE 113 | Islamic Business & Finance

47

03/03/2019 17:38

HALAL BUSINESS

Asia, Europe and Africa and guide them in the service of the goals of sustainable development.

Serving as a platform for Chinese intellectual, research and investment institutions to discuss ways on how to implement creative ideas, innovative strategies and guide international decisions related to investment and finance in the best way to serve the objectives of the initiative, speakers included H.E. Nabila Alshamsi, UAE Consul General to Hong Kong, and Dr Mansoor Al Awar, Chancellor of HBMSU and Dr Jonathan Choi, Chairman of the Hong Kong Chamber of Commerce, one of the most influential figures in the formation of the Chinese economy through the adoption of new trends, including Islamic banking.

Saeed Mubarak Kherbash Al Marri, Deputy CEO - Strategy & Planning in Dubai Islamic Economy Development Centre (DIEDC), also participated in the event. Mubarak gave an overview of the Islamic economy, DIEDC’s programs supporting the Halal industry, and impact of Islamic finance on various sectors. Professor Nabil Baydoun, Vice Chancellor for Academic Affairs of HBMSU, highlighted the potential of Islamic finance and its ability to create a sustainable impact as well as the role of education in in achieving the ambitious goals of the Chinese initiative.

Chinese companies have taken note of Dubai’s transformation into a global capital for the Islamic economy and its emergence as the world’s largest Sukuk market, according to Professor Baydoun, who also highlighted how Islamic finance strategically links between East and West and is known for its strong economic fundamentals and robust legislative and legal structures. Through Islamic finance, Dubai can play a role in China’s economic initiative being a key gateway to access liquidity in the Middle East, North Africa, and sub-Saharan Africa, supported by a well-developed Islamic finance infrastructure, according to Baydoun. Home to Nasdaq Dubai, the emirate topped the global Sukuk market following its acquisition of around 90 per cent listed Sukuk worldwide, surpassing London, Malaysia, Ireland, and Luxembourg.

H.E. Nabila Alshamsi expressed her pleasure to host the UAE Consulate for the first meeting of Islamic finance in Hong Kong, in cooperation with the Chinese General Chamber of Commerce. She described the meeting as a major step towards further enhancing the already strong UAE-China relations.

The UAE supports China’s Belt and Road initiative,

48

Islamic Business & Finance | ISSUE 113

page 46-48 Halal Business 113.indd 48

citing its significance in building closer trade and economic ties among Asia, Europe, and Africa for a more secure, prosperous, and sustainable future.

“The UAE has emerged as a leading business, financial, and investment hub on the global map and a gateway to the Middle East and Africa.

Dubai, in particular, is now on a steady path to becoming a global capital of the Islamic economy,” said Alshamsi.

In recent years, Hong Kong has taken important steps towards integrating Islamic finance into the monetary system and modernising laws and regulations supporting Sukuk issuance, including the Hong Kong Monetary Authority launching another Sukuk in 2017.

We support the Belt and Road initiative because it promotes trade, investments, and services between China and more than 65 other countries along land and sea routes, covering 63 per cent of the world’s population and 30 per cent of the world’s gross domestic product (GDP).

– PROFESSOR NABIL BAYDOUN, Vice Chancellor for Academic Affairs of HBMSU

Kherbash stated that he believes the future of the Islamic economy will include Hong Kong.

“The gathering resulted in a stronger China-UAE relation in the vital Islamic finance. We were able to highlight the efforts being done by Dubai and the UAE to promote the Islamic economic system to serve as a model for future generations. We also shed light on the features of Dubai Islamic Economy Development Strategy aimed at supporting the development of the Islamic economy by focusing on knowledge, technology, and young talents. We are confident that the future holds promising prospects for all stakeholders, including entrepreneurs in Hong Kong. At Dubai Islamic Economy Development

www.islamicbusinessandfinance.net

03/03/2019 17:38

HALAL BUSINESS

Centre (DIEDC), we will establish solid foundations for the Islamic economy by enriching knowledge, complying with the highest Islamic standards, and promoting digital transformation.”

Professor Nabil Baydoun does not believe that the Chinese initiative can be successful without a partnership with the Islamic financial community and direct participation in the Islamic economy.

“Islamic finance is critical to China’s Belt and Road initiative, which will connect various markets across the world. This includes the UAE which is seen to become an influential force in reviving the Silk Road stretching from Africa to Europe through Asia. As the country enjoys competitive advantages, especially its strategic location, the UAE will serve as a transit point for 60 per cent of China’s exports to the Middle East. The round table comes at a time when Islamic finance is growing. It was valued $2.4 trillion in 2017 and is expected to reach $3.8 trillion by 2023. The future is promising and full of opportunities, particularly with regard to Islamic banking assets that account for 75 per cent of the global Islamic financial assets. Today, more than 1,000 institutions in 75 countries provide Islamic finance services. There is no doubt that the round table represented an important step towards uniting the efforts of both the UAE and China in promoting Islamic finance. We support the Belt and Road initiative because it promotes trade, investments, and services between China and more than 65 other countries along land and sea routes, covering 63 per cent of the world’s population and 30 per cent of the world’s gross domestic product (GDP). We are committed to deploying modern knowledge and transferring the most successful experiences and best practices to form the future of the global Islamic economic ecosystem,” said Baydoun.

Dr Al Awar emphasised the need to reinforce the UAE and China’s cooperation in the Islamic economy, which is expected to have an annual growth rate of eight per cent to reach $3 trillion by 2023. He also stressed the need to promote productive dialogue to discuss the emerging challenges and opportunities for China and the UAE, both of which have developed a unique economic model to promote the role of Islamic finance in translating the goals of the Belt and Road initiative. The Chinese initiative is aligned with the Sustainable Development Goals 2030 and is seen to support the development of the Middle East and North Africa apart from China, according to Al Awar.

www.islamicbusinessandfinance.net

page 46-48 Halal Business 113.indd 49

“[This meeting] enabled us to introduce to the Chinese business community the cultural and economic features of the UAE and the Middle East, specifically highlighting the pioneering experience of Dubai and the UAE in Islamic finance in line with the directives of H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai. We aim to promote the Islamic economy as an integrated system covering all aspects of life. Our participation in the discussions formed part of HBMSU’s commitment to help build bilateral relations in various fields related to our core business, including Islamic finance. As an academic institution with a wealth of knowledge and experience in the Islamic economy, HBMSU contributes to Dubai’s bid to become a global capital of the Islamic economy according to our vision and mission,” said Al Awar.

The Chinese initiative is aligned with the Sustainable Development Goals 2030 and is seen to support the development of the Middle East and North Africa apart from China – DR MANSOOR AL AWAR

“During the meeting, investment-related decisions directed towards Islamic finance were made, as well as the agreements about enhancing the two countries’ cooperation concerning the Belt and Road initiative. As an academic institution, HBMSU vows to promote Islamic finance globally through our participation in key events and through our academic programs designed to improve leadership skills to support international growth of Islamic finance. As part of our commitment to China-UAE cooperation in Islamic finance, we will hold important initiatives such as the ‘China-UAE Conference on Banking and Islamic Finance’ to shed light on the role of the Islamic economic system in support of Belt and Road initiative,” Dr. Al Awar continued.

ISSUE 113 | Islamic Business & Finance

49

03/03/2019 17:38

EVENTS

IN THE MIDST OF THE CHANGING REGULATORY AND ECONOMIC LANDSCAPE, OVER 300 INDUSTRY LEADERS WILL CONVERGE AT THE 14TH ANNUAL WORLD TAKAFUL & INSURTECH CONFERENCE IN DUBAI THIS APRIL TO DISCUSS THE KEY ISSUES AFFECTING THE TAKAFUL AND INSURTECH SPACE

T

he 14th edition of The World Takaful & InsurTech Conference (WTIC), previously known as the World Takaful Conference, will be held again in Dubai, UAE on 1-2 April 2019.

The two-day long forum will take place at Address Dubai Mall Hotel, in strategic partnership with in the Dubai International Financial Centre (DIFC) and supported by the Insurance Authority (IA) and the Dubai Islamic Economy Development Centre (DIEDC), held under the theme ‘Reinforcing Customer Engagement and Operational Agility through Digital Transformation’.

“While the Takaful industry grew by a CAGR of 6 per cent by 2017, it remains relatively untapped at $46 billion, accounting for just two per cent of total Islamic finance assets, signifying that there lie key opportunities for the sector to grow. As the insurance ecosystem is witnessing transformation and innovation at an incredible pace, leveraging technology to achieve cost efficiency and productivity is of utmost importance. It is with great pleasure that we announce the 14th edition of the World Takaful & InsurTech Conference that offers an unmatched opportunity for dialogue and interaction among leading minds from Takaful, Conventional Insurance and insurtech, and aims to serve as a catalyst for the transformation of the entire insurance ecosystem,” said Ehsan Abbas, Chairman of Middle East Global Advisors, shared: While the Takaful industry accounts for just two

50

Islamic Business & Finance | ISSUE 113

page 50 Events 113.indd 50

(shutterlk/SHUTTERSTOCK)

Takaful’s biggest event returns to Dubai in April

per cent of total Islamic finance assets, making it the smallest contributor to the Islamic finance industry, there is a strong trend of consolidation within the industry. Saudi Arabia takes the top spot in terms of total Takaful assets. Other countries that dominate the global market include Iran & Bangladesh (Islamic Finance Development Report 2018).

Takaful has also seen a growing presence in Western countries, specifically with the London market working on developing an ideal framework for Islamic insurance. WTIC 2019 will also see an exclusive address by Dave Matcham, Chief Executive, International Underwriting Association of London (IUA), on embracing innovation and technology in the Insurance industry to achieve industry-wide transformation.

Speaking ahead of WTIC, Mr. Matcham, said, “Following the launch of a set of guiding principles for the trading of commercial (re) Takaful business, there is a growing expectation and optimism that more opportunities will present themselves to London market carriers. By leveraging the unique infrastructure for commercial business within the market, both Lloyd’s syndicates and companies operating in the London market are evaluating these opportunities through existing or new trading entities in discussion with key Islamic clients and stakeholders,” Dave Matcham, Chief Executiv, International Underwriting Association of London (IUA).

www.islamicbusinessandfinance.net

03/03/2019 17:04

KFH_Press ad_21cm X 27cm_FA.pdf 1 4/3/2017 12:16:27 PM

C

M

Y

CM

MY

CY

CMY

K

bleed guide.indd 1

27/02/2019 11:18

Islamic Business Finance_21cm x 27cm_C&IB_AW.pdf

1

2/10/19

11:32 AM

Respecting your values

Partnering you in your success NBF Islamic, a suite of uniquely designed banking solutions guided by the principles of Shari’a law to meet the requirements of modern life.

Place your trust in National Bank of Fujairah, the award-winning local bank that is not only dedicated to partnering you in your personal or business goals, but also committed to honouring your traditions.

NBF Islamic. Modern banking inspired by traditional values.

Call 8008NBF(623)

to start our partnership nbfislamic.ae

bleed guide.indd 1

27/02/2019 11:52