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ISSUE 115 UNLOCKING TAKAFUL’S GLOBAL POTENTIAL ABDULLA MOHAMMED AL AWAR, CEO, DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE (DIEDC)
UNLOCKING TAKAFUL’S GLOBAL POTENTIAL Abdulla Mohammed Al Awar, CEO, Dubai Islamic Economy Development Centre (DIEDC)
A CPI Financial Publication
PLUS:
18 DUBAI:
Islamic economy now 10% of GDP
22 MALAYSIA:
The next generation of Islamic finance
46 HALAL BUSINESS: Diversifying Saudi Arabia
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CONTENTS
ISSUE 115
REGULAR SECTIONS
EDITOR'S LETTER Greetings, all
W
elcome to Islamic Business & Finance. This is the 115th issue of the longest-running Islamic finance magazine in the world. I hope you all had a wonderful Eid break. There is a lot of talk in the market about how Islamic finance could potentially collaborate with the sustainability movement, particularly as the investment world moves more towards having an ethical backbone. There is still a ways to go before those two things are merged, however, and we have some voices to talk about exactly what the Islamic finance industry has to do in order to align more with the broader sustainability movement and ESG on page 30. Because I want this to be a place for us to have candid discussions about the industry, I have an interesting opinion from a professor at INCEIF who wrote for the magazine specifically about some things the industry can work on in order to differentiate itself from conventional finance on page 42. Beyond that, there is plenty to peruse. I hope you enjoy digging into another great issue. Till next time,
10
OPINION
8
22
Saudi Arabia’s push for innovation
NEWS + ANALYSIS
9
News & Analysis
COVER STORY
10 Abdulla Mohammed Al Awar, CEO, DIEDC
30
DUBAI
18 Islamic economy 10 per cent of Dubai's GDP
MALAYSIA
22 The next generation of Islamic finance in Malaysia
William Mullally www.islamicbusinessandfinance.net
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CONTENTS
ISSUE 115
FEATURES
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EDITOR - ISLAMIC BUSINESS & FINANCE
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30 The missing ‘S’ in ESG SUKUK
CONTRACT PUBLISHING EDITOR
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SHARI’AH FOCUS
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34 What is the instrument of choice in 2019? 38 The corporate Sukuk market is ready to blossom
EXPERT OPINION
42 Steering away from the conventional
HALAL BUSINESS
46 Diversifying Saudi Arabia EVENTS
46
50 Dates for your diary
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ISSUE 115
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Dubai Technology
ISSUE 113
ISSUE 113
ISSUE 114
AL AWAR, CEO, DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE (DIEDC)
A CPI Financial Publication
PLUS:
18 DUBAI:
Islamic economy now 10% of GDP
22 MALAYSIA: n The next generatio of Islamic finance
BUSINESS: 46 HALAL Saudi Arabia
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
PLUS:
page 3-4 contents 114.indd 1
28 SUKUK:
The Sukuk industry and Aramco
32 NORTH AFRICA:
How Sudan attracted retail investors through Sukuk
A CPI Financial Publication
Islamic Economy Al Awar, CEO, Dubai Abdulla Mohammed (DIEDC) Development Centre
EXPO 2020 AND THE ISLAMIC ECONOMY HE Majid Saif Al Ghurair, Chairman of Dubai Chamber of Commerce and Industry, Board member of DIEDC speaks exclusively to Islamic Business & Finance
A CPI Financial Publication
KAFUL’S UNLOCKING TA NTIAL GLOBAL POTE
FULFILLING VAST POTENTIAL IBRAHIM AL MHEIRI, CHIEF EXECUTIVE OFFICER, MASHREQ AL ISLAMI
EXPO 2020 AND THE ISLAMIC ECONOMY HE MAJID SAIF AL GHURAIR, CHAIRMAN OF DUBAI CHAMBER OF COMMERCE AND INDUSTRY
ABDULLA MOHAMMED
Islamic Business & Finance | ISSUE 115
@IBFMag on Twitter for stories as they're being told
GLOBAL POTENTIAL
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UNLOCKING TAKAFUL’S
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44 ISLAMIC TECH:
Making Hajj and Umrah easier for travellers
28/04/2019 11:24
PLUS:
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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
04/03/2019 09:13
Diversifying
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OPINION
Saudi Arabia’s push for innovation T
rue to its word, Saudi Arabia has continued to diversify its economy, transitioning away from an overreliance on oil and gas in order to secure a better future for the Saudi people for generations to come. One key push has been towards technology and innovation. In the past few months, I’ve met with a number of Saudi Arabian startups that are focusing specifically on technological innovation for Halal products and services. Later in this issue, I spoke to one of the founders of Bab Makkah, which will balance being both an ecommerce and a brick and mortar platform moving forward. What struck me most about my conversations with these fledgling businesses is that they were effusive with the praise they’ve given to the Saudi Government’s support for their businesses. Technology is clearly one of the main focuses moving forward, and they are doing everything they can to ensure that techfocused initiatives succeed in the Kingdom. The Saudi Islamic banking sector has seen a lot of success in the recent past. According to a KPMG report, Saudi Arabia’s banking sector saw positive results in 2018, with an average of 11.3 per cent growth in net profit and 2.1 per cent growth in total assets. Digital innovation, however, still has a lot of progress left to be made. The Head of Financial Services at KPMG Al Fozan & Partners recently said that for Saudi-based lenders to differentiate themselves in a competitive market and remain relevant, they need to continue to innovate their practises and digitise their processes. “Whether that be through their go-to-market channels or through the use of innovative technology in the back and front office, we expect increased investment in technology
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platforms in preference to traditional bricksand-mortar,” said Muhammad Tariq, the Head of Financial Services at KPMG Al Fozan & Partners. Digitalisation has the potential to lower barriers of entry into the financial services market while elevating the role of data as a key commodity to enhance the customer experience, according to KPMG. While the story is still positive for banks in Saudi Arabia, the country as a whole must push its financial sector, both in terms of startups and in terms of its most established giants, on the path towards technological innovation and digitialsation.
William Mullally
Editor
www.islamicbusinessandfinance.net
NEWS & ANALYSIS
Dubai Islamic Bank announced plans to acquire Noor Bank, a fellow Islamic bank based in the United Arab Emirates.
We are confident that this acquisition will build upon the already strong foundations we have established and accelerate our growth in the sector. Islamic finance is increasingly acknowledged as a viable alternative to conventional banking and, through this acquisition, we believe that we can geometrically accelerate the growth and popularity of Shari’ah compliant finance across the region and beyond. “With a strong track record and a robust platform, the future can only be positive with the additional scale and reach that we will gain as a consequence of this acquisition. Our focus will remain on providing the highest standards of service and we are committed to integrating the two operations as quickly and effectively as possible in order to provide a seamless experience for our increased customer base.”
In a sign of Islamic finance’s continuing growth in the market, Islamic Corporation for the Development of the Private Sector (ICD) and Trustbank met and signed a collaboration Memorandum of Understanding in Uzbekistan.
This meeting gave a special impetus to the further collaboration of Trustbank and ICD, discussing the new platform initiative launched by ICD during the IsDB 44th Annual Meeting in Marrakech, that will allow to start implementing new joint projects and will undoubtedly contribute to widen services provided by the bank in the field of entrepreneurship and small business development, as well as the creation of new jobs in the country.” AYMAN SEJINY, CEO, ICD
DR ADNAN CHILWAN, GCEO, DIB
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COVER INTERVIEW
UNLOCKING TAKAFUL’S GLOBAL POTENTIAL ABDULLA MOHAMMED AL AWAR, CEO, DUBAI ISLAMIC ECONOMY DEVELOPMENT CENTRE
D
o you see a lot of potential for the Takaful industry, both in Dubai and beyond? According to the Islamic Finance Development Report 2018 by Thomson Reuters, the global Takaful industry reached $46 billion in 2017. However, at just two per cent, it still remains the smallest contributor to the Islamic finance industry in terms of assets. This, despite that fact that currently close to 324 operators around the world offer Takaful. It is quite evident then that the Takaful sector has tremendous potential to expand its role in the Islamic finance industry. What have been the key developments in the Takaful industry as of late? As is the case with the banking sector, there is lately a strong trend towards consolidation of the Takaful players. This is a welcome development as consolidation will help companies achieve healthy balance sheets and create stronger sustainable platforms for businesses, especially in countries that witness low margins and a highly-fragmented marketplace. Some recent developments in this sphere include Takaful Emarat’s takeover of Bahrain’s Al Hilal Takaful, and the merger of Solidarity Group’s
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Bahrain-based units Solidarity General Takaful and Al Ahlia Insurance. We must also keep in mind that consolidation is also a strong indicator of negligible profits. Even though it is a solution, it is a temporary one, as the sector is still nascent. For a more permanent and effective solution, Takaful will require more enabling guidelines and regulations that suit the needs of individual markets and clarify the accurate processes within. Do you see progress in the regulatory space for Takaful? The Islamic Insurance Association of London (IIAL) is reportedly seeking inputs from Shari'ah scholars to draft unified Shari'ah and legal standards for Islamic commercial insurance for the UK market. And it has recently launched a set of guiding principles covering Shari'ah-compliant insurance, or Takaful, seeking to address capacity constraints in the sector in the UK and help conventional Insurance companies open Islamic Insurance windows. In addition, AIG UK underwrote its first Shari’ah-compliant warranty and indemnity policy out of London’s mergers and acquisitions insurance market, through Cobolt Underwriting’s ‘Islamic Window’ solution.
ABDULLA MOHAMMED AL AWAR, CEO, Dubai Islamic Economy Development Centre
www.islamicbusinessandfinance.net
COVER INTERVIEW
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COVER INTERVIEW
DIEDC 2017-2021 strategy: a closer look Under the directives of His Highness Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai, Chairman of The Executive Council of Dubai and General Supervisor of the ‘Dubai: Capital of Islamic Economy’ initiative, DIEDC launched its 2017-2021 strategy in January 2017. At the heart of the refreshed strategy are three key pillars – Islamic finance, Halal sector, and Islamic lifestyle that includes culture, art, fashion, and family tourism. Knowledge, standards, and digital Islamic economy serve as cornerstones that support the pillars while playing a pivotal role in shaping an enabling environment for sustainable investments and real development.
MAIN SECTORS Islamic Finance Interest in the Islamic finance sector stems from the recognition of the core factors that characterise the Shari'ah-compliant financial system – balance and stability. This domain offers significant growth opportunities in Islamic countries and among Muslim minorities around the world. Since the outbreak of the global financial crisis in 2008, calls have risen, especially in the United States and Europe, highlighting the systemic risks associated with conventional banking. If the world had created a favourable environment for Islamic banking, it could have avoided the crisis or at least greatly reduced its intensity. Several reports pointed to the rapid growth of Islamic banking services, even among non-Muslims. Halal sector The term ‘Halal’ defines a product that is Shari'ah-compliant at all stages of the supply chain, including production, transport and distribution. Halal certification is currently
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granted worldwide to more than 500 food, cosmetic, pharmaceutical, textile, and leather products. The ‘Dubai: Capital of Islamic Economy’ initiative seeks to establish a global Halal gateway to serve as a link between producers and consumers, implement an international accreditation and certification process for Halal products in collaboration with testing laboratories, and develop expertise in this area. Islamic Lifestyle Islamic Fashion, Art and Design Today, architects around the world draw inspiration from ancient Islamic architecture, and Dubai aspires to become the global leader in preserving the Islamic heritage. Modest fashion has also acquired international acclaim. In 2014, Muslims spent $230 billion on clothing, accounting for 11 per cent of global apparel spend. This figure is expected to grow by six per cent annually to reach $327 billion in 2020. In this context, DIEDC coordinates with other stakeholders to launch a range of activities and initiatives aimed at promoting Islamic fashion as an integral part of the global fashion industry. Furthermore, the Centre seeks to build synergies with international art galleries and auction houses to support Islamic art trade, collaborate with academic institutions to develop curricula in Islamic arts, introduce an Islamic architecture award, and launch an Islamic fashion design competition. Family Tourism The global tourism industry is becoming aware of the opportunities offered by the family tourism segment, especially Islamic tourism. Local economists view family tourism as one of the most promising tourism segments.
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COVER INTERVIEW
Therefore, the world’s most prominent hotels in Muslim-majority countries have created a familyfriendly environment, adding facilities that cater to Muslims, such as prayer rooms, private resorts for women, as well as heritage tourism packages. Family tourism spend stood at $142 billion in 2014, accounting for 11 per cent of the total global tourism spend, and is projected to grow by 8.6 per cent annually to reach $233 billion in 2020. Due to its high-quality facilities and services, combined with a wide variety of attractions, Dubai is one of the world’s most popular tourist destinations for families. The ‘Dubai: Capital of Islamic Economy’ initiative seeks to establish the emirate as the leading global family tourism destination.
Establishing a unified regulatory framework for the Islamic economy is a top priority of the ‘Dubai: Capital of Islamic Economy’ initiative. To achieve this goal, DIEDC aims to develop a set of standards in line with Shari'ah that will apply to all entities active in the Islamic economy domain with the objective of facilitating Shari'ah compliance testing and auditing, and enhancing consumer confidence in Shari'ahcompliant products. This involves enhancing existing standards as well as introducing new standards, including commercial and industrial regulations and specifications that ensure products or services are Shari'ah-compliant. Proper standardisation will contribute to aligning the Islamic economy with the conventional economic system and enhancing its competitiveness.
SUPPORTING SECTORS Knowledge: Dubai’s status as a leading global Islamic economy centre ideally positions the emirate to spearhead the development of a comprehensive knowledge base in this domain, and support pioneering research that can form the basis for future creative ideas and innovations. DIEDC aims to launch initiatives that will accelerate the development of the knowledge framework of the Islamic economy, and leverage the enabling environment that exists within Dubai’s education and training hubs, such as Dubai International Academic City and Dubai Knowledge Park, to build capacities across all Islamic economy sectors. Key areas of focus also include establishing a world-class Islamic economy research centre in Dubai. Standards: All Islamic economic activities are governed by the provisions and principles of Islamic law, captured in Islamic standards.
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Digital Islamic Economy: Innovative technologies have always been central to the progress of advanced economies. Over the last three decades, multiple leading institutions have made a commitment to allocating sufficient funds to develop new technologies that drive growth. Dubai has launched several landmark projects aimed at providing an enabling environment for pioneers of the digital economy, including Dubai Internet City and Dubai Silicon Oasis. Muslims account for about a quarter of the world’s population and 6.4 per cent of digital economy customers. Their digital economy spend amounted to $107 billion in 2014 and is expected to grow by 17 per cent annually to reach $277 billion by 2020. The ‘Dubai: Capital of Islamic Economy’ initiative seeks to establish Dubai as a leader in Islamic digital economy through attracting new players from around the world and supporting them with the necessary infrastructure to ensure sustainable success in this important sector.
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COVER INTERVIEW
With so much activity coming from the UK, do you see that as an important market for the future of Takaful? In which other markets do you see strong activity in the Takaful space? This growing interest from UK-based institutions indicates a prominent role for the Takaful sector in the UK’s insurance industry as the government seeks new business opportunities post-Brexit. To sustain the sector’s development, new entrants should ensure compliance with emerging guidelines and regulations. It is encouraging to see that the number of new players in the Takaful sector is surging, specifically from new markets, despite the sector’s small size globally. This can no doubt be attributed to the strengthening of regulations that deepen Shari'ah-compliant insurance penetration even while ensuring greater transparency. A good example of the effectiveness and profitability of guidelines and regulations is Nigeria. Following the launch of its first fullfledged Takaful company, Jaiz Takaful in October 2017, the country now has five Takaful operators - thanks largely to the government’s initiative in issuing Takaful guidelines. How is technology transforming Takaful? We must keep in mind that the Islamic insurance ecosystem, just like all other economic sectors, is witnessing a shift due to the growing focus on innovation as an outcome of the Fourth Industrial Revolution. Technology is currently redefining various sectors at an incredible pace. Traditional and Takaful insurance sectors alike are facing constant disruption, which is forcing the industry to evolve. Today, the insurance industry is leveraging technology to ensure efficiency and productivity while also creating new job opportunities. While the conventional insurance providers invest based on their assessment of what fits their profiles, Takaful investments follow strict principles that don’t allow any elements of gambling, uncertainty, or high-interest rates. This makes it more necessary for Takaful insurance companies to use technology to streamline procedures, raise competitiveness, and ensure customer satisfaction. Fintech is also changing the insurance industry dramatically. Companies are increasingly leveraging fintech to develop products, communicate better with potential customers,
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reduce costs, and provide an outlook of expected risks within the market, serving as a transparent and practical way of meeting the requirements of corporates and clients alike. To conclude, knowledge is the gateway to progress. It is imperative, therefore, to create a better knowledge base to boost the growth of the Takaful sector. To establish a better environment for growth, we need to shape a clearer regulatory framework and guidelines, and use technology to enhance and diversify products and services and make them more competitive. Doing so will enable them to hold their own against conventional insurance products and services in the best way possible – not as adversaries but as peers. What were the biggest achievements of the DIEDC last year? In 2018, DIEDC made great strides in expanding its regional and global presence, with increasing interest from foreign institutions in benefiting from the Centre’s expertise through partnerships. In March, the Centre signed a landmark agreement with The State Bank for Foreign Economic Affairs of Turkmenistan (TFEB) to exchange knowledge, experience, and best practices in the Islamic economy domain. The signing ceremony took place during a visit of an official high-level Turkmen delegation visit to the UAE, headed by Gurbanguly Berdimuhamedow, President of Turkmenistan. DIEDC also inked a memorandum of understanding (MoU) with the Group of Strategic Vision ‘Russia – Islamic World’ (RIW Group) to exchange expertise and best practices in the field of Halal industry, Islamic banking and finance. Under the agreement, the Group stands to benefit from the Centre’s experience in developing an integrated Islamic economy strategy. The two government entities also seek to share insights related to Islamic banking and finance, the Halal industry, especially food and beverage, as well as healthcare and recreation. In May, DIEDC signed an MoU with the Tatarstan Investment Development Agency (TIDA) to collaborate in creating a conducive investment environment in the Republic of Tatarstan and increasing the country’s attractiveness to investors. The agreement also mandates the two parties to organise joint events, facilitate the introduction of Islamic finance instruments in the Republic of Tatarstan, and enhance the role of Islamic economy in TIDA-led initiatives.
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COVER INTERVIEW
ABDULLA MOHAMMED AL AWAR, CEO, Dubai Islamic Economy Development Centre
The Centre’s efforts over the past years culminated in the announcement of the increase of the Islamic economy’s contribution to Dubai’s gross domestic product (GDP) to 10 per cent, according to Dubai Statistics Centre, a strategic partner of DIEDC, with Islamic finance, manufacturing, and trade as the main contributors. The result represents a significant achievement not only for the Islamic economy in Dubai but also for the sustainable development process pursued by the UAE as part of its post-oil economic strategy that promotes productive sectors, stimulates responsible investments, and encourages entrepreneurship and innovation. During Q2 2018, DIEDC continued to cooperate with its strategic partners to implement its operational plans that aim to position Dubai as the
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global capital of the Islamic economy and fast-track the implementation of its 2017-2021 strategy in line with the UAE Vision 2021. The Centre’s achievements since its inception also contributed to the UAE’s top ranking for the most advanced framework in three Islamic economy sectors — Modest Fashion, Halal Media and Recreation, and Halal Pharmaceuticals and Cosmetics – as per the Global Islamic Economy Indicator. DIEDC is committed to working with all stakeholders to devise mechanisms that will advance the growth of the Islamic economy sectors, primarily Islamic finance that is projected to reach $3.8 trillion by 2022. The success of the sector is due to its ethical principles that prioritise financial and social stability and quality of life.
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COVER INTERVIEW
In 2019, the DIEDC worked in conjunction with Malta in order to grow Islamic finance in that market. Could you tell me more about that collaboration? The Dubai Islamic Economy Development Centre (DIEDC) organised a roundtable in Malta in collaboration with the Malta Islamic Finance Association (MIFA), aimed at expanding the footprint of Islamic economy in Europe, as you said, as well as exchanging knowledge and expertise in the Islamic finance field, and enhancing bilateral relations. The participants discussed Malta’s potential to become a key Islamic finance hub in Europe, considering the presence of substantial Muslim communities in Central European countries, such as Italy, France, and Germany. The Maltese government has expressed significant interest in Islamic finance due to its strategic geographical location in the Mediterranean region, between Europe and North Africa, as well as its longstanding ties with the Arab and Muslim worlds. DIEDC is organising a series of roundtables and meetings across the world, following the recommendations of the Global Islamic Economy Summit that was hosted in Dubai on 30 and 31 October 2018 to expand the horizons of Islamic economy globally and raise awareness about the promising opportunities within its sectors. Speaking of the Global Islamic Economy Summit (GIES), what stood out about the fourth edition in particular?  Over the past editions, GIES has undergone several developments that have reflected its progress. The first edition in 2013 introduced a comprehensive definition of the Islamic economy sectors, and raised awareness of their importance to producers and consumers alike. In the second year, we sought to highlight the significance of standards and laws governing the Islamic economy in order to expand its footprint and attract new global players to its sectors. The third edition of the summit focused on the contribution of the Islamic economy to the sustainable development goals, and the need to leverage technology to ensure a real and lasting impact of the finance and investment tools used. For the fourth edition in 2018, we called on our partners in the UAE and around the world to join us in enhancing the role of the Islamic economy in driving sustainable development through creating new mechanisms
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to accelerate growth in line with the Fourth Industrial Revolution. Are there any developments in measuring the awareness of the Islamic economy? Raising public awareness of the benefits of the Islamic economy and building a solid knowledge base are vital to the success of DIEDC. In this context, we cooperate with relevant institutions to develop curricula and training programmes for key sectors, such as Islamic finance and Halal production.
DIEDC is committed to working with all stakeholders to devise mechanisms that will advance the growth of the Islamic economy sectors, primarily Islamic finance that is projected to reach $3.8 trillion by 2022. ABDULLA MOHAMMED AL AWAR
Thomson Reuters, the strategic partner of the Centre, produces the annual State of the Global Islamic Economy Report, a global statistics reference on the Islamic economy sectors that also highlights promising sectors of the future. The report includes the Global Islamic Economy Indicator, a ranking of countries that provide an environment favourable to the Islamic economy. I am proud to note that the UAE has been in the top three since the launch. How well has Dubai fared with launching a general charter or a global reference for Islamic economy? We are currently engaged in discussions with relevant strategic partners interested in developing universally acceptable rules and regulations for Islamic finance with the aim of expanding this effort globally, not necessarily as legislature but rather as a general charter or regulatory framework for the sector.
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Islamic economy now 10 per cent of Dubai’s GDP
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DUBAI
CROWN PRINCE OF DUBAI AND CHAIRMAN OF DUBAI EXECUTIVE COUNCIL, H.H. SHEIKH HAMDAN BIN MOHAMMED BIN RASHID AL MAKTOUM PRAISED THE ISLAMIC ECONOMY’S CONTRIBUTION TO DUBAI
(SHUTTERSTOCK)
D
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ubai is well on its way to becoming the Capital of the Islamic economy. According to a report issued by the Dubai Statistics Centre, the Islamic economy’s contribution to Dubai’s gross domestic product grew by 2.4 per cent by the end of 2017 to AED 40.953 billion, compared to AED 39.985 billion at the end of 2016. This accounts for 10 per cent of Dubai’s GDP. Crown Prince of Dubai and Chairman of Dubai Executive Council, H.H. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, commenting on the news, said that the growing contribution of the Islamic economy sector to Dubai’s gross domestic product (GDP) reflects the ability of the UAE’s economy to achieve growth and highlights the success of economic diversification plan, which is part of the vision of Vice President, Prime Minister of the UAE and Ruler of Dubai, His Highness Sheikh Mohammed bin Rashid Al Maktoum, to cement Dubai as a global capital of the Islamic economy, through clear strategy that’s being executed steadily and amid a conducive business environment, according to UAE state news service WAM.
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DUBAI
His Highness said, according to WAM, that the effective contribution of the Islamic economy sectors in Dubai’s GDP also reflects the success of Dubai in benefiting from its competitiveness to help support the sector’s growth, and to unlock opportunities that further ensure its sustainability globally, given the UAE’s position as key partner in the global economy, thanks to the potential it possess that allow it to take a leading role in the development of the Islamic economy globally. His Highness also said that Dubai is keen to encourage creative ideas that will open new horizons that lead to unleashing the potential of the Islamic economy and its diversified sectors and activities, and meet the growing demand on its various products and services. Sheikh Hamdan also said that the accumulative success of the Islamic economy locally also contributes in cementing the international role of Dubai as a capital of the sector, and a hub of all people who are involved in it, given all the facilities it provides to investors and businessmen who are looking for profitable investment opportunities, and present Dubai as a successful model for economic diversification and creating new sectors for growth, which is in line with 50-Year Charter for the development of the emirate, which was unveiled by Sheikh Mohammed bin Rashid. His Highness also said that the accumulative success of the strategy to position Dubai as the global capital of Islamic economy will motivate strategic partners involved in the Islamic economy to work hard to cement the global position of Dubai and UAE in creating initiatives and adopting policies that help promote the performance of the Islamic economy, and enable it to provide practical and effective solutions to the global financial and economic challenges. Dubai has made many strides in growing the Islamic economy, including bolstering its financial strength with the Global Sukuk Centre Initiative, which has been running since 2013. “The Dubai Global Sukuk Centre initiative has successfully strengthened Dubai’s global role as the centre for Sukuk activity. Through Nasdaq Dubai, the Emirate has become the world’s largest centre for listings of Sukuk by value, with a total of more than $60 billion. Dubai is playing a significant part in the continuing growth of Sukuk as an asset class, through which issuers raise capital in a way that shares many features with conventional bonds while also being Shari’ah-compliant,” said Hamed Ali, CEO of Nasdaq Dubai.
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GROWTH IN GLOBAL GDP AND IN DUBAI 2009-2019 6 5 4 3 2 1 0 -1 -2 -3
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
SOURCE: International Monetary Fund, World Economic Outlook, Update, October 2017, Dubai Statistics Centre.
BUDGET STRUCTURE OF THE GOVERNMENT OF DUBAI (in billion AED)
SOURCE: Dubai Department of Finance
“Dubai has built a strong reputation as a global financial hub including leading Sukuk and Islamic finance experts. We have worked with institutions in the Dubai International Financial Centre (DIFC) to leverage this knowledge to create a suitable infrastructure for the growth of Islamic financial services. The Dubai Global Sukuk Centre Initiative, announced by Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of
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DUBAI
the UAE, and Ruler of Dubai, has been a catalyst for further growth in the sector through the collective efforts of market participants and government entities,” said Hamed Ali, CEO of Nasdaq Dubai. Sukuk issuance in Dubai continues to grow. “The investment and regulatory infrastructure provided by Nasdaq Dubai has played an important role in providing many competitive advantages to issuers, which has contributed to attracting important listings from inside and outside the country. Issuances by UAE entities comprise 56 per cent of all issuances listed in Dubai, with 44 per cent being from outside the country. Supported by the Dubai Islamic Economy Development Centre (DIEDC), the Sukuk sector has expanded further into mainstream finance and become an asset class of choice for both private and public sector issuers,” said Ali. The FinTech Hive at DIFC has focused on growing the tech aspect of the Islamic economy. “Islamic finance is a young but fast-growing sector, so we see a lot of potential in its future. Dubai in particular is becoming a global centre for Islamic economy. The Centre hosts over 20 Islamic financial institutions and companies operating an Islamic window. Dubai and specifically DIFC has the largest listing centre in the world for Sukuk, with $56.465 billion in value. DIFC’s FinTech Hive accelerator programme is also focusing on Islamic finance as part of its 2018 programme. I am pleased to say that one of the first participants in FinTech Hive’s inaugural programme, was the first company to receive the ITL,” said Raja Al Mazrouei, Executive Vice President of FinTech Hive at DIFC. “In addition, we continue to work in close partnership with relevant entities; we recently signed a significant MoU with the Dubai Islamic Economy Development Centre (DIEDC), which works to transform Dubai into the capital of the Islamic economy through innovation, entrepreneurship and empowerment, to collaborate on enhancing the emirate’s Islamic FinTech ecosystem,” Al Mazrouei continued. For Islamic finance to continue to grow, Dubai’s initiative is of vital importance. Professor Professor Nabil Baydoun, Vice Chancellor for Academic Affairs, Hamdan Bin Mohammed Smart University has praised the Dubai’s effort to grow the Islamic economy. Islamic banking is gaining strategic importance as one of the most important innovations in the banking
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sector, keeping pace with the rapid changes in the 21st century. The global confidence in Islamic banking is growing simultaneously and has become available at 1,000 financial institutions in the world, especially in the Middle East, Europe, America, South Asia, Far East, Africa and Australia. The Islamic economy is currently witnessing a remarkable growth amid expectations that the total assets of the global Islamic finance industry will reach $4 trillion by 2020. The emirate of Dubai today plays a leading role in shaping the future of Islamic banking in the world under the guidance of HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, and in making Dubai the capital of the Islamic economy. Hamdan Bin Mohammed Smart University (HBMSU) is one of the pioneers in empowering the millennial generation and entrepreneurs, by helping them gain a high degree of technical expertise, practical and conceptual knowledge that is necessary to achieve excellence within the Islamic economy,” Baydoun said. Human capital is of vital importance if the Islamic economy to continue to grow. HBMSU is making contributions to that effort, according to Baydoun. “The Dubai Centre for Islamic Banking and Finance (DCIBF), launched by H.H. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of Dubai Executive Council and HBMSU, is currently leading the transformation of Dubai into a global capital for the Islamic economy knowledge, in line with the initiative of H.H. Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai for Dubai to become the capital of Islamic economy. This is being accomplished through the development of an integrated portfolio of research, academic programs, and training courses that will contribute to the development of Islamic banking and finance, driven by three main aspects: human capital development, scientific research and community service,” said Baydoun. “The Center adopts a forward-looking vision to establish integrated standards to activate future cooperation among academic institutions and to promote the optimal investment in human capital, qualified to guide the Islamic economy according to the highest levels of professionalism, excellence and leadership through training, research and development, which are the very foundations of the efforts to establish the leading position of the emirate on the global Islamic economy map."
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MALAYSIA
The next generation of Islamic finance in Malaysia
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MALAYSIA
ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, ASSISTANT GOVERNOR, BANK NEGARA MALAYSIA WRITES ABOUT HOW VBI, FINANCIAL INCLUSION AND A ROBUST REGULATORY FRAMEWORK ARE KEY BUILDING BLOCKS FOR MALAYSIA’S ISLAMIC FINANCIAL COMMUNITY MOVING FORWARD
( SamsulSaid/BLOOMBERG)
F
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or many of us, the 2008 global financial crisis will be one of the major events that stays with us throughout our careers. In Asia, we had the Asian Financial Crisis in 1998 which was momentous but given the scale and its far reaching impact, the 2008 crisis has left far larger imprints. More than a decade has passed, yet we continue to live under its shadows. A world that has grown at a slower pace, in a low inflation, bordering on deflationary risk environment for the better part of a decade. Banking and financial regulations that undoubtedly have strengthened the resilience of the system, but could have had unintended consequences on growth. During this time, a multitude of financial misconducts have been uncovered that have deeply impacted the global financial sector and damaged its reputation. In many parts of the system, not only has the crisis sparked a rethinking of the economic architecture, the stability and resilience of the financial sector, it has also laid bare, the absence or lack of values and ethics in finance. This lack of moral compass and its role that contributed to the global financial crisis has resulted in a loss
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MALAYSIA
of trust in finance, prompting a need to restore integrity and trust in financial institutions and market players. This should not greatly surprise us. After all, the influential works of economic thinkers that came to shape many economic and financial policies before the crisis, had as its fundamental basis, that people who are driven by self-interest, would be able to produce the best outcome for the economy and society. This reminds of an earlier quote attributed to John Maynard Keynes; ‘Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of motives, will somehow work together for the benefit of all’. Today, this lack of moral compass and base motivation for financial and economic decision making rings hollow. Society desires higher motives and a greater sense of purpose. Supporting this must be a stronger sense of ethics and values. In the mainstream or conventional financial system, many institutions and practitioners have latched onto sustainability, environmental and governance themes and standards as a manifestation of this. Finance must serve the good and is no longer about greed and self-interest.
Raising the impact of Islamic finance to the economy and society through stronger leadership, values and ethics Islamic finance has always been subjected to higher overarching objectives that place ethical and moral conduct at its centre. The Maqasid Shari’ah first articulated by al-Ghazali in the 12th century and developed further by later scholars, speaks towards preservation of religion, life, family, mind and property with the ultimate aim of prevention of harm and attainment of benefits. At the onset, such objectives entail the prohibition of any unethical or unlawful conduct in Islamic finance while putting in place features of an embedded governance that support the highest level of integrity and good conduct within Islamic finance. This is achieved through the branch of Shari’ah of Fiqh Muamalat which governs business and financial relationships in the Islamic economy. The main objective of Islamic economics itself is the human wellbeing, a concept that not only cuts across the necessities of Maqasid Shari’ah, but also extends towards a more comprehensive social and economic aspiration for the betterment of the material and spiritual well-being of a society.
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ENCIK ADNAN ZAYLANI MOHAMAD ZAHID, Assistant Governor, Bank Negara Malaysia
Islamic finance therefore naturally has the potential to take the lead striving towards an ethical, moral and also sustainable model for finance in the global financial system. In developing the Islamic financial system, these unique propositions are drawn out further from underlying Shari’ah principles. Islamic finance practitioners in principle, are at a minimum, dutybound to observe the norms of high ethical conduct to uphold the values and the sanctity of Shari’ah. Principles alone however, do not insulate Islamic finance from experiencing conduct risks. Examples in the past from various cases of frauds, breach of trust and mismanagement have occurred, exposing Islamic finance to reputational risks. Operational safeguards remain critical in the dayto-day decision making and business operations. Islamic finance must also continuously reflect on whether the governance arrangements, practices and business models of their institutions are effective and impactful.
Islamic finance can lead in financial inclusion and governance Today, Islamic finance has already established itself and garnered significance in many parts of the world. Though much of this appeared as a natural outgrowth of growing prosperity in many Muslim countries, it did require governmental support and regulatory pushes. In Malaysia, where
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industry’s key growth drivers. • Offering of Shariah-compliant financial products and services in 50 Muslim and nonMuslim jurisdictions around the world demonstrated that the industry has gained its traction among businesses and individuals from all walks of life2.
• Compliance to Shariah has been the focus in ensuring legitimacy of Islamic financial products and services. Diagram 1.1 summarises Malaysia’s journey in building an MALAYSIA ecosystem that ensures Shariah compliance in Malaysia.
of an ecosystem that ensures Shariah compliance in Malaysia ISLAMIC Diagram FINANCE1.1: IN Evolution MALAYSIA: A TIMELINE
Institutionalisation of Islamic financial players
1980
1997
Developed legal and Shariah foundation and increased number of players to stimulate competition First Shariah Committee • Formed by Bank Islam Malaysia Berhad, the first Islamic bank established under Islamic Banking Act 1983 Shariah Compliance Regulation for Islamic Windows • Issued Guidelines of Skim Perbankan Islam to ensure Shariah compliance by conventional banks carrying out Islamic banking services
Centralisation of Shariah advisory
2007
Centralised Shariah advisory for Islamic finance and enhanced certainty of Shariah via talent and knowledge institutions Shariah Advisory Council • Established as apex authority in Islamic finance to harmonise views among Islamic financial institutions
Diversification of Islamic financial business
2017
Developed legal and regulatory framework to ensure end-to-end Shariah compliance of diversified Islamic financial business
CBA 2009
Dedicated Muamalat Court • Led towards greater efficiency in managing Islamic finance cases
SGF
Talent and Knowledge Institutions • Established IBFIM, INCEIF and ISRA to nurture talents and generate knowledge, including in Shariah
IFSA 2013
Finality of Shariah rulings • Shariah rulings by SAC bind the court and arbitrator Shariah Governance • Strengthened roles and accountability of key functionaries in Islamic financial institutions Shariah Contract-Based Regulatory Framework • Enforced legal and regulatory framework for diversified Shariah contracts
SOURCE: Bank Negara Malaysia
1
Islamic Financial enhancing financial inclusion, such as the online the Services modern Industry form of Stability Islamic Report, finance2016. has developed Reportfor onover Islamic 2016, “Islamicstrategy Finance:toAdevelop Catalyst for Shared Prosperity?”, Theproducts World Bank application of Takaful thatand offerIslamic affordable 40 Finance years, the national Development Bank Group. and easy to understand protection plans with a Islamic banking and finance was driven from two convenient claims process. The Islamic banking perspectives, as an initial strategy for financial 8 | Page industry’s recent launch of the myWakaf portal is inclusion and to later on position the country as a another such initiative to enable easier and more leader in Islamic finance. effective Wakaf contributions by individuals to In financial inclusion, Islamic finance played selected projects such as education, healthcare, an important role in bringing those who exclude investment and economic empowerment. themselves from the conventional system on In our leadership aspiration in Islamic finance, religious grounds. Demographically, Muslim key areas that were and are emphasised are in households make up the majority in our country, governance and ethics. Strong corporate governance including that of the B40 income category. There is and leadership are crucial to uphold Shari’ah values a natural affinity to subscribe to Islamic finance. and raise the impact of Islamic finance to the Nevertheless, outreach beyond the urban areas economy and society. always requires additional effort. A robust Shari’ah governance framework Now, with the help of technology, Islamic finance within Islamic financial institutions is a must is playing a greater role in expanding outreach of to ensure that Shari’ah values are internalised financial services and increasing financial inclusion. and upheld in business practices. The Islamic Digitally-enabled financial services are resulting in Financial Services Act 2013 accords due recognition greater access, quality and usage of financial services. to the importance of governance structure within Islamic banking and Takaful customers are able to Islamic financial institutions. In practice, Shari’ah equally benefit from online and mobile banking compliance is supported in Malaysia under a twoservices, and enjoy seamless business transactions tier governance structure that operates at the through digital platforms for supply chain finance. industry and institutional levels. This comprises the Digitisation of Islamic products and instruments Shari’ah Advisory Council of Bank Negara Malaysia has even contributed in specific initiatives of
2 Global
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as the highest authority in the ascertainment of Islamic law for Islamic financial business; and a Shari’ah committee setup in each Islamic financial institution to advise the management and the board on all matters relating to Shari’ah issues that are specific to the institution. Currently, we are in the midst of revising the Shari’ah Governance Framework to further strengthen it by providing, among others, greater clarity on the roles, responsibilities and accountabilities of the board, Shari’ah committee and key organs involved in instituting a robust Shari’ah compliance risk culture. Through the governance, application of Shari’ah will be more closely integrated with the business and risk strategies of Islamic financial institutions. These efforts, and many more, have culminated in an unparalleled growth in the Islamic banking market share which grew six-fold over the last 20 years. Islamic banking system now comprises over 30 per cent of the overall. Takaful has also grown in acceptance, registering double digit growth rates outpacing the conventional counterpart for the past few years. ArRahnu, Islamic investment accounts are becoming more familiar products among Malaysians. We have also become and have maintained a position among the world’s largest Sukuk issuers. Islamic finance is thriving and competitive.
Islamic financial institutions should consider the wider impact of their activities Beyond this, Islamic finance is also spearheading initiatives in sustainable finance with Islamic banking institutions championing the implementation of Value-based Intermediation (VBI). Through VBI, Islamic financial institutions adopt a highly structured framework to assess how they create value and impact, for example, from economic, social and environmental perspectives. VBI accords equal emphasis to economic value creation and upholding of ethical values, and strengthens Islamic finance as a ‘uniting force for good’. The VBI initiative is currently bringing together the banking groups through a pioneering Community of Practitioners (CoP) to advance the sustainability agenda in a collaborative, concerted and synergistic approach. This includes forming close engagement with organisations that share similar sustainability aspirations. Through VBI, Islamic banks are taking the lead
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in advancing finance for the good. While these banks are still at early stages in their journeys, there are already concrete examples of VBI being put into action today as we see progress in embedding its elements in their financial products, practices and operations. Though VBI has a far wider scope, these early applications capitalise on contemporary sustainability themes. These include preferential financing rates for hybrid vehicles and green buildings, specialised financing scheme for women entrepreneurs and issuance of the world’s first Sustainable Development Goals (SDG) Sukuk. Where VBI goes beyond are in provision of nonfinancial services bundled in financial solutions such as advisory, business network and relevant infrastructures to groom small clients with business potentials such as SMEs and micro finance. Alongside this move towards responsible financing, the CoP members are actively reviewing their business portfolios, identifying and prioritising VBI issues within their institutions and building the required capacity. The banks’ progress and effectiveness of VBI-related initiatives would be captured through the VBI Scorecard. The underpinning thrusts of VBI are also gaining relevance in the Takaful industry as Takaful operators are taking initial steps in exploring value-based protection for their customers. Given the universal nature of VBI, I believe that its adoption by financial groups which comprise the conventional financial institutions, as well as issuers and investors would be a natural evolution in the financial ecosystem.
Expectations on the next generation of Islamic financial institutions The next generation of Islamic financial institutions would thus be driven by values and not just profit. With a moral outlook for the ultimate good, strengthened by self-discipline, greater accountability and integrity, Islamic financial institutions will have stronger consideration of the impact of decisions made. There should be greater drive to continuously improve their offerings and treatments towards customers and employees, which include fair and transparent disclosure in order to increase the positive impact of their activities. Development of banking practices based on VBI concepts are also anticipated to encourage the creation of new business opportunities and provide
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( SamsulSaid/BLOOMBERG)
MALAYSIA
Bank Negara Malaysia headquarters in Kuala Lumpur, Malaysia
the foundation for better returns for Islamic banks over the long term. An example is assessment of financing application by Islamic banks based on value-creation instead of mere credit scoring which would benefit business propositions from new sectors such as SMEs. Another example is refocusing, strengthening and repositioning of personal financing by Islamic banks to best meet the needs and circumstances of customers. Â In time, there may emerge greater differentiation between VBI and non-VBI institutions which will be better understood by shareholders, fund providers and financial markets more generally.
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Furthermore, the more comprehensive and holistic approach of VBI in advancing the good for society could prove to be a key competitive advantage that will influence and shape the future of the financial industry. The drive for positive changes in the Islamic financial services industry however requires a major paradigm shift in many institutions. It takes a long view to recognise returns beyond financial profits where social and environmental gains are also highly valued. It will also take increasing professionalism and high-quality talent that will contribute to this transformation of mind and culture.
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experience on value-based best practices. • Provide input and feedback on proposed implementations e.g. valuebased scorecard based on expertise.
MALAYSIA
activism on VBI. v. Business ventures and clients • Strengthen the ecosystem (demand and supply) in terms of corporate investors with aligned value propositions.
THE VALUE-BASED INTERMEDIATION NETWORK Diagram 4.5: Value-based intermediation network
SOURCE: Bank Negara Malaysia
In Malaysia, we can readily leverage on the available Islamic finance talent development ecosystem, which has a comprehensive and diversified range of offerings, spanning tertiary and professional education, research, training and consultancy services which are globally recognised. The implementation of VBI has already galvanised many stakeholders including institutions of higher learning such as the International Centre for Education in Islamic Finance (INCEIF) and International Shari’ah Research Academy (ISRA) to undertake impactful applied research that advances the implementation progress of VBI by the financial industry. Indeed, Islamic finance has greatly benefited through these institutions that have contributed towards enlarging the pool of Islamic finance professionals and deepening expertise through various programmes and initiatives. At the same time, these institutions have also grown in recognition. INCEIF, for example, has been awarded the prestigious accreditation by the Association to Advance Collegiate Schools of Business (AACBS) International in recognition of its excellence in various areas, including its diverse programmes that have benefitted students from more than 80 countries. Besides talent, strong and visionary leadership in particular at the Board and Senior Management will be crucial for success in this paradigm shift. This leadership and strong professionalism must
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continuously be complemented with the right ethics to transform the culture, systems and people. Nurturing talent also needs to be extended to the board level. In Malaysia, directors can gain greater appreciation on the dynamics of Shari’ah principles through programmes such as the Islamic Finance for Board of Directors Programme. This specialised Islamic finance training programme builds on the core foundations on corporate governance as set out in the Financial Institutions Directors’ Education programme. Directors would also be exposed to diverse perspectives from within and beyond the Islamic banking community on contemporary issues in the industry. The Islamic financial sector has made great strides over the recent decades. The next growth frontier in Islamic finance however lies in realising its potential to create greater socio-economic impact. Values and ethics, strongly instilled would strengthen trust between people and the system. For the Islamic finance industry, the move towards embracing VBI manifests the larger aspiration of Islamic finance. In shaping positive behaviour amongst industry players, Islamic finance can become a leading agent of change and bring about sustainable positive impacts to the economy and society. Translating this vision into reality then requires our collective efforts, steered by strong and capable leadership.
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SHARI'AH FOCUS
The missing ‘S’ in ESG MOHAMED DAMAK, GLOBAL HEAD OF ISLAMIC FINANCE, S&P GLOBAL RATINGS, WRITES ABOUT HOW ISLAMIC FINANCE AND PRINCIPLES OF ESG OVERLAP
E
nvironmental, social, and governance (ESG) factors have rapidly increased their prominence in global credit markets. Issuers are increasingly improving transparency on the potential effects of disruption from climate risk and other perils, as well as human and natural resources management, and sensitivities to demographic changes and technological advancements, among other factors. In our view, Islamic finance, which must abide by the goals or objectives (Maqasid) of Shari’ah, shares some links with ESG considerations and the broader aim of sustainable finance. As regulators and policymakers around the world seek to establish a more sustainable, stakeholder-focused, and socially responsible financial system in the future, we see some complementarities between Islamic finance and sustainable finance.
Possible parallels between Islamic finance principles and sustainable finance To be considered Shari’ah-compliant, a financial institution or transaction needs to meet the Koran’s tenets against usury and uncertainty. Perhaps the most famous principle of Islamic finance is the prohibition of Riba. Depending on the school
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of thought, Riba has been defined as interest or excessive interest, leading to slavery. Shari’ah doesn’t consider money as an asset on its own because it is not tangible. Therefore, money may not earn a return from the simple fact of time elapsing. Instead, return can be earned on risktaking activities, as long as the burden or reward is shared between the bank and its client. Although the principle of profit- and loss-sharing has not been fully or always applied properly in the past, we think that the industry is slowly inching in this direction. Shari’ah also prohibits uncertainty of payout, gambling, or speculation (Gharar), and encourages responsible behavior. Moreover, Shari’ah-compliant transactions must be backed by tangible and identifiable assets that anchor the financial sector in the real economy. Lastly, Islamic finance forbids investment in or dealings with those industries prohibited under Shari’ah: notably alcohol and brewing, tobacco, weapons and armaments, or pork-based products. Reportedly, the ultimate goal of these principles is to create a sustainable, stakeholder-focused, and socially responsible financial system. More broadly, Islamic finance has to abide by the goals or objectives (Maqasid) of Shari’ah. There are several definitions
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SHARI'AH FOCUS
or interpretations of the goals of Shari’ah but they broadly evolve around the protection of faith, life, mind, wealth, and dignity. Sustainable finance, on the other hand, focuses on driving players throughout the financial system to integrate ESG objectives into their activities and capital allocation. For an entity, it involves a focus on improving its own performance across ESG factors. From an investor standpoint, it includes a number of investing approaches, such as screening assets based on environmental, social, or ethical criteria, the integration of ESG factors in investment decision-making, and investment based on social impact, among others. Sustainable finance also involves the bond market, with the issuance of green, social, and sustainability bonds, where proceeds are restricted for assets with environmental or social purposes, or a combination of the two. In this context, we consider that there may be parallels between the objectives of sustainable finance and some of the underlying principles of Shari’ah. For example, the Islamic finance protection of life goal aligns with sustainable finance principles, which emphasise environmental and social protection including either refraining from developing or financing operations that could adversely impact the environment and/or the health or the well-being of humankind. There are also parallels between the social focus of ESG analysis and integration and the principle of profit- and loss-sharing, both of which ultimately aim to adopt a stakeholder view and increase social cohesion, and ensure that no one is left behind. On the governance side, Islamic banks and instruments are typically subject to an additional layer of governance compared with their conventional counterparts. Islamic banks and products are typically approved by Shari’ah boards, which ensure the conformity of these products with Shari’ah at any point in time during their life cycle. Finally, tracking the allocation of proceeds to eligible projects is a principle that we also observe for ESG-linked issuance. The Shari’ah requirement that tangible and identifiable assets must back transactions aligns with the substantial green and social infrastructure development needed to support the transition to a low carbon economy. Nevertheless, the consideration of ESG factors for a company or an investment product doesn’t necessarily confer conformity with Shari’ah. A
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MOHAMED DAMAK, Global Head of Islamic Finance, S&P Global Ratings
company that produces goods or services that would be considered non-Shari’ah compliant may comply with ESG considerations and vice versa.
The ‘E’ and ‘G’ are more visible The ‘E’ and ‘G’ factors seem to us to be more visible in Islamic finance than the ‘S’. A green Sukuk, for example, is a form of Islamic financial instrument in which issuers use the proceeds to finance investments in renewable energy or other environmental assets, such as solar parks, biogas plants, wind energy projects, as well as renewable transmission and infrastructure projects. To date, several green Sukuk have been issued, primarily in Southeast Asian countries and the Gulf, with the latest being the $600 million green Sukuk issued by Majid Al Futtaim (a diversified group based in the United Arab Emirates) in May 2019. The amount is still minimal compared with the global green bond market that saw $168 billion of issuances in 2018, but it is growing. Green Sukuk have reportedly allowed issuers to access not only the pool of conventional investors interested in green projects, but also Islamic investors. This could lead to potential excess demand and better financing conditions. Given the rapid increase in energy demand and the objective of shifting energy provision to greener sources in some core Islamic finance countries
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(particularly Malaysia, the United Arab Emirates, and Saudi Arabia), the opportunities for green Sukuk appear significant. Beyond green Sukuk, we consider that the rising interest in and growth of ESG-related assets under management, will encourage Islamic finance to progressively shift from a negative screening of projects and operations to a positive screening, where projects with a positive ESG impact are given priority because of the links between ESG objectives and Islamic finance. This process has already started: some leading Islamic banks have allocated a part of their business to responsible financing. Bahrain-based Al Baraka Banking Group, for example, has set a specific goal for the use of green energy in some of the bank’s subsidiaries. With regards to the ‘G’ factor, Islamic banks and Sukuk are subject to an additional layer of governance compared with their conventional counterparts. Islamic banks and products need to have a Shari’ah board, which consists typically of three Shari’ah scholars having the responsibility of issuing Fatwas (or opinion of conformity with Shari’ah). They are also subject to internal Shari’ah audit, and the industry is slowly leaning toward external Shari’ah audit. The Shari’ah board reports its findings to the boards of directors of the institution and the different stakeholders. While this layer of governance should provide additional oversight, it did not prevent the industry from going through some episodes of instability, such as the recent instance in which an issuer did not pay back investors on the basis that its Sukuk was, reportedly, no longer compliant with Shari’ah. In order to push the governance aspect forward, we believe the industry needs inclusive standardisation of Shari’ah interpretation and legal documentation and awareness of ESG factors. The process would combine issuers, investors, regulators, and Shari’ah scholars’ perspectives to help the market shape its future direction. In our view, inclusive standardisation is not only achievable, it will also boost the industry and the volume of issuance. Ultimately, it will restore the attractiveness of the instrument to issuers through a smoother, faster issuance process and increased clarity on the underlying risks for investors.
The missing ‘S’ The social aspect appears to have been cast somewhat to the back seat. While the underlying principles
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are socially focused and a number of instruments already exist, they have not been leveraged in modern Islamic finance in a transparent, systematic manner. This may be because Islamic banks, as issuers themselves, do not appear to focus on their own social performance. At present, there are limited public disclosures on how Islamic banks or issuers of Sukuk are dealing with social issues (such as workforce and diversity, safety management, customer management, and communities). However, we understand that they are not dealing with these issues in a significantly different manner from conventional banks in their respective countries or systems. From the perspective of financing activities, the lack of visibility of the ‘S’ factor is underpinned by the fact that Islamic banks are, at the end of the day, commercial entities that seek financial performance among other factors and it is not because of a lack of instruments or products. In fact, socially responsible products do exist in Islamic finance and their size is reportedly substantial. Three instruments are worth mentioning: - Qard Hassan, consisting of a loan granted for welfare purposes or to bridge short-term funding requirements where the borrower is required to repay only the principal. - Zakat, which is one of the five pillars of the Islamic religion and is similar to a tax that is levied on wealth that exceeds a certain threshold. Zakat is used for social welfare purposes without any expectations of repayment or remuneration. - Waqf, consisting of a donation of an asset or cash for religious or charitable purposes with no intention of reclaim. These products could make a difference when it comes to socially responsible financing. At the same time, we think it will require a proper governance framework for their use in order to reach this objective. As the amounts are high, users can be tempted to divert these instruments from their original purpose. For example, investing Waqf cash in Sukuk and using the return for Waqf purposes might be perceived as diverting Waqf money from its original purpose. Similarly, using Waqf money to fulfill certain objectives other than social ones might not be an acceptable approach for Islamic finance stakeholders. As we understand it, the intention of Waqf money is rather to achieve social objectives, such as improving people’s living standards by providing basic services, affordable
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SHARI'AH FOCUS
ISLAMIC FINANCE AND ESG – COMMON APPROACHES?
ESG
Non-financial Factors
Avoidance of Debt/ Leverage
Islamic Finance
Positive Lists/Preferred Inclusion Engagement
Negative Lists/ Exclusions
Zakat/Distribution to the needy
Proxy Voting
Best in Class
Instruments linked to real assets
SOURCE: IdealRatings (2016). ESG and Islamic Finance. Company Presentation based upon Funds@Work AG (2013). Towards a more sustainable Finance System.
education, health care, or housing. Blending Waqf money with private sector money could also have a bigger impact. However, that assumes a strong layer of governance and protection of the Waqf money, and simply avoiding that it would act as a first-loss tranche to protect private sector investors from taking their fair share of risk. To be fair to them, a few Islamic banks have set public objectives on social responsibility. Al Baraka Banking Group, for example, announced that it aims to contribute to the creation of 51,000 jobs, and finance $191 million education projects and $434 million health care projects by 2020. In Malaysia, the Central Bank in 2018 issued a framework for value-based intermediation (VBI) aimed ultimately at delivering the intended outcomes of Shari’ah through practices, conduct, and offerings that generate a positive and sustainable impact to the economy, community, and environment, and that are consistent with the shareholders’ sustainable returns and long-term interests. Therefore, in our opinion, the Islamic finance industry is slowly realising that it could contribute to a sustainable financial system. We think that the contribution will remain limited, though, at least
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in the short term. We estimate the size of the global Islamic finance industry at around $2.1 trillion at year-end 2018. While there are no estimates on the total size of the Waqf assets and Zakat flows, it is reportedly substantial.
ESG and ratings in Islamic finance We incorporate ESG considerations into our ratings methodology and analytics of Islamic financial institutions and Sukuk in a similar way as we do for conventional issuers and issues. For Sukuk ratings, the ESG considerations would generally be reflected in the sponsor rating. For sovereign Sukuk, for example, institutional quality and governance effectiveness is a key factor for the rating on the sovereign sponsor. Indeed, it accounts for approximately one-quarter of the indicative sovereign rating. Similarly, for banks, we take into consideration deficiencies in the overall quality of a banking system’s governance and transparency in our Banking Industry Country Risk Assessment, which is the starting point for assigning a bank rating. The impact could also be reflected in the individual assessment of a bank through.
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SUKUK
SYNDICATED LOANS VS. FIXED INCOME INSTRUMENTS:
What is the instrument of choice for 2019? 34
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SUKUK
MOHAMMED KHNIFER, DEBT CAPITAL MARKETS (DCM), BANKER AT SUPRANATIONAL BANKING INSTITUTION, WRITES FOR ISLAMIC BUSINESS & FINANCE ABOUT THE NEW ENTRIES INTO THE SUKUK SPACE IN SAUDI ARABIA
Simon Dawson/BLOOMBERG
T
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he loan market across GCC is expected to suffer during the rest of this year due to exceptionally excellent market conditions for fixed income instruments, but don’t take my word for it. Dealogic data shows that year to date loan volumes across emerging Europe, the Middle East and Africa dropped 62 per cent in 2019 compared with 2018, with 174 deals in 2018 versus 69 ones in 2019. The cost of funding on bonds has gone down for borrowers this year. In the last two months in Saudi Arabia, borrowers have emerged from different sectors. Al Marai, one of the largest regional dairy companies, and the Saudi Telecoms Company, have both entered the Sukuk market. Some borrowers now have the ability to be aggressive with their pricing in the bond market. STC pursued an aggressive pricing strategy, as Aramco did, with their recent Sukuk issuance and even managed to price lower than the Saudi sovereign ten-year bond issued earlier this year. We are seeing
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SUKUK
SUKUK MARKETS DIPPED IN 2018 Reopening
Issuance (excl. reopening)
140 120 100
(Bil. $)
80 60 40 20 0 2014 2015 2016 2017 2018
SOURCE: S&P Global Ratings, Elkon.
more appetite for debt capital market activity from blue chips in Saudi Arabia and across the Gulf. The determining factor for selecting a debt instrument over a loan is essentially pricing. As we speak right now, the fixed income approach is the right one. Market conditions are far more attractive because of the Federal Reserve and relative market conditions across secondary trading which allowed some borrowers to be more aggressive with the pricing. The second factor is the inclusion of EM borrowers across the GCC into emerging market indexes (i.e. the JPM Emerging Market Bond Indexes) . Corporates can now benchmark their issuances against sovereigns, and this is providing them with more appealing terms. Due to there not being enough transactions on the loans side, some domestic banks in Saudi Arabia have changed their approach to meet the guidelines of Vision 2030, which encourages banks to invest in new industries and infrastructure projects. This is why we have seen a trend of increasing lending since the last quarter of 2018 in Saudi Arabia, but this came on the account of a very thin/tight margin rate.
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Some domestic banks in Saudi Arabia have changed their approach to meet the guidelines of Vision 2030. – MOHAMMED KHNIFER
MOHAMMED KHNIFER
Mohammed Khnifer can be reached at mkhnifer@gmail.com and on twitter at @mkhnifer
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AWARDS 2019
23 October 2019 Address Boulevard Hotel Dubai, United Arab Emirates
*7pm reception followed by dinner and the awards ceremony
Join over 200 senior Islamic banking and finance executives from across Europe, Middle East and Africa as we reward excellence and celebrate the achievements of the global Islamic finance industry. Now in its 14th year, the IB&F Awards is recognized as the longest established Islamic banking and finance awards programme honoring outstanding performance in Shari'ah-compliant finance.
Nominations now open! Islamic Business & Finance welcomes entries for the 2019 Awards. Financial institutions must highlight pioneering developments, innovative banking solutions, and achievements in the Islamic financial services industry. To learn more about the Awards process, please email: neema.sajnani@cpifinancial.net
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page 3-4 contents 114.indd 1
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SUKUK
The corporate Sukuk market is ready to blossom
(serdjophoto/SHUTTERSTOCK)
BASHAR AL NATOOR, GLOBAL HEAD OF ISLAMIC FINANCE, FITCH RATINGS WRITES ABOUT WHY CORPORATE SUKUK LAGS BEHIND, AND IS DUE FOR A CATCH UP
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SUKUK
S
ukuk issuance by corporates in 2018 in key Islamic finance markets, such as the Gulf Cooperation Council (GCC) region, Indonesia, Turkey and Pakistan, has been small relative to its potential. The only exception is Malaysia, which has a relatively developed local Sukuk market (at $116 billion of local corporate Sukuk issuance). The return to debt issuance in 2018 by many governments (although not at the same level of 2017) could help encourage growth in the private sector’s Sukuk market. This, along with the efforts to establish a basic Sukuk market ecosystem and enhance infrastructure and processes for corporate debt issuance, could also make Sukuk more attractive for corporate and financial institution (FI) issuers. Banks continue to be the primary source of funding for corporates in the GCC due to a number of factors, including historical financial and economic regulations, and the type, size and development of the domestic corporate base. Banks are primarily funded by deposits from customers and the government rather than capital markets and we do not expect this to change in the medium term. Nevertheless, GCC corporates are more likely to issue Sukuk than bonds because of the wider local and regional investor base for Sukuk — the corporates’ own rules around shari'ah-compliant borrowing or requirements for inclusion in Islamic market indices. For instance, Saudi Arabia’s local bond and Sukuk market amounted to SAR 400 billion as of June 2018, with about 50 per cent from the sovereign, 24 per cent from corporates and 23 per cent from FIs. Sukuk were 55 per cent of total issuance and 95 per cent of total corporate issuance. However, Saudi Arabia’s international corporate Sukuk issuance is still very limited. Likewise, in Malaysia, Sukuk were almost 60 per cent of total outstanding bonds and as of August 2018 Sukuk amounted to MYR 820 billion. In contrast, Sukuk issuance has been much smaller in Indonesia with total outstanding corporate Sukuk at just over $1 billion. It is also small in Turkey, mainly due to the country’s relatively new regulatory
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SUKUK
Sukuk framework and the still-developing nature of corporate capital markets. However, there is ample room for growth in Indonesia and Turkey’s corporate and FI Sukuk market because it remains almost under penetrated compared with Malaysia and other developing capital-market countries. Sukuk issuance in the ten largest markets fell last year following record issuance in 2017. We do not believe this reflects long-term trends but it shows how issuance volumes can be influenced by the activity of individual borrowers, notably oilexporting sovereigns. Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region (Malaysia, Indonesia, Turkey and Pakistan) totalled $39.8 billion in 2018 — a decline of nearly one third from the previous year but in line with the 2012–2016 average. Last year’s 30 per cent decline in conventional bond issuance suggests that lower Sukuk issuance was principally a function of higher oil prices in 9M18, which reduced immediate borrowing needs among some sovereigns and improved liquidity in their banking systems. US monetary tightening has also raised borrowing costs. Sukuk’s share of total issuance was broadly unchanged at 27 per cent.
Sukuk issuance with a maturity of more than 18 months from the Gulf Cooperation Council (GCC) region (Malaysia, Indonesia, Turkey and Pakistan) totalled $39.8 billion in 2018 — a decline of nearly one third from the previous year but in line with the 2012–2016 average. As capital markets in the ten largest Sukuk countries become more efficient, Sukuk could become an attractive alternative to funding from banks because they can help lower the cost of capital, especially for longer-tenured debt. This is also true as Basel III requirements of higher liquidity coverage ratios for banks could make long-term
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loans less viable and more expensive for businesses to attain. This, in turn, could foster increased issuer participation and even encourage the development of hybrid, exchangeable and other types of debt, like Sukuk.
BASHAR AL NATOOR, Global Head, Islamic Finance, Fitch Ratings
CONCLUSION The Sukuk market could grow significantly in the near to medium term as key Islamic capital markets develop, through optimising issuance processes and costs, increasing issuer and investor education about Sukuk’s benefits and risks as a debt instrument, developing an effective and efficient process for settling disputes and strengthening the regulatory and legal framework to offer credible investor protection. However, a sharp recovery in oil prices could lower the impetus for Sukuk issuance by reducing the potential for capital market reform and decreasing sovereign debt issuance.
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S U P P O R T E D BY
O R G A N I S E D BY
CHANGE
OF DATE
SAVE THE DATE! 26 NOVEMBER 2019 The Ritz-Carlton, DIFC
Dubai, United Arab Emirates
Join over 400 senior banking and finance officials from across the Middle East as we honor the outstanding institutions that shape the region’s financial landscape. Now in its 20th year, the Banker Middle East Industry Awards is recognised as the most prestigious banking recognition programme celebrating financial excellence across the MENA region. It acknowledges pioneering developments, innovative banking solutions, and achievements in the financial services industry.
NOMINATIONS NOW OPEN To learn more about the Awards process, please email: awards@bankerme.net
(Mellimage/SHUTTERSTOCK)
EXPERT OPINION
Steering away from the conventional
DR OBIYATHULLA ISMATH BACHA, PROFESSOR, INCEIF, WRITES EXCLUSIVELY FOR ISLAMIC BUSINESS & FINANCE ABOUT THE GAPS LEFT BY THE CURRENT APPROACH TO ISLAMIC FINANCE
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EXPERT OPINION
T
he modern variant of Islamic banking and finance has made huge strides, having been around closed to 40 years. Today, Islamic banking has a global presence—operating in not just Islamic countries, but several non-Muslim jurisdictions as well. Though less pervasive, Islamic capital markets, and in particular Sukuk, have a global presence too. Sovereign Sukuk, for example, have been issued by many Muslim governments and non-Muslim ones alike. Today, the total assets of Islamic banking and finance is estimated to exceed $2 trillion (MYR 8.18 trillion). Though still small relative to conventional finance, the fact that a new model has taken root and established a global footprint within a fairly short time is, by any measure, a success. The early proponents and practitioners of Islamic banking and finance aspired for a world in which Islamic banking and finance contributes to correcting the many problems and injustices that conventional banking and finance has produced. A more egalitarian world in which a value-based banking model reduces poverty, inequality and leads to fairness and justice. In fact, some of the earlier experiments in Egypt, for example, failed because the banking model was long on aspiration and short on the economics.
DR OBIYATHULLA ISMATH BACHA, Professor, INCEIF
www.islamicbusinessandfinance.com
The current version of Islamic banking and finance appears to have gotten the economics right by quite simply replicating conventional products. While such a strategy would have been sensible in the early days as Islamic banking and finance was seeking to get a foothold, the imitation now appears to have been carried on too far and for too long. What began initially as mimicking products, went further into replicating the processes and systems, and finally, even the regulation. The sheer absence of original thinking and innovation has resulted in an Islamic banking and finance sector that is now hard to differentiate from its conventional counterpart. The basis of Islamic finance and its true value-added, risk sharing philosophy has been relegated to insignificance. Islamic banking and finance today is little more than another purveyor of debt. Unfortunately, in choosing to play the same game of debt creation and money lending, but having started a century later, Islamic banking and finance— despite its global footprint—has serious gaps and inconsistencies. Much of these gaps are, in some ways, the result of an inability to compete and force a presence within a contested space. The first obvious gap is the inability of Islamic banking and finance to intermediate Muslim world resources to meet its own needs. For example, at least half of the world’s top 20 sovereign wealth funds (SWFs) are of Muslim world origin with total assets of about $3 trillion. Yet, the average market capitalisation of the top 10 Islamic world stock exchanges is a mere $208 billion, the total value of outstanding Sukuk is $320 billion and listed Islamic equity funds total a mere $56 billion. It is obvious that Muslim SWF money has not gone into any of these Islamic banking and finance sectors. The entire Islamic banking sector has total assets of $1.5 trillion. What seems obvious is that intermediation between Muslim world surplus and deficit units is taking place via the financial centres of the west. The large Islamic SWFs invest their resources in the west. When Muslim world institutions
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EXPERT OPINION
ISLAMIC FINANCE MARKETS BY SYSTEMIC IMPORTANCE
systemic importance potential systemic importance minimal systemic importance SOURCE: Based on data from IFSB, 2015: 8 and IFSB, 2017: 8.
need funds, they borrow/raise them from western banks. As a result, the value added that comes from intermediation is lost together with the potential for high income employment. The gap in intermediation is one of several gaps, another key gap being the disconnection between Islamic banking and finance and the funding for development needs. Just about every Muslim nation is economically an emerging market developing economy. Their need for development infrastructure is massive. The World Bank estimates needed investment in development infrastructure to be at least $1 trillion per year. Consulting firm McKinsey Global estimates the need at $57 trillion by 2030. Much of these infrastructure funding needs are within the Muslim world, yet Islamic banking and finance appears unable to bridge the gap. While Islamic banks and other Islamic banking and finance players have been going head long into replicating conventional products, an inconsistency has also arisen. There appears to have been insufficient attention to compliant risk management tools to manage the resulting risks. Thus, even though the duration gaps of Islamic banks may be equal, if not larger than conventional ones, they lack the swaps and interest-rate derivatives with which to hedge. Similarly, Islamic mutual funds have no Shari’ah-compliant means by which to hedge their equity exposure.
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‘While conventional equity fund managers have a wide array of hedging instruments available, index options, index futures and portfolio insurance strategies, etc, the Shariah-compliant equity fund manager has none. This is despite the fact that wealth preservation is a key tenet of Shari’ah. The ultimate gap within Islamic banking and finance is probably the near absence of risk-sharing instruments/contracts. The risk-sharing philosophy may be at the heart of Islamic finance, but the percentage of outstanding Sukuk or of Islamic bank financing under risksharing contracts is only in the vicinity of 15 per cent to 20 per cent. The majority of transactions within Islamic banking and finance are debt-based. Aside from missing out on the true value added via Islamic finance, reliance on a replication strategy puts Islamic banking and finance on the path of convergence and possible irrelevance. It is unfortunate that despite impressive growth, global presence and a system supposedly anchored in real assets, Islamic banking and finance has not had the kind of impact expected of it. Had Islamic banking and finance beaten its own path, rather than follow that of conventional finance, it would certainly have had more meaningful impact.
Dr Obiyathulla Ismath Bacha can be reached via email at obiya@inceif.org
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23 SEPTEMBER 2019
Transforming Banking for the New Consumer
Dubai, United Arab Emirates
SPEAKERS INCLUDE:
Ahmad Abu Eideh
Chief Executive Officer United Arab Bank
Elissar Antonios
Chief Executive Officer Citibank UAE
Fahad Al Semari
Chief Transformation Officer Riyad Bank
Tristan Brandt
Principal Oliver Wyman
Stefan Kimmel Partner PwC
Rola Abu Manneh
Chief Executive Officer Standard Chartered Bank UAE
Join our expert line-up of esteemed speakers and be part of the conversation.
CONFERENCE TOPICS INCLUDE: Digital Transformation | Efficient Compliance Practices | Technological Disruption | Big Data, AI & Machine Learning | Blockchain Banking | Digital Payments | Cybersecurity | Synergy with Fintech Organisations
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HALAL BUSINESS
Diversifying Saudi Arabia
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HALAL BUSINESS
AHMED BIN MAHFOUD, ONE OF THE FOUNDERS OF SAUDI HALAL ECOMMERCE PLATFORM BAB MAKKAH, ON HIS COMPANY’S BRICK AND MORTAR PLANS AND HOW THE SAUDI ARABIAN GOVERNMENT HAS AIDED THEIR SUCCESS
( Shazrul Edwan/SHUTTERSTOCK)
W
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hat led to the founding of Bab Makkah?
We saw a big gap in the market servicing pilgrims for Hajj and Umrah mostly coming from abroad. What we noticed there’s a lot of low quality, cheap quality and counterfeit products selling around the central areas. It creates a detatchment for people who are buying things to go back home. Imagine you’re coming from China or India and you’re buying things to take back that were made in India and in China. As part of Vision 2030, one of the main pillars is supporting local content, local entrepreneurs and local products. We exclusively sell all locally made Saudi-made, Mecca-made, Medina-made products by Saudi talents—crafted by hand, crafted with love. Religious items, carpets, prayer mats, dates, Mecca-made hand soaps, incense, and more. The aim is to basically help promote and diversify nonoil products from Saudi Arabia. The religious gifting market is about an SAR 5 billion market, and 90 per cent of it is random stores that are disorganised. We created babmakkah.com, and we also are opening physical retail outlets around the central area of Mecca. Our first store will be in Jabal Omar in Mecca. That was the idea behind our company.
When did you begin? The idea came to life around Q3 of 2018. In October last year, we did a launch at Start Up Arabia as a beta launch to test the site, and at the start of March 2019
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HALAL BUSINESS
we started our first transaction. We have fulfillment centres, we do drop shipping. We don’t handle any of the logistics, we have agreements with fulfillment agencies such as TNT, DHL and Aramex. We’ve had customers from Canada, Turkey and the UAE and all over Saudi so far.
( Nella/SHUTTERSTOCK)
Tell me about the team. Who put this together? Our team is all Saudi Nationals, and our team is made up of eight people. We were all working on a project as part of Saudi Arabia’s 2030 pillars, and as part of that we started to think what we could do to support, and Bab Makkah was born as an idea. We are incubated with Wadi Makkah, an incubator under Umm Al Qura Unviersity in Mecca. Given that we are the first ecommerce website that’s targeting Hajj and Umrah visitors, it’s fitting that we’re launching the first crowdfunding campaign in Saudi Arabia with a company called Manafah, the first crowdfunding campaign system in Saudi Arabia that’s government regulated and approved. Prior to that there were only international companies, but we were lucky enough to work with Manafah and our campaign is launching soon.
How do you go about sourcing products? What are the challenges involved? Two of our team members are very talented procurement experts. They go out of their way to find and talk to all the local families and businesses in Mecca and Medina selling things through their Instagrams. It’s a very hectic and tedious job to find the right people, vet their products, screen them, make sure that they are consistent in production and they can produce the same quality consistently and have enough production capacity to meet the demand. Any of those things, if they aren’t in line, is going to cause an issue. Because the products aren’t ours, we have to make sure the suppliers are producing the best they can. We have about 100 suppliers on our website, and we have 125 SKUs (stock keeping units) on our website. I think one of the things that we’re also doing that is helping is investing in training people who produce these products on how to scale, how to produce better quality product, and lower cost of production. It’s not just about putting a product on our website, we want to help them grow, and help them diversify, and increase and have scale moving forward. That’s our product philosophy.
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It’s not just about putting a product on our website, we want to help them grow, and help them diversify, and increase and have scale moving forward.
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HALAL BUSINESS
Three of the members of the Bab Makkah team while visiting Dubai.
What have been the most popular items so far? We sell a lot of dates. There’s a brand called Ajawat, and they sell three kinds of dates. We’ve had quite a bit of sales on those. Prayer mats are moving well and soaps that are made in Mecca are as well. Every day we see different direction. We had a person last week order dates from Canada and the amounts that it cost to ship it would have exceeded the amount of purchase, so we had it delivered to our office and then we took care of the shipping because it was cheaper.
has offered us a lot of support, working with us to buy two to three hundred items that they would like to give to their stakeholders, and supporting us with locations almost rent-free. This support is unprecedented. I’ve been in start ups for a while, and the support we’re getting from a number of government bodies all over the country is wonderful. Everyone is so helpful. Even Manafah has been great at offering us consultancy, advice, and support, and even funding on a bridge-loan basis.
What are your growth plans from here? As the Kingdom makes serious efforts to diversify its economy to ensure future growth, how has the support for technology businesses evolved in Saudi Arabia from your perspective? Honestly speaking, the Saudi government has shown tremendous support. We have had support from the Makkah Region Development Authority who’s providing us with a rental space. The Saudi Commission for Tourism and National Heritage
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We hope to open 25 stores within the next two to three years around Mecca and Madina, as well as strategic locations such as the Jeddah International Airport Duty Free, train stops between Mecca and Medina. We will be in strategic locations that alos have a lot of traffic of travelers where they feel they may need something will go on the go. This will include things such as a three-day pack for Hajj and Umrah essentials, such as mouthwash and a toothbrush.
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EVENTS
1–2 July 2019
8–9 October 2019 (Travelerpix/SHUTTERSTOCK)
WIBC CAPITAL MARKETS SUMMIT ASIA 2019
WIBC ASIA 2019, under the strategic partnership of Singapore Exchange (SGX), plans to convene convene 250+ bank professionals, investors, fund managers and asset managers to highlight lucrative sectors for investment in the Asia region, with a specific focus on Islamic finance and Shari’ah-compliant investment. VENUE: Singapore Wibcasia.com
(Hannamariah/SHUTTERSTOCK)
HALAL EXPO CANADA 2019
As a gateway to North American’s growing Halal market, Halal Expo Canada 2019 will gather the highest quality products of the Halal industry, creating a meeting point for Halal buyers and suppliers between east and west. From food & beverage to pharmaceuticals & cosmetics, from cinance to ecommerce and logistics to tourism and more, a wide spectrum of the Halal industry will gather under one roof providing traders and buyers with a platform to conduct business, network, share market insights. VENUE: The International Center – Hall 4, Toronto, Canada http://halalexpocanada.com/index.html
23 October 2019
26 August 2019 (Seqoya/SHUTTERSTOCK)
GLOBAL TAKAFUL FORUM
The event, held by AlHuda CIBE, will include two days of workshops and discussions surrounding operational aspects of Takaful, micro Takaful, and ReTakaful, as well as Takaful for regulators. The objective of the event is to provide adequate knowledge and communicate benefits of the Takaful industry to the market, helping to analyse the problems hindering rapid development of Takaful worldwide that would surely help to increase financial inclusion. VENUE: Istanbul, Turkey http://alhudacibe.com/UK2019/
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THE 14TH ANNUAL ISLAMIC BUSINESS & FINANCE AWARDS
For over a decade, CPI Financial has been gathering the industry’s leaders to honor the best of the best in the field. This fall, Islamic Business & Finance looks forward to welcoming the leaders from across the industry to Dubai in order to continue this time-honored tradition. As always, it will be the must attend event of the season. VENUE: Dubai, UAE www.cpifinancial.net
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