ISFIRE 2017-Dec Issue by ISFIRE11

VOLUME 7 - ISSUE 6 | DECEMBER 2017 - Â£20

INSIDE THIS ISSUE An Exclusive Interview with

IYAD ASALI

General Manager of Islamic International Arab Bank

BITCOIN, CRYPTOCURRENCIES, BLOCKCHAIN TECHNOLOGY: A SHARI'A ANALYSIS ISFIRE REPORT

3rd Cambridge Islamic Finance Leadership Programme 3rd Islamic Retail Banking Awards 2017

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CONTENTS

Note from the

EDITOR-IN-CHIEF The last issue of Volume 7 of ISFIRE is in your hands. Over the last seven years, we have brought you some of the most authentic analyses of Islamic banking and finance (IBF), interviews of leading players in the industry, exclusively produced reports on IBF, and coverage of important events, conferences and seminars. Indeed 2017 has been a year of diversification for ISFIRE. Our cover stories have included leaders from various countries: Mohammed Ikram Thowfeek (Sri Lankan based in Kuwait), Amr Saad Al Minhali (an Emarati serving as Head of Islamic Banking at ADCB), Dr. Mohd Daud Bakar (Malaysian), Khaled Al Kayed (Jordanian serving as CEO of Bank Nizwa, Oman), HE Omer Ismail Guelleh (President of Djibouti), and Iyad Asali (CEO of Islamic International Arab Bank). This is testament to the wider circulation, recognition and respect of ISFIRE throughout the world. In 2018, we shall endeavour to further increase the scope of our publication to include stories and analyses from new markets. The December issue covers our events like Islamic Retail Banking Awards (IRBA) and our 3rd Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP). Leaders like Iyad Asali participated in Cambridge-IFLP as a mentor and we decided to include a comprehensive interview with him in this issue. Iyad Asali is an Islamic banker of exceptional qualities, and we are certain that our readers will find his interview inspiring. Dr. Aishath Muneeza shares with us an excellent account of developments in her native Maldives. This small country in the Indian Ocean is creating ripples in the global Islamic financial services industry, becoming an important player in IBF. The most important piece in this issue is an ISFIRE Report based on a global survey conducted by Cambridge IF Analytica. We are hopeful that this report would spur interest of decision-makers and policymakers to start thinking about developing a distinct value proposition for IBF. In the spirit of the New Year, the article on New Year’s Resolutions for Islamic bankers calls for commitment to authenticity as we all strive to develop IBF to fulfill its potential. In this issue, you will also find our regular features - Pause for Thought and Diary of a Mad Philosopher. Enjoy reading this last issue of ISFIRE for 2017, and don’t forget to make a New Year’s Resolution in light of what we proposed here.

Enjoy reading!

Professor Humayon Dar, PhD (Cantab) Editor-in-Chief

ISSN 2049 - 1905

CONTENTS

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY 10 Iyad Asali

General Manager Islamic International Arab Bank, Jordan

VOLUME 7 - ISSUE 6 | DECEMBER 2017

TALKING POINTS

16 Bitcoin, Cryptocurrencies, Blockchain Technology: A Shari’a Analysis

Amjad Bangash

34 Size Does Not Matter

Dr. Aishath Muneeza

BRIEF NOTES

22 Diary of a Mad Philosopher 24 This is the New year’s Resolution for

2018 If You are in Islamic Banking and Finance

INTERVIEW 26 Obeid Ruff

Attorney and Forensic Auditor, Najd Consultants

ISFIRE SPECIAL REPORT 42 Islamic Retail Banking Awards 2017

PERSONALITY 54 Mujtaba Khalid

Head of Islamic Finance Centre, Bahrain Institute of Banking & Finance

PAUSE FOR THOUGHT 60 Pause for Thought

ISFIRE REPORT

62 Islamicity of Islamic Banking 80 ISFIRE Report on Cambridge IFLP

CONTENTS

Editor-in-Chief

Professor Humayon Dar PhD, Cambridge University

Editor

Dr. Sofiza Azmi CEO, Edbiz Consulting

International Editorial Board Professor Nafis Alam Sunway Universiy, Malaysia

Professor Mehmet Asutay Durham University

Professor Dr. Mehmet Bulut Istanbul Sabahattin Zaim University, Turkey

Dato’ Dr. Asyraf Wajdi Dusuki Deputy Minister, Prime Minister’s Department Malaysia

Professor Joseph Falzon University of Malta

Dr. Mian Farooq Haq State Bank of Pakistan

Professor Kabir Hassan University of New Orleans

Datuk Noripah Kamso

Islamic Finance Expert

Moinuddin Malim Alternative International Management Services

Dr. Asmadi Mohamed Naim Universiti Utara Malaysia

Professor Muhamad Rahimi Osman Universiti Teknologi MARA

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Dr. Usamah Ahmed Uthman King Fahd University of Petroleum & Minerals

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This publication is provided for information purposes only and should not be treated as financial, legal or policy advice in relation to Islamic banking and finance in general or to any Islamic financial institution in particular. The reader should not act on the basis of the information contained in this publication without having obtained individual, expert advice. In this respect, publishers, editors, contributors, sponsors and other supporters of the publication do not assume responsibility for any damage resulting from decisions made by the reader on the bases of the information contained herein.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

COVER STORY

AN EXCLUSIVE INTERVIEW WITH

IYAD ASALI GENERAL MANAGER

ISLAMIC INTERNATIONAL ARAB BANK, JORDAN

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

COVER STORY

SFIRE has global distribution and our readers come from all over the world; please tell us about your personal approach to Islamic banking and finance. As General Manager of Islamic International Arab Bank (IIAB), how have you contributed to the development of Islamic banking and finance in your country, Jordan?

Islamic banking has the responsibility to uphold the message of Islam in business dealings and other practices. I consider this responsibility as my main objective in leading IIAB forward through all obstacles, aimed at providing sustainable banking with positive impact on the economy, society, and environment as a whole. At IIAB, we try our best to take a lead role in the development of the Islamic banking and finance in Jordan through hardwork and building partnerships with local and international entities as well as taking advantage of the rapid development of the banking legal framework, central bank’s regulations, and Fintech. IIAB is proud to participate in developing an integrated framework for Islamic SME financing by launching the first Shari’a-compliant SME financing guarantee scheme in Jordan, in addition to participating with the Central Bank of Jordan to mobilise international and regional soft loans (e.g. World Bank and Arab Fund), and providing technical assistance through cooperation with specialised entities. This financial framework is offered to SMEs at subsidised costs together with free technical support without a focus on collaterals. IIAB also launched the first Islamic installment credit card based on Qard Hassan targeting individuals, featuring exemptions of any additional fees or costs for the outstanding balance so as not to overburden them.

ou have had an illustrious career in conventional and Islamic banking, and now you’re running arguably the best Islamic bank in Jordan. How does your current role as General Manager of an Islamic bank differ from your previous roles? I started my career in the late 80’s with one of the biggest banks in the UAE. Then I moved to Jordan as part of a Bahraini International banking group for 7 years, and later joined Arab National Bank in Saudi Arabia for 8 years, after which I moved back to Jordan to join Ahli Bank. During my stint here, I received a number of offers from Islamic banks, and I was selected by Arab Bank group to lead Islamic International Arab Bank. Every role in my career had its own challenges and each had its own myriad priorities that demanded attention at any particular point of time. But the role of a General Manager of an Islamic bank is distinguished by delivering the message of Islam through making decisions in light of the Shari’a and principles of Islam to the benefit of the society. I realised that Islamic banking is about focusing on Active CSR through providing products and services for the good of the community and creating adequate income for the people. With all honesty, Islamic banking is the industry I wish to end my career in.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

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COVER STORY

ISLAMIC FINANCE REVIEW | DECEMBER 2017

ordan is big on financial inclusion and women empowerment. What have Islamic banks in the country done to achieve social objectives of financial inclusion and poverty alleviation? Islamic banks in Jordan are aware of their roles in financial inclusion and women empowerment in light of the Central Bank of Jordan’s vision towards increasing the financial inclusion in achieving the United Nation’s Sustainable Development Goals. IIAB takes a step further in this area by including more segments of individuals and MSMEs through developing new Shari’a-compliant products and services within attainable terms and conditions, and reasonable cost aiming to overcome obstacles that excluded those segments in the first place. Furthermore, the bank launched a tailormade bundle of product called “Tamakani” for the economic empowerment of women and for business-owned by women, which feature easy terms and conditions within a special pricing scheme.

slamic banking is significant in terms of size and proportion in the Jordanian banking sector. Some analysts believe that further growth in the sector will pose a real challenge and that it will be extremely difficult for Islamic banks to cannibalise conventional banking business beyond the current market share for Islamic banking. Does it mean that Islamic banking will never have a market share of 50% or more in Jordan?

I believe that in the long run Islamic banks will be the game changer given the continuous development of the banking legal framework and regulations that are more and more Islamic banking friendly. Nowadays Islamic banks are allowed to issue and participate in Sukuk for government lending and financing of mega projects that were previously restricted to conventional banks due to lack of Shari’a-compliant alternatives.

he world is fast becoming orientated towards the use of social media. What role can social media play in creating awareness around Islamic banking and finance? The role of social media is very significant nowadays, and we understand how important it is to utilise social media platforms for marketing and branding purposes as well as grow customer engagement. We are now moving towards digitalised banking services because we recognised that the new generation of consumers is social media savvy.

I believe that in the long run Islamic banks will be the game changer given the continuous development of the banking legal framework and regulations that are more and more Islamic banking friendly.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

ordan is one of the few examples of countries that uphold authenticity of Shari’a. In the absence of practices like tawarruq, how difficult has it been for Jordanian Islamic banks to compete with conventional banks? Alhamdulillah, the vast majority of Islamic banks’ customers are very aware of Shari’a rules through their own knowledge or by referencing to the General Ifta’a Department (the higher Fatwa entity in Jordan). Shari’a provides many alternatives to tawarruq, which can be developed and provided after understanding of customers’ need. IIAB has successfully developed and launched 14 products based on qard hassan that are strictly adherent of Shari’a rules. One such example

COVER STORY

is our Islamic Installment Credit Card and installment at same cash price (Joa’la).

s an Islamic banker what challenges do you perceive in the wake of the growing role and influence of FinTech?

Changing towards Fintech needs a strategic vision alongside major investments in the banks’ infrastructure, information security, and increasing of customer’s awareness. I think that in the future, branch banking will be replaced by digital platforms and OMNI channels.

COVER STORY

ISLAMIC FINANCE REVIEW | DECEMBER 2017

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We see any development in Islamic banking sector worldwide as a potential for us to learn and improve ourselves in order to take Islamic banking to next level.

COVER STORY

an you please share with us details on Arabi Islami Installment Credit Cards, which receive Critics’ Choice Best Islamic Credit Card Award at the recently concluded Islamic Retail Banking Awards at Dubai?

Although AAOIFI has issued Shari’a standard on credit cards, many Islamic banks are trying their own ways to duplicate the conventional credit card in a Shari’a-compliant manner such as Murabaha or Tawarruq. IIAB sets clear objectives before developing the Installment credit card; which is to provide an authentic Shari’a-compliant card based on Qard Hassan (Charity loan) without any commissions or fees on its outstanding balance, with fixed issuance fee for all tiers and payment percentages (about US$35 per annum). Since its launched, more than 36,000 cardholders are benefiting from its features including cash withdrawal, global and local POS purchases, and late payment fees wavier.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

COVER STORY

our neighboring Saudi Arabia is fast embracing IBF. What possible effect can this have on further development of IBF in Jordan? Islamic banking and finance is the most cooperative financial industry in the world, due to the regular meetings held by reputable parties such as AAOIFI, CIBAFI, IFSB, and Cambridge IF Analytica in which financial institutions share their experiences – both successes and drawbacks. Therefore, we see any development in Islamic banking sector worldwide as a potential for us to learn and improve ourselves in order to take Islamic banking to next level.

ou travel extensively. Which Muslimmajority country has really impressed you and why?

Every country has its unique characteristics based on their values and cultures. Malaysia is truly unique and really impressed me with its various aspects. It is obvious that

Malaysia’s ethnic diversity forms the backbone of Malaysian culture and economy and influences its various aspects. It’s worth mentioning here that the Malaysian Islamic banking sector is the number one Islamic sector worldwide with its advanced banking regulations, efficient money markets, and banking products and services.

lease share with the readers a typical day of Iyad Asali. How it starts and what are must on the to-do list on a daily basis?

Waking up for fajr prayer every morning gives me a push to start my day positively. I always enjoy a cup of coffee while reading daily newspapers to prepare myself for the day’s activities. Although I often have a busy meeting schedule ahead of me, I frequently make time to visit the bank’s different branches so as to be close to bank’s staff at all levels. We often chat about our mutual objectives and concerns for the bank to motivate them to work more productively and positively for the good of our bank.

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COVER STORY

On a personal note, I try my best to have a balanced life especially for my family. Spending quality time with my daughters, sharing their experiences and learning from them, and taking care of my old parents.

hat would be your message to the global Islamic financial services community, particularly the youth?

The Islamic financial services industry is poised for more resilient growth based on well-established basics and rules derived from Sharâ&#x20AC;&#x2122;ia. Young people are the rock on which the future of this industry will be built. Hence, innovation and creativity gained by proper training, education, and experience in related fields such as banking, financial engineering, information technology, and Shariâ&#x20AC;&#x2122;a are the foundations for the long term growth of Islamic finance.

Bitcoin, Cryptocurrencies, Blockchain Technology:

A SHARI’A ANALYSIS AND THEIR APPLICATIONS IN ISLAMIC FINANCE Amjad Bangash, Head of Shariah at Muzn Islamic Banking amjad@muzn.co.om

Virtual currencies and blockchain have dominated headlines with many citing them as heart of the Fourth Industrial Revolution. In the words of Klaus Schwab, Founder and Executive Chairman, World Economic Forum, “One of the main features of the Fourth Industrial Revolution is that it does not change what we are doing, it changes us.” Undeniably, the impact of these new technologies is affecting economies and industries dramatically. The advent of Bitcoin, for example, reveals how antiquated the banking system and fiat money are. Despite the recent spike in Bitcoin’s media coverage, it would appear that the majority of people are still unfamiliar with bitcoin and blockchain.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

hat is Bitcoin and Blockchain Technology?

Cryptocurrency is also termed as virtual currency or digital currency. It may be defined as a digital representation of value which does not have legal tender. It is distinguished from fiat currency, which is the coin and paper money of any country and different from e-money, which is a digital transfer mechanism for fiat currency.Bitcoin is one of the types of currencies which is the first and the most famous cryptocurrencies in the world. Bitcoin has little differences from other cryptocurrencies. Therefore, both bitcoin and cryptocurrencies shall be used alternatively in this article. Bitcoin was invented and developed by Satoshi Nakamoto in the year 2009. It is considered to be a type of crypto or virtual currency, which is generated through a mechanism called cryptography that runs on a software named blockchain. Cryptography is the practice of creating algorithms designed on difficult computational assumptions. Blockchain is a decentralised distributed ledger stored on the computer. It records the transaction chronologically and publicly which allows each individual user to verify the validity of individual transactions and the system. In basic financial terms, we can say that, the blockchain allows anyone to send money from anywhere in the world at minimal cost, without the involvement of central authority such as the central bank or government. This means that bitcoin is not a trusted legal tender as it is not under the control of any central legal authority (government/central bank) nor it can it be minted.

TALKING POINTS

There is no centralised clearing house etc to verify crypto transactions. In more simple words, the blockchain is an open forum for users to see a record of all the exchanges and interactions between users that took place through it which consists of a peer-to-peer network comprised of computers. Blockchain transfers power in the hands of users allowing all users to see the data. Each block in the blockchain has a header, which contains a reference to the previous block, information relating to all the transactions in the block and data related to the mining operation. Bitcoin, is created through the process of mining. Blockchain in an infinite state machine is a system that has a starting state but no ending state. The state in a blockchain is given by the number of blocks it holds at any moment of time. A change of state, state transition, takes place when a new block is added to the blockchain through a process called consensus. Blockchain links a new state with old states by using cryptography resulting into a single chain which cannot be modified. Bitcoin uses C++ programming language and comprises of around 70 set of commands, which makes it difficult to hack. The transactions appear in public ledger within minutes. The European Central Bank describes cryptocurrencies (Virtual Currencies) as â&#x20AC;&#x153;digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to fiat currencies, but is used as a means of exchange and can be transferred, stored or traded electronically. In contrast to fiat currencies, virtual currencies are not legal tender but are nevertheless accepted by members within a virtual community as a medium of exchange and as a unit of account. Virtual currencies must also be distinguished from electronic money such as PayPal or Ven. In electronic money schemes the link between the electronic money and fiat currency is guaranteed through some legal foundation and funds are shown in the same unit of account (U.S. dollar, Euro, etc.).

ISLAMIC FINANCE REVIEW | DECEMBER 2017

TALKING POINTS

Money has no intrinsic value but ac t s only as medium of exchange and s tore of value

re Bitcoin and Similar Currencies Acceptable under Shari’a Guidelines?

Money or currency is neither halal – permissible – nor haram – impermissible. If money is gained or transacted in a lawful manner then it is halal and vice versa. Islam considers money primarily as a medium of exchange to facilitate transactions and not a commodity. As such, the price of this money (interest) must be zero. What does economic experts and Islamic jurists say about money and currency?

Economists have categorised money in the following types: •

Commodity Money: has an inner physical monetary value as well as material substance like gold, silver, salt, etc.

•

Fiat Money: does not have an inner physical monetary value but an external monetary value is given by governments or central banks. An example of fiat money is paper money.

•

Fiduciary Money: value depends on confidence that it is an accepted medium of exchange. The issuer of fiduciary money promises to exchange it back for a money if requested by the holder. Examples of fiduciary money include cheques, drafts, etc.

•

Electronic Money: It represents the actual fiat money but realised in electronic systems. The money can be transmitted via internet etc. Examples of electronic money include debit, charge and credit cards.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

TALKING POINTS

hari’a Viewpoints on Money/ Currency

Islamic jurists, on the other hand, define money as follows: •

•

Natural Money: Money created to serve as a medium of exchange and naturally possesses internal physical monetary value. Gold and silver are natural money. Commodity Money: possesses internal physical monetary value but lacks the capacity to be used as medium of exchange. This lacking is due to nature of commodities like commodities can perish, expires, or may need extra space of storage etc. Salt, tangible things, grains etc. However, in certain adverse situations like wars, unrest etc, such commodities can also be used as medium of exchange which is due to their internal physical monetary value. Fiat Money: does not possess internal physical monetary value but attains an external monetary value by law of the land (government/central bank). Since it does not possess internal physical monetary value, the value of fiat money is derived from the relationship between supply and demand forces. The government declares fiat money to be legal tender, which requires all people and firms within the country to accept it as a means of payment.

Ibn Taymiyyah states that the Shari’a has not defined currency specifically, rather it is left to the custom and understanding of the people. Imam Abu Hanifa and Imam Abu Yusuf were of the view that a commodity can be considered as money upon the agreement of only the two transacting parties. However, Imam Muhammad considered commodity as money when there is substantial and widespread acceptance is present. Mufti Taqi Usmani opined that government by legislation can also declare something as money like paper money since government view is widely accepted. According to Imam Ibn al-Qayyim, when money begins to be treated as a commodity and becomes the objective of transactions, the entire economic system will be in crisis. As per Shari’a, money is not a commodity, therefore, reward of money is contingent on the result of production from productive activity. According to Islamic economic principles, money has no intrinsic value but acts only as medium of exchange and store of value. From my own point of view, money in itself is neither permissible nor impermissible. It is how money is used and raised. If money is earned and transacted in a lawful manner then it is halal and vice versa.

A s per Shari’a, money is not a commodit y, therefore, rewar d of money is contingent on the result of produc tion from produc ti ve ac ti v it y. 19

ISLAMIC FINANCE REVIEW | DECEMBER 2017

TALKING POINTS

hen Is Bitcoin Shari’a Permissible?

The main issues surrounding bitcoin or other Current Shari’a viewpoint regarding currency states that it should have widespread acceptance. But governments can also declare something as legal tender. Since Bitcoin does not meet this criteria, Bitcoin or cryptocurrencies should either be straightaway rejected or to be accepted under some guidelines. Given that Shari’a is very robust to act upon innovation, one should assume that there must be some solution to this in the era of technology. We have witnessed a continuous change in the currency, i.e from barter goods to gold and silver to fiat currency to electronic money and now digital currency as the concept of money evolved across time. Goods, gold, silver, banknotes, electronic money have all played the role of money. With all the boom of Bitcoin, the very essence of Bitcoin is still obscure. While bitcoin in itself is not made illegal in many countries, its status as money varies depending on the jurisdictions’ regulations surrounding its usage. For example, countries

such as Japan and the Philippines have officially legalised bitcoin as a digital payment system. Bitcoin or cryptocurrencies do not meet the condition of widespread or legal acceptance of currency due to the fact that they are still in the infancy stage. However, with the passage of time, there is a possibility that it will achieve widespread acceptance and might be accepted by governments as a legal tender. I am of the view that bitcoin has an external monetary physical value, like fiat currencies, and it can also serve as a medium of exchange, which is a requirement for a currency. If we take the views of Imam Abu Hanifa and Imam Yousuf where a commodity can be considered as currency upon the agreement of only the two transacting parties, and apply the same ruling to bitcoin; then bitcoin can be accepted as a currency since it is accepted by both parties and it is also acting as a medium of exchange. Islamic banks should consider bitcoin under fiduciary currency rulings (which I name this as fiduciary bitcoin) where the banks can promise to exchange it back for a fiat money or bitcoin if requested by the holder. This is not guaranteeing of money but rather it is the security of money in case of any mishap as well as to provide some legal acceptance to consider it as currency.

hen Bitcoin Is Not Shari’a Permissible

The power to create is in the hands of people who can do anything at any point of time. There are also possibilities that due to disruption to the systems and hardware malfunction which provide the power and storage space to Bitcoin, these disruptions can result in losses for bitcoin holders as they are not secured by any central authority. This is extreme uncertainty. Moreover, Bitcoin is not backed or based on some economic activity. Rather there is a huge difference between the actual value and market value of bitcoin. The volatility has only increased speculation resulting in Bitcoin investors to hoard and hold Bitcoin instead of spending it. Since investments in bitcoin and cryptocurrency are not linked to the real economy, they thus fail to promote real growth of an economy. Hence, Investing in bitcoin does not benefit the society nor the real economy; nor does bitcoin investments boost services, labour or the production of goods. Bitcoin is used for speculation and appears to be gambling instead of using as a currency and medium of exchange. This uncertainty, speculation and gambling elements make bitcoin related investments as Shari’a prohibited.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

he Application of Bitcoin or Similar Currencies in Islamic Banking

The world is witnessing huge involvement of technology in the banking industry and blockchain is said to poses the biggest threat to the financial industry. Therefore, Islamic banks should also consider blockchain technology for their daily affairs. Below are some of my suggestions on how bitcoin and blockchain can be applied in Islamic banking. Islamic banks should work towards making cryptocurrencies as fiduciary cryptocurrencies, which simply means people having trust on the currency. This fiduciary idea will be a new

TALKING POINTS era as bitcoin needs to be accepted (which is possible under fiduciary guidelines) to be considered as currency as well as medium of exchange. However, before this can happen, we must ensure that the value of bitcoin and other currencies become stable and attain market value so as to avoid losses to the Islamic banking industry. Islamic banks should leverage on the application of the blockchain technology. The use of blockchain in Islamic banking will primarily affect the way payments, remittances and trading activities are conducted including significantly reducing transaction processing time as well as reducing the costs for providers and transaction fees for consumers. Blockchain also facilitate smart contracts, a digitally coded contracts. Blockchain smart contracts can help

automate the contractual processes for Islamic banks as they can mitigate operational risks arising from settlement and counterparty risks. Islamic banks can also use blockchain technology to foster financial inclusion. Blockchain technology is set to make efforts to increase financial inclusion faster and more effective. As a decentralised way of verifying and recording transactions, blockchain overcomes the problem of scaling across borders, and by cutting out the need for intermediaries, it significantly reduces overheads. Thus, through greater speed and efficiency in making payments and transfer-particularly across borders, blockchain ultimately promotes financial inclusion.

Why blockchain make sense for financial inclusion (Benefits)?

SECURE TRANSACTION LEDGER DATABASE

Secure transaction ledger database which is shared in an established, distributed network.

COST REDUCTION •

Blockchain can cut operational cost which banks are targeting and reach the customers at the edge of wireless and not just bank accounts.

•

Santander predicted that blockchain technologies could reduce banks infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.

“TRUSTED” THIRD PARTY ELIMINATION

Storing transaction in automatically shared, tamperproof database could eliminate the need for complicated procedures and clearing houses and ensure that banks have their records in sync.

SUPPORT SMART TRANSACTIONS •

Blockchain supports smart contract, transactions that include multiple assets, transaction that include multiple parties and two-way transactions that include multiple parties and two-way transactions.

•

This will allow he unbanked not only access to bank accounts but access to global capital markets as well by providing all types of value transfers.

ELIMINATES ERROR HANDLING

Provides real time tracking of transactions in a decentralized system with no double spending or transaction repudiation.

REDUCES SETTLEMENT TIME •

Payments and remittance settlement can happen rapidly allowing people to access their capital when they need it.

•

Time and cost efficiencies could support large amounts of small transactions or micro transactions within a trusted network.

DIARY OF A MAD PHILOSOPHER Where do we go from here now that Islamic banking and finance (IBF) has become a credible proposition for sustainable business? Should we continue to emphasise on its Islamic identity and the associated nomenclature or move on to pitch it as any other form of business competing in the market? There are certain sectors where Islamic identity is required, whether in name, brand or culture. Lack of emphasis on Islamic identity may result in the complete change in the nature and character of the organisation. For example, Aligarh Muslim University in India was developed as a university where Muslims (and of course non-Muslims) could be trained in different academic disciplines. Its “Islamic” character was never emphasised upon, although its “Muslim” identity was a differentiating factor. Consequently, this university is now like any other universities in India, which admittedly also has academic departments for teaching and research in different aspects of Islam. Darul Uloom Deoband, on the other hand, was set up as an Islamic seminary specialising in Islamic sciences and has remained as such after more than 150 years. With the giants like Al Rajhi Bank, Dubai Islamic Bank and Kuwait Finance House, with operations in multiple jurisdictions, and in most cases sovereign backings, no analyst would seriously question longevity and future survival of this phenomenon. IBF is going to stay. Calculator and Quran have proven to be compatible. Burkinis and beaches have embraced each other!

Relevance of IBF to socio-economic developments is admittedly limited. Like conventional banking and finance it remains an elitist business aimed at offering services to the upper segments of the society with economic entitlements and strength in business. Islamic bankers can be seen rubbing shoulders with those wearing Hublot on their wrists, wearing Pal Zileri, Armani, Dolci & Gabbana, etc, scribbling with Mont Blanc pens, playing with expensive electronic gadgets, and hobnobbing on the highest floors of Shard in London and Burj Khalifa in Dubai. There shouldn’t be an iota of doubt that Islamic banking is banking first, and its Islamic character is secondary. Most of the customers are not exclusively motivated by their Shari’a credentials but also of other commonly influencing factors in bank choice, like service quality, ease of location, and the general reputation of a bank, etc.

IBF is going to stay. Calculator and Quran have proven to be compatible. Burkinis and beaches have embraced each other!

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

BRIEF NOTES Any further developments in IBF from here will strengthen its banking aspect more than its Islamicity. It will emerge as more money lending than financing of business activities. The Islamic bankers will continue to get excited on the introduction of practices like tawarruq, as has been the case even in markets like Pakistan where some of the most conservative Shari’a scholars of the world have been seen defending the introduction of tawarruq, celebrating it, and their followers dancing in ecstasy. That’s where IBF is moving all over the world.

Muslims should forget about banks and come up with something else that is more genuine and disruptive in nature. But perhaps this will never happen, as intellectual slavery is widespread in Muslim lands, where parrots are now uttering words like FinTech and Bitcoin and God knows what, because all these developments have come from the West. Where mimicry is revered and rewarded, authenticity remains rare and remote.

Those who have visited or lived in Cambridge must have come across Cambridge Building Society’s branch in the City Centre (opposite to Emanuel College). This must remind us that financial services still have scope outside banking. Building Societies receive deposits and offer all the basic “banking” services outside the banking sector. Of course, as the name may suggest, these are mutual organisations to allow their members to buy homes through access to financing from a common pool. If IBF have to move away from its current position as banking institutions and progression towards money managers, it should look for a structure outside banking. Pakistan developed the most beautiful model of mudaraba business, which was undoubtedly a “double-helix” structure for Islamic finance, but it hasn’t been developed further. Nevertheless, mudaraba business in Pakistan provides an excellent starting point for Islamic finance to develop further. The banking model is bound to kill Islamicity of Islamic banks.

The investors receive return in the form of frequently paid dividends – profit or loose depending on the movements in market prices of shares. There are no profit equalisation or investment risk reserves, making the practice of mudaraba in this context very different from what Islamic investment accounts offered by Islamic banks. Mudarabas are allowed to raise further capital in the form of Musharaka Investment Certificates that mudarabas/mudaraba companies issue without having to list them on the stock exchange. The Musharaka Certificate holders receive returns based on the profitability of the business. There are scores of other examples of financial intermediaries outside banking, but Islamic bankers have decided to be in bed with conventional bankers. While this marriage has not been entirely unhappy, there is a need to improve the relationship. More importantly, a polygamous solution may serve the purpose. In addition to the current model of Islamic banking and finance, a new nonbank model needs to devise to ensure more authenticity and independence of Islamic finance.

Although need for setting up more Islamic banks may still be argued, it will be more useful to set up murabahas (e.g., H. To conduct mudaraba business in Pakistan, Karim Bakhsh Murabaha) for financing of it is a regulatory requirement to first set household items, mudarabas and joint stock up a mudaraba management company as a companies based on musharaka for business limited company registered with Registrar development, ijaras for property and vehicle of Mudarabas at the Securities & Exchange financing, qard hasan based ROSCAs for Commission of Pakistan (SECP). The mudaraba collective savings and loan programmes. itself is a separate entity that must be floated Muslims should forget about banks and come on Pakistan Stock Exchange. All the investors up with something else that is more genuine are required to invest by way of buying shares and disruptive in nature. But perhaps this in the listed mudaraba, which may be of two will never happen, as intellectual slavery is types: Specific purpose and the ones set up widespread in Muslim lands, where parrots for any authorised business activity. Similarly, are now uttering words like FinTech and they can be set up for a given time period or Bitcoin and God knows what, because may exist perpetually. all these developments have come from the West. Where mimicry is revered and rewarded, authenticity remains rare and remote.

This Is The New Year’s Resolutions For 2018 If You Are In Islamic Banking And Finance With every New Year comes a new slate. So as we prepare to bid farewell to 2017 and welcome 2018 with open arms, the time has come to contemplate our New Year’s resolutions. Sure, you’ve got your usual go-to resolutions, such as exercising more, spending more time with family and friends, and focusing on your personal wellbeing. But for this coming year, you only need one New Year’s resolution if you are an Islamic banker or working in the Islamic financial services industry – COMMITMENT TO AUTHENTICITY. Wondering how this will help accomplish goals of Islamic banking and finance (IBF) and your personal ambitions? Here are some of the benefits you and the industry will reap when you are committed to authenticity.

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BRIEF NOTES

1. IBF will have its true identity It’s tough to live someone else’s life except if you are an actor (or actress). Only actors earn name, fame and money when they perform in accordance with the characters created by script writers and envisioned by producers and directors. But even actors like to be known as Kevin Costner and Angelina Jolie, and not the characters they play. Islamic banking cannot continue to walk using the crutches of conventional banking and finance. Being authentic means IBF will have its own structures, products and services. As Islamic bankers, you will not be selling KFC burgers wrapped in halal bags. 2. You will get out of your comfort zone Everyday routines in Islamic banks and financial institutions leave you feel like you’re stuck in a rut. Pursuit for authenticity will allow you to break the cycle and think about creating something new, more useful to your clients, and of more value to your shareholders. This will obviously require putting more effort and energy but benefits will start creeping in soon. Make this happen in 2018 for you. 3. You will earn more money and respect Being authentic is not an easy task. You will have to innovate. As a successful innovator, you will earn more for you and your family. This will also bring respect to you personally. 4. IBF will grow in size and more importantly in scope Only authentic innovation can bring sustainable growth to IBF; otherwise it will gradually die down, as a movement that promised change. The recent slowdown in the industry may just be an early sign of degeneration! Make 2018 a year of change to recapture growth momentum. 5. You might get a new and better job It is very likely that pursuit of authenticity may lead you to a better job and a twist in your career. So, just get ready for an eventful 2018. It’s not easy to get started, so if you need some encouragement, read previous issues of ISFIRE (available on www.isfire.net and through www.issuu.com). Also consider writing on the need for authenticity in IBF for ISFIRE and/or some other publications. The best article on the need for authenticity in IBF to be published in ISFIRE in the six issues of 2018 will entitle the winner 50% discount on the Participation Fee of Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP) 2019. The 2018 Cambridge-IFLP will be held on July 29-August 3, 2018, at Clare College, University of Cambridge. 35-50 middle and upper middle management staff of Islamic financial institutions are expected to come into residence at the second oldest college of the University of Cambridge for one week. There can’t be a better place to be in than Cambridge during this coming summer. If you haven’t booked a place, please do so as soon as possible, as the seats are getting filled rather quickly. For more information about the programme, visit our website at www.cambridge-ifa.net or contact kshehzad@cambridge-ifa.net

Why the West Cannot Afford to Miss the Islamic Finance Movement AN INTERVIEW WITH

OBEID RUFF Obeid Ruff is an Attorney and Forensic Auditor at Najd Consultants. He is a member of the Washington, D.C. Chapter of the Association of Certified Fraud Examiners. Obeid worked as AVP for a Fortune 500 Financial Services company and was intimately involved in mitigating the 2008 global financial crisis in his capacity as Chief Analyst for urgent claims. Obeid is currently working to establish the United States Islamic Finance Council.

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hat is your take on the contemporary practices in Islamic banking and finance?

Exciting things are happening in numerous locations, but the industry right now needs to “fill the gaps and straighten the lines.” Contemporary practices in some locations means utilising Islamic finance to solve economic problems, such as Nigeria promoting riba-free banking and its government issuing a sukuk bond. In other locations groups like Yielders are utilising FinTech and product innovation to combine Islamic finance and technology to connect the economy with the community. Some jurisdictions are remaining conservative and not developing new products in order to avoid regulatory compliance headaches and the challenges of market penetration, so they focus on marketing existing products like Murabaha and Islamic mortgages. I think the one thing every practitioner and scholar agrees is that improvements can be made everywhere.

ou mentioned Nigeria. Some critics opine that Islamic banking and finance is being used to Islamise the country, which is otherwise a multiethnic and multi-faith country. Do you think Islamic banking and finance has any [such] political agenda? When I read these criticisms, which are raised in other jurisdictions as well, I listen and consider very carefully but I simply don’t hear any rational criticism. People don’t like the term “Islamic” and feel threatened with being “Islamised.” But do they know what that means, and how the products benefit them? Nigeria and similar developing economies have been crushed by riba-based debt, which has the effect of keeping them in debt forever. Nigeria borrowed US$5 billion in 1985, but paid back US$44 Billion in 2000 due to compounding interest. An Islamic bank could have utilised financing structures to develop infrastructure at a cost less than US$10 Billion. Are critics who don’t like the term Islam willing to hurt themselves and reject the benefits of ethical finance because it is Islamic? Are they likewise going to throw away the benefits of Islamic medicine and other Islamic innovation? I read a very well written criticism of Islamic finance a few years ago that I used several

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A nd jus t as you are intrigued, this is w hat we need to fight Isl amophobia-precedent .

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of its references to further develop my own networks, but the author’s conclusions were so disconnected from his own reasoning that it was very noticeable and laughable. And to top it off, the story ends even better when that same author was later caught fondling women and getting himself in big trouble. Perhaps he should have governed himself according to Islamic rules of modesty and kept his hands to himself, but I guess he was being logically consistent in his beliefs and rejected the Islamic morals and proceeded with the fondling. In terms of a political agenda, not once have I been in a meeting or gathering where Islamic banking and finance was being discussed or used to Islamise anything. Instead, the conversations are about developing the most affordable and marketable products with the bank as the facilitator, and the customers benefiting including both Muslims and non Muslims. Let’s even assume that yes there is an agenda to Islamise global economics, what then would be the result and would people be happy with it? Instead of criticizing that word “Islam,” I would encourage Nigerian Christians to understand that they can remain Christian but should utilise banking that keeps money invested and circulating within their economy instead of flying away abroad due to riba. Just look at Brazil, which spends more than 40% of its revenue on interest payments! People need to wake up and realize that compounding interest grows faster than the ability of natural resources at our disposal to pay it off. Whatever you want to call it, Islamizing etc, we absolutely must stop utilizing interest-based financing.

our answers open up new avenues for conversation. I hope you don’t mind me picking up on some of the points and structuring my further questions. You have referred to Islamophobia in your previous answer. Do you think it is a credible threat to growth and development of Islamic banking and finance in the Western countries where Muslims live in small minorities? Yes, I think Islamophobia is a threat to growth and development of Islamic banking in Western countries. It won’t last forever, but it is a current barrier. Islamophobia happens at so many levels: government leaders who immediately criticise celebrities but who remain utterly silent when a mosque is burned to the ground, local zoning boards who will create any

excuse they can to deny an Islamic Community Center, to racist individuals who spend every free minute on the internet connecting Islam with any conspiracy they can find. The end result is that Trump won’t utilise sukuk although it is ideal for his public private partnership infrastructure plans, lawmakers will not provide legislation favorable to our industry’s growth out of fear of retaliation or rioting from their voters, and local banks are reluctant to use Islamic banking out of fear of picketing and boycotting. It is very sad, and America is going to be left behind isolated in its debt while other nations move forward. That is a problem that you can’t tax your way out. I think the solution is patience, and finding precedents for westerners to be intrigued by, for instance: the London Olympic village utilised Islamic financing, and the expedition of Christopher Columbus that led to discovery of the new world was funded by a Mudaraba.

hristopher Columbus got Mudaraba finding! Is it true?

Yes, Columbus was the Mudarib with the contract drawn up giving him 10% of wealth he would bring back. There were numerous investors (rabb al mal) and not just Ferdinand and Isabel. My colleagues Ibrahim Warde and Abdulkader Thomas have researched and reported this as well. And just as you are intrigued, this is what we need to fight Islamophobia--precedent. America’s discovery was funded utilising an Islamic Mudaraba. Along these same lines, i.e. emphasizing Islamic precedent, I published a paper showing how significant an influence the Qur’an was to President Thomas Jefferson. Thomas Jefferson, John Adams, and Benjamin Franklin openly discussed a model government that would be successful if such a government could be inclusive of Muslims. There is significant evidence in fact that Jefferson utilised parts of Muhammad’s pbuh Constitution of Medina when drafting the Declaration of Independence. And just like that, now even the most racist porch yeller has to stop and reconsider his or her position on Islam when gifted with the fact that two of America’s founding fathers were Muslim friendly. President Jefferson was the first to host an Iftar in the White House. If he was comfortable offering this gesture, the current American President can do bigly better. Or covfefe.

INTERVIEW

hile I am completely in agreement with you on your take on Islamophobia in the West, I am also inclined to accept the fact that financial products developed by Islamic financial institutions therein are also no better than [inferior] replica of their conventional counterparts. This hasn’t helped in winning clientele of even Muslims in the developed financial markets in the West. Am I a bit harsh in my thinking? I think our entire industry is too harsh on itself and needs to focus more on market penetration, especially educating consumers including the bank officers marketing the products. A common criticism we hear is that Islamic finance is simply conventional finance called by a different name. Of course we are conventional finance, because we comply with global and local rules and regulations! We are not creating a separate and parallel and exclusive financial regime. Both practitioners and customers need to remember that Islamic finance is a niche sub-market within conventional finance, with our additional rules of Shari’a compliance. If the GCC and Malaysia and other Muslim nations created a unified currency, perhaps then there could be a separate financial regime independent of conventional finance. Many of the problems in documentation come from existing requirements that Islamic finance must comply. For instance, disclosures for a Sukuk issuance are over 400 pages long. All the projects I am currently working on involve legal research of existing jurisdictional rules that are restricting true economic growth, but my clients must comply with these rules if products are going to be developed and expand to new markets. It isn’t just western nations whose existing rules are restrictive, but Muslim nations as well. I have been working on a very promising project in KSA that is tricky to navigate the rules, including its new VAT.

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We have nothing to hide, there is no secret societ y or agenda to Isl amise the globe through finance methods.

ow a question about leadership in Islamic finance. Are you happy with the current breed of leaders running Islamic financial institutions around the world? What needs to be done to develop human resources commensurate with the needs of the industry?

I am happy with the current breed of leaders, but I think we are asking too much of them to solve the challenges of developing individuals to fill industry needs. This would be like asking Jamie Dimon to fix all the shortcomings of conventional retail banking. I mentioned before that our industry is at a stage of “filling the gaps and straightening the lines,” and to fill the talent gap we need collaborative support from government, academia, and professional associations. I think that the Malaysian model needs to be replicated: Government initiatives are created, Bank Negara Malaysia (BNM) coordinates and develops products and solutions, and both Government and BNM work with associated educational institution INCEIF to fund both students and research. I am excited for the inception of International Islamic University of London, which will be positioned at the Islamic banking and finance hub of the Western world. It is very important that we create more mentoring opportunities, fellowships and internships, and professional assistance to help individuals develop the professional competencies that the industry needs. There are praiseworthy individuals and groups already playing a role, like Atif Khan and

his team at Ethica Institute of Islamic Finance, and Australian Centre for Islamic Finance director Almir Colan who spends hours on a daily basis reading and policing and contributing to correspondence between industry professionals and who shares numerous resources and research at no charge. There is certainly a gap between Shari’a scholarship and finance professionals, and leaders in my opinion need to establish a Waqf fund dedicated to recruiting and sending passionate finance students or professionals to obtain scholarly training. Some individuals in the industry are profiting off of the lack of qualified professionals and are making the rounds advising and approving structures in return for top dollar/dinar/pound/riyal/dirham etc. I ask these professionals to please start a Waqf fund to train their successors, and to share their knowledge and expertise. Segments of the industry are competing against each other when not fully developed, so we need to “straighten the lines” and standardise and collaborate.

ou have recently attended Cambridge Islamic Finance Leadership Programme, held at Clare College, University of Cambridge. How was your experience like and what were your important takeaways? The Cambridge IFLP experience greatly exceeded my expectations, and narrowing down takeaways is hard. The most important takeaway is that the programme doesn’t end, but is a collaboration of professionals and a movement in which the programme delegates remain in contact and assist each other. I developed some very good friends who I correspond with almost daily. I went to Cambridge with one big question in my mind, and one personal advocacy task. My question was whether to promote Islamic finance as “Islamic” or instead as “ethical finance” for market penetration in the United States. Based on numerous feedback from multiple jurisdictions, and from conversations I had in informal and open settings with industry leaders and pioneers, there is no question in my mind that the correct path forward is emphasising the Islamic aspect of Islamic banking and finance. We have nothing to hide, there is no secret society or agenda to Islamise the globe through finance methods. Our industry has a lot to offer conventional finance and we need to jointly focus on sustainable development goals which align well with the Maqasid al Shari’a. Promoting reform and innovation within conventional finance is preferable to discarding conventional finance altogether.

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My personal task was to further develop networks and find assistance to rebuild and invest in the Gaza Strip. I began studying the economics of Gaza 4 years ago, and see this territory as a place that can flourish if given the opportunity with the right finance structures. There is potential for a seaport funded by sukuk, and even a Palestinian currency utilizing exclusively mobile devices. I made several connections at Cambridge who are willing to work with me in the future on Gaza impact investing and assisting the entrepreneurial endeavors of highly educated and positive individuals there. We all know that Cambridge the City and Cambridge University in particular attract talented and passionate individuals, and the Cambridge Islamic Finance Leadership Programme at Clare College, Cambridge University is a brilliant and significant addition to the Cambridge scene. Speaking about precedent and the garden grounds of Old

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Court, I’m not sure if the Cambridge elite are ready to know the meaning of the four squares-it is a charbagh, an Islamic quadrilateral garden design based on the four gardens of Paradise mentioned in the Qur’an.

ersonal history adds up to develop social history of an era. I am sure our readers will be intrigued by your life story. Very briefly, can you share with us your story of reversion to Islam?

I am grateful to Allah swt for bringing me to Islam, which was a process of key events in both my personal life and professional life. I can tell anyone with confidence that Allah was guiding me and providing things that I needed before I could even know what to ask for. I made the decision to learn Arabic and study Islam for the purpose of working for the U.S. Treasury or State Department, thinking

that I could have a more stable career path working as an AML and anti-terrorist financing professional. I was AVP of a Fortune 500 financial services company and had spent three long years mitigating the global financial crisis that started in 2008. In that role, I detected and broke up a mortgage-fraud terror cell. It upset me that authorities were incompetent and seemingly unwilling to be proactive in this realm, so I decided to learn everything I could to stop “terrorist financing” and understand the motives of these individuals. I discovered that Islam was not what I had been told it was, and delving into Islamic finance I was very impressed and saw that it certainly was not terrorist financing, had nothing to do with it, follows the same AML KYC rules as Islamic banks are part of the conventional global finance industry etc. I had some long nights and serious conversations about the beliefs I had held. The final catalyst was seeing a documentary on Al Jazeera about Muhammad

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I discovered that Isl am was not w hat I had been told it was, and delv ing into Isl amic finance I was ver y impres sed...

t is interesting that you mentioned Muhammad Asad who I believe acquired Pakistani nationality after embracing Islam. Can you tell us more about him?

Asad, formerly Leopold Weiss, a journalist and correspondent for a German newspaper who was living in the Middle East, from a German Jewish family. The documentary was a direct answer to my prayers, showing that if a German Jewish journalist was accepted as a Muslim and able to make contributions to Islam (author of Meaning of the Qur’an) and contributions to Pakistan (he drafted some of its early foundational documents) and KSA (he was a friend to King Faisal and a spy for him on some key moments) then I could likewise be accepted as a Muslim in spite of my similar German ancestry. Growing up on a farm, then becoming a lawyer, has helped me better understand structures like sukuk and how Islamic finance is connected to the real economy. So I went from studying Islam and Islamic finance with the intent to stop terrorists, to becoming a Muslim and an advocate of Islamic finance. Our industry has the ability to stabilise the global economy, and I see providing economic stability as the best method of preventing terrorism.

This question is actually very sensitive to my heart, and brings so many elements together. Muhammad Asad is called “Europe’s gift to Islam”. His translation and commentary of the Qur’an are used for dawa in the U.S. by the Council on American-Islamic Relations. His Jewish parents were murdered in a concentration camp, while he, an Austrian Muslim living in British India, was put in jail during World War 2 because of his nationality. Here is where it gets emotional for me: when Asad was in jail, his wife and children were cared for by Chaudhry Niaz Ali Khan, one of Pakistan’s founders. When I attended the Cambridge programme, I learned that I was sitting next to Kamran Sherwani of Pakistan, a well-respected Shari’a Head in Abu Dhabi. One of Kamran’s heros and influencers is Chaudhry Khan, who is buried in Cambridge, and Kamran visited the grave on Pakistani Independence today while we were there. It is a small world where Kamran’s hero took care of the family of my hero and primary influencer, and both of us were able to meet in Cambridge. As I was processing my decision to revert, which turned my world upside down, I corresponded with Muhammad Asad’s son Talal who lives in New York City, who gave me very good advice and examples from his father that I have followed. Asad helped draft Pakistan’s first constitution, and his writings on Islamic statehood and governments need to be emphasized more in my opinion.

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reat. Please be corrected that Choudhry Niaz Ali Khan and Choudhry Rahmat Ali (buried in Cambridge) are two different

orked together for the founding of Pakistan. Yes, I absolutely believe that Islamic banking and finance can develop the economies of OIC countries. Looking at the disastrous debt of Puerto Rico is what we want to avoid outside banks and entities taking over ownership with the locals buried so much in debt that they themselves will never dig out without outside intervention. Several years ago, before I was Muslim, a bank president told me that if all the money in the world was redistributed evenly, that in a few years it would end up back in the hands that it is now. There is a lot of truth to this unfortunately, but I think it is because of the riba effect. The consequences of interest-financing is that those with money get more money, and those who have to borrow lose it to them. The structures within Islamic banking keep the money local, and the bank itself is a player in the game, not just a facilitator that offsets all risk to the borrowers. And where outside intervention is necessary or becomes necessary, Islamic banks should be considered first by OIC nations. Some of the recent organisational changes by the Islamic Development Bank are positive, in which it stated that its role is that of a development agency and less as a bank. It is decentralising to have a local focus. A common theme I hear as I travel is the need for a global central waqf to assist developing nations. The Islamic attitude towards developing nations is truly a different mindset, where so many want to help through Qard Hasan and expect no immediate repayment. Compare this to how western nations and banks treated developing nations, where development occurred for the benefit of the outside lender nation, at the expense of the locals. Africa is an example, and in the United States West Virginia and other less developed states demonstrate this effect when outside corporations come in to mine local resources and labor (think coal mining) but the products and the wealth it generates is not staying local. Islamic finance, which has structures that encourage and reward investment activity, along with the ethical Islamic mindset, certainly is better for a developing economy than anything offered by a conventional loan or riba-based bond issuance that buys time but builds debt faster than any development activity to pay it off.

SIZE DOES N A Small Island Nation Aspiring to Spearhead Islamic Finance in South Asia:

by Dr. Aishath Muneeza

Share of Islamic banking in the national banking sector of the Maldives is reaching 5%. Despite this, the Maldives has not featured in ISFIRE previously. In fact, it hs not been even ranked in Islamic Finance Country Index (IFCI), published by our yearbook, Global Islamic Finance Report (GIFR).

This is an important exclusion, as the country has been involved in Islamic banking and finance for more than 14 years. This article should serve as a prelude to a country report that will be included in GIFR 2018, to be published in March 2018.

NOT MATTER The Maldives is a sovereign island nation consisting 1,190 islands that lie southwest to India and Sri Lanka in the Indian Ocean, with a hundred percent Muslim population of about 400,000. The friendly people and the natural beauty of the nation has captured undivided attention of tourists from various parts of the globe, making it as one of the world-famous honeymoon destinations. The constitution of the country clearly states that Islam is the religion of the state and to become a citizen of the country it is a condition precedent to be a Muslim. This proves the position of Islam in the country.

Though the constitution of the country states that any law contrary to Islam shall be declared as void, the financial system of the country is primarily based on conventional system. The influence of English law to the legal and financial system of the country is nil, as the country was never a British colony but rather it was a protectorate. As such, the legal system of the country is based on a mixture of Islamic and the civil law. Though Islam is the ground norm of the nation, the country was alien to Islamic finance until 2003. The first form of Islamic finance that the country witnessed was takaful. However, at that time takaful was welcomed to the country in a “disguised” form. This is because Amana Takaful Maldives started its operations in 2003, without a takful license (as there was no laws to regulate operations of takaful companies in the country). It continues to operate as such even now. As a result, the people did not comprehend the significance of takaful in the name of the company and presumed that takaful was part of the company’s name.

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Like many other Islamic countries or Muslim dominated jurisdictions, Muslims in the Maldives were (and to a large extent are) concerned more about worship or ibadaat activities and not enough thought was given to the improvement of commercial or muamalat activities. Awareness of the prohibition of interest is basic, without any meaningful understanding of its rationale and implications amongs the Muslim community. In other words, the Maldives is a typical Muslim majority country where deep understanding of the prohibition of interest is lacking even among Muslims. After the Amana Takaful Maldives, it took the stakeholders long eight years to establish the first full-fledged Islamic bank in the country. In 2011, after long engagement and numerous attempts by the government of Maldives to engage Islamic Development Bank’s private arm, Islamic Corporation for the Development of the Private Sector (ICD), Maldives Islamic Bank opened with the mission to serve as a trusted provider of Islamic financial products and services in the country. Adequate regulation was formulated by the central bank of Maldives, Maldives Monetary Authority (MMA), to establish and regulate the bank. This regulation is in essence a replica of the Islamic Banking Act 1983 of Malaysia. Though the bank was opened in 2011, in October 2009, ICD signed a Shareholders Agreement with the Government of Maldives to initiate the establishment of the bank. Within ten months of its commencement of operations, the bank was able to mobilize deposits amounting to MVR316 million and within its first year it was able to have total assets of MVR487 million. This proved the viability of Islamic banking in the Maldives. The most critical challenge faced in the initial years by the bank was lack of availability of short-term liquidity management instruments in the market as the government did not have any Shari’a-compliant treasury instruments. Although Amana Takaful Maldives had existed in the country well before the Maldives Islamic Bank, it was the establishment of the latter that proved to be a catalyst for the development of Islamic banking and finance (IBF) in the country.

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“Although Amana Takaful Maldives had existed in the country well before the Maldives Islamic Bank, it was the establishment of the latter that proved to be a catalyst for the development of Islamic banking and finance (IBF) in the country.”

In the same year as of the establishment of the Maldives Islamic Bank, i.e., 2011, the capital market regulator, Capital Market Development Authority (CMDA), started work for establishing an Islamic capital market in the country. A Shari’a Advisory Committee for that purpose was set up and the Shari’a screening methodology for equities was formulated. Amana Takaful Maldives made an application to apply Shari’a screening to its own operations to become the first Shari’a-compliant company listed on the Maldives Stock Exchange. In the absence of a precedent, Amana Takaful Maldives was considered as a company with only partial Shari’a-compliance and Shari’a screening was applied. Obviously, the company was found to be in compliance with the generally accepted Shari’a principles, and was, therefore, deemed fit to be listed as a Shari’acompliant company on the Maldives Stock Exchange. It, thus, became the first Shari’acompliant company listed on the national bourse. Up until today, Amana Takaful Maldives is the only Shari’a-compliant equity listed on the Maldives Stock Exchange.

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At that point of time there were only 6 listed companies. They were hesitant to issue a debt instrument, making it almost impossible to issue a listed sukuk. In this whole process, it was discovered that there was one company in the country, namely Housing Development Finance Corporation (HDFC), which was previously listed on the Maldives Stock Exchange but was later delisted. If HDFC was convinced to issue a sukuk, Maldives would be able to witness and experience its debut corporate sukuk. HDFC is a conventional home mortgage financing company, which is categorized as a non-banking financial institution by MMA. When the assessment was made about the assets and operations of the company, it was evident that a sukuk was problematic as it lent on interest basis for home financing. This led to discussions on how to introduce Islamic finance as part of the operations and offerings of HDFC. After a series of meetings and communications, the Board of Directors of HDFC agreed to introduce Islamic finance as part of the business of the company. Thus, in Maly 2012, HDFC Amna was introduced as an Islamic window of HDFC.

With this modest start of an Islamic equity market in the country, CMDA had the vision to create a sukuk market in the Maldives. This was a daunting task at that time, given that there was not even a single conventional bond listed on the Maldives Stock Exchange. It was, therefore, felt that the first step was to introduce this new tool to the potential issuers, with an aim to find a party not only interested in issuing sukuk but was willing to take the risk of listing the company on the Maldives Stock Exchange. This was indeed a regulatory condition precedent to issue a public sukuk. A few private companies expressed their interests but due to stringent regulatory requirements the public corporations were hesitant to take the giant leap. Therefore, it was decided that the best way to issue the debut corporate sukuk of the country would be to approach the listed companies and convince them to issue the sukuk.

It is interesting to observe how one development may lead to another. In case of the Maldives, it started with the establishment of a takaful company, then an Islamic bank was set up, followed by a modest Islamic equity market. The pursuit of issuing a sukuk gave rise to an Islamic window of a non-bank financial institution. What happened next is even more interesting. After the launching of HDFC Amna, it became difficult to get immediate funding to start its operations and time was required to proceed with the issuance of sukuk. The demand for HDFC Amna created the need for the company to find funding as soon as possible to commence its operations. Except for Maldives Islamic Bank, there was no other financial institution that could provide Shariâ&#x20AC;&#x2122;a-compliant financing. Due to this need, the first Islamic inter-financial institution placement facility was structured using wakala, and HDFC Amna was able to commence its operations through the funds it received via wakala placement from Maldives Islamic Bank and Amana Takaful Maldives.

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These institutions were keen to invest in wakala placement because at that time both institutions were looking for Islamic shortterm liquidity management instruments, which otherwise were not available in the market. This provided a life-saving opportunity for the two Islamic financial institutions in the country. Since then, the wakala placements have been very successful. This is another example of how Islamic finance evolves in a jurisdiction. It is like letting the genie out of bottle – it is simply unstoppable!

The issuance of this inaugural sukuk faced other challenges, too. Disbursement of sukuk proceeds on time and consequent distribution of returns was not a smooth run in the first year. These issues were accommodated by CMDA that issued sukuk regulations in 2013. In the same year, CDMA also enacted Regulation on Registration of Shari’a Advisers, which was indirectly relevant to the sukuk regulation.

“Starting Islamic banking and finance] is like letting the genie out of bottle – it is simply unstoppable!”

HDFC issued the first sukuk in the last quarter of 2013. It was indeed a challenge to come up with a suitable sukuk structure for the Maldives in a legal infrastructure where there were no provisions for the establishment of SPVs and trusts. The substantive law that could be relied was mainly the contracts law and as a result, the sukuk structure of HDFC deviated from the international complicated sukuk structures. Given the legal limitations, it was decided to issue HDFC Mudaraba Sukuk, without an SPV. Also, it was structured in such a way that it offered the sukuk holders a fixed return. This was possible because the sukuk proceeds were used for istisna’ – the main contract used by HDFC for home financing. However, this did not mean that HDFC sukuk structure was less Shari’a-compliant or risky. It simply meant that for the Maldives, it was the best suitable sukuk structure, compliant with Shari’a as well as consistent with the legal and regulatory framework in place.

2013 proved to be a successful year for Islamic finance in the Maldives. Numerous key events happened in the year. The first sovereign sukuk was issued in the year, based on a structure that utilized wakala and mudaraba contracts, with trade in oil as the underlying asset. The government of Maldives also issued Islamic Treasury Bills where oil was used as underlying asset. This was the first time a government in South Asia issued an Islamic Treasury Bill. Furthermore, the government set up Maldives Hajj Corporation, an organization similar to Tabung Haji of Malaysia. A private company engaged in hire-purchase, Alia Investment Maldives, started offering Shari’a-compliant hire-purchase facility with zero penalty clause. This was the first time in the history of the country a private party engaged in offering of Islamic financial products. In the following year, the biggest insurance company of the country, Allied Insurance Maldives, opened an Islamic window under the name of Ayady Takaful and started offering general insurance products. The inauguration of Ayady Takaful provided for the growing demand for Islamic finance. In 2015, the biggest bank of the country, Bank of Maldives, launched its Islamic window guaranteeing the viability, sustainability and ever-growing demand for Islamic finance in Maldives. In 2015, the “Faseyha Madhadu,” the first Shari’a-compliant Islamic microfinance scheme, was launched. In the same year, Maldives Transport and Contracting Company PLC launched “Odiverinnah Hallu Yageen” (a solution for fishermen and boat owners) via Islamic finance methods.

In 2016, Ayady Takaful introduced family takaful to the country, and a private hire-purchase company started offering Islamic hirepurchase. Furthermore, Housing Development Corporation (HDC) announced the option to cease compound interest portion for all the existing housing loan facilities given and started offering only Shari’a-compliant housing facilities. Bank of Maldives opened a special dedicated branch for Islamic banking, and Maldives Islamic Bank expanded its operation to new regions. In the same year, the government of Maldives announced its vision to make the Maldives as the hub for Islamic finance in the South Asian region, and created Maldives Centre for Islamic Finance, a 100% government corporation established under a Presidential decree to implement the strategies in this regard. One of the first key projects that was announced to be undertaken by Maldives Centre for Islamic Finance was to develop Islamic tourism in Maldives linking the revenue to create a sustainable sovereign wealth fund with the assistance from Islamic Development Bank’s Islamic Solidarity Fund for Development (ISFD).

Though the Maldives is a 100% Muslim country and theoretically there was room to presume that it would be easier to introduce Islamic finance in the country, the challenges faced in this regard were unique. Creating awareness and education and development of the required human capital were the major challenges faced. Continuous attempts have been made by the stakeholders of Islamic finance in Maldives to create awareness and education about Islamic finance amongst general public and the finance industry. However, more initiatives need to be carried out. Comprehensive publications have been made in the native language and research papers about the Islamic finance industry of Maldives have been written and published at national and international levels. The pension fund of Maldives offers opportunity for subscribers to opt for Shari’a-compliant investment portfolio, but though Maldives is a hundred percent Muslim country by default, whenever a person participates in the pension fund, the investment portfolio selected will be conventional. As a result only about 1% of the total pension fund, which is in billions of Maldivian currency, now consists of Shari’a-compliant investment portfolio.

TALKING POINTS

The main reason for this can be due to lack of awareness of public about the substantive and procedural matters of the pension fund. Collective efforts of stakeholders of Islamic finance are required to grow the size of Shari’acompliant portfolio of pension fund, as having a large fund is expected to lead to more Shari’acompliant instruments in the market. According to the law, pension fund can only invest in listed securities, and if a large portion of fund is for Shari’a-compliant investment, this will motivate to issue more listed Islamic securities creating a resilient Islamic finance market in Maldives. To resolve the human capital challenge, CMDA made collaborative efforts with INCEIF, Malaysia, to offer a postgraduate course in the Maldives. This has been a successful effort to create room for the existing industry players to educate themselves in Islamic finance while on the job. The strategy put forth by CMDA on this matter was to create opportunities for the conventional finance industry key personnel to be exposed to Islamic finance to use their industry knowledge and experience to advocate Islamic finance rather than targeting the fresh graduates with no experience.

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This also aimed at creating interest for Islamic finance at the top level and lead the Islamic finance industry in Maldives from the top. Furthermore, Islamic University of Maldives has started offering diploma and bachelor level courses in Islamic finance since January 2017, catering for the growing demand for Islamic finance industry in Maldives. All the above developments are impressive, especially when one considers them in the context of a short span of time. However, the legal, regulatory and tax framework of the country needs to be enhanced to create a favorable environment for Islamic finance in the country. A special law to regulate takaful is required and a comprehensive legal framework for Shari’a governance and to regulate banking and non-banking financial institutions offering Islamic finance is required. Laws to create trusts and SPVs need to be enacted and a sophisticated version of company’s law following the international best practice needs to be enacted too. The existing legal, regulatory and tax framework applicable to Islamic finance needs to be studied thoroughly and a comprehensive national strategic plan to develop Islamic finance in the country needs to be drafted and adopted. This will assist to fill the existing gaps in the industry and will further deepen the growth of the industry at the domestic and regional level.

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TALKING POINTS

“The progress of Islamic finance in the Maldives is an inspiration to those jurisdictions who wish to commence Islamic finance and develop it in a sustainable manner.”

The progress of Islamic finance in the Maldives is an inspiration to those jurisdictions who wish to commence Islamic finance and develop it in a sustainable manner. It is evident from the growth of it in the Maldives that being a hundred percent Muslim country automatically does not make it easy to introduce, implement and sustainably develop Islamic finance. Positive action and strategic development of it is required at all levels of the society. It is important to highlight the proactive role played by the government of Maldives to develop Islamic finance. The Maldives has been recognized among the top 15 developed nations in the global Islamic finance industry according to the ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI) 2016 and its report, the Islamic Finance Development Report 2016. The most developed performers include countries from the GCC, South and Southeast Asia. The Maldives also comes second to Pakistan in terms of overall Islamic finance development in the South Asia region. This new development proves that the aspiration of the Maldives to spearhead Islamic finance in South Asia is indeed real and serious as size does not matter; what matters is the political will &amp; support and the strategic planning and action to achieve the target. The country aspires to be a regional hub for Islamic finance. To achieve this dream, it will have to do a lot more to pull the market share of Islamic banking from below 5% to around 15%. With the government’s support and political will, this is very much in reach of the country.

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2017 There are numerous award-issuing commercial and non-commercial organisations in Islamic banking and finance (IBF). The best examples of non-commercial Islamic finance awards are IDB Prize in Islamic Finance (offered by the Jeddah-based Islamic Development Bank) and the Royal Award for Islamic Finance (organised by Bank Negara Malaysia, Securities Commission Malaysia and the Malaysia International Islamic Financial Centre or MIFC). Numerous organisations administer IBF awards programme on a commercial basis, some of which are respected while others are considered as mere money-making tools. There are certain Islamic finance awards programmes that demand from the participating institutions hefty amounts of money to receive the awards. It is no wonder why some people deem such activity no more than buying and selling of trophies. IBF is a growing industry and it is undoubtedly necessary to highlight best practices in the industry so that other players may attempt to emulate them to achieve the desired results for the benefit of the wider stakeholders. Awards do the job in this respect. They acknowledge contributions of individuals and institutions, and highlight star products. It is, nevertheless, absolutely imperative that such award programmes are transparent, authentic and most importantly are run by those who have full commitment to IBF. Running them on a purely commercial basis doesnâ&#x20AC;&#x2122;t help the industry as a whole and the individual winners at all. It is equally absurd to receive an IBF-related award from someone whose own knowledge of the industry is rudimentary and whose commitment to the industry needs to be re-ignited every now and then by flashing them the dollar bills.

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hy Islamic Retail Banking Awards?

Admittedly, there were already a number of organisations offering awards and accolades in IBF when Islamic Retail Banking Awards (IRBA) were founded in Dubai in November 2015. The reason for starting IRBA was unambiguous: there was a need for setting up a noncommercial award programme in Islamic retail banking. Islamic Retail Banking Awards (IRBA) are managed by Cambridge IF Analytica. In a period of just three years, IRBA have emerged as the most authentic Islamic retail banking celebrations and acknowledgements platform in the world, primarily owing to the noncommercial approach adopted by the awards committee. Cambridge IF Analytica has run three editions of IRBA in Dubai since 2015. These awards are based on a rigorous efficiency analysis conducted by the research team at Cambridge IF Analytica. The database includes over 150 Islamic banks from around the world out of which more than 130 Islamic retail banks are ranked in terms of their efficiency scores. From this list, winners in the category “Strongest Islamic Retail Banks” are chosen on national, regional and global levels. “This is due to the rigorous approach we have adopted to appraise and screen Islamic retail banks through a sorting mechanism based on efficiency. Unlike some other Islamic banking

and finance awards programmes - which apply ad hoc approaches - we have adopted an objective methodology to ensure that our results are consistent and transparent,” said Dr Sofiza Azmi, CEO of Cambridge IF Analytica. “The Islamic Retail Banking Awards (IRBA) are part of our advocacy efforts for Islamic banking and finance. We firmly believe that an objective assessment of Islamic retail banks by an external body like Cambridge IF Analytica will enhance productivity and efficiency of individual players,” she elobarated. Islamic retail banking is actually the queen of IBF. While a number of activities and sub-sectors play an important role in IBF, retail banking is the face of IBF. Therefore, making it absolutely imperative to acknowledge and celebrate success stories in Islamic retail banking.

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Adnan Fasih received 2 awards Critics’ Choice Best Emerging Brand in Islamic Retail Banking 2017 for SIRAT and HabibMetro and Critics’ Choice Upcoming Personality in Islamic Retail Banking 2017

Bank Nizwa bagged the Strongest Islamic Retail Bank in Oman 2017.

Akif Shaikh received Critics’ Choice Islamic Retail Banker of the Year 2017

Bank Syariah Mandiri was named as Strongest Islamic Retail Bank in Asia Pacific 2017. The award was presented to Edwin Dwidjajanto.

Al Rajhi Bank was crowned as the Strongest Islamic Retail Bank in the World 2017. Majed Al Rajhi, Head of Private & Affluent Banking, took home another 4 awards of the night for Al Rajhi.

Best Islamic Retail Bank in Bahrain Award 2017 went to Al Salam Bank Bahrain. Mohammed Bohiji, Head of Retail Banking, received the award on bhalf of the bank.

Amer Bukvic received Strongest Islamic Retail Bank in Europe 2017 for Bosna Bank International. He was also named IRBA Transformational Leader 2017

Critics’ Choice Best Islamic Retail Investment Product 2017 was accorded to First Habib Modaraba

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rd IRBA Held in Dubai

On November 14, 2017, in a colourful Awards Ceremony at JW Marriott Marquis Hotel Dubai; winners of the 3rd IRBA were announced. The Gala Dinner was attended by a large number of stakeholders in the global Islamic financial services industry; who came from Europe, Africa and Asia. “This is a fabulous event, efficiently organised, tastefully presented and above all providing extremely beneficial networking opportunity,” said Jamil Akhtar, CEO of Britnaire, a London-based property advisory firm offering services to high net worth individuals and families from the GCC. Following is a brief summary of the awards and the winners.

Strongest Islamic Retail Banks (SIRBs) The Islamic retail bank with the highest efficiency rank in the world is chosen as the Strongest Islamic Retail Bank (SIRB) in the World, which also receives accolades for being the Strongest Islamic Retail Bank in the region (e.g., Asia, Europe and Africa, etc.) as well as in the country in which it operates. For example, Al Rajhi Bank this year received 5 SIRB Awards. These awards included: •

Strongest Islamic Retail Bank in the World 2017

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Strongest Islamic Retail Bank in Asia 2017

•

Strongest Islamic Retail Bank in the Middle East 2017

•

Strongest Islamic Retail Bank in the GCC 2017

•

Strongest Islamic Retail Bank in Saudi Arabia 2017

Al Rajhi Bank of Saudi Arabia this year received 5 awards: Strongest Islamic Retail Bank in Saudi Arabia, Strongest Islamic Retail Bank in the GCC, Strongest Islamic Retail Bank in the Middle East, Strongest Islamic Retail Bank in Asia, and Strongest Islamic Retail Bank in the World.

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media campaign at home. The regulator Otoritas Jasa Keuangan (OJK) or Indonesian Financial Services Authority - puts a huge value on IRBA and hence, such achievements go a long way to raise profiles of the winners.

These awards were received by Majed Al Rajhi, Head of Retail Banking at Al Rajhi Bank. The success of Al Rajhi Bank owes to the vision and leadership of the Al Rajhi family but the top leadership of the bank also deserves special appreciation in this respect. Al Rajhi Bank is the largest Islamic bank in the world, barring the Iranian Islamic banks. Commenting on the bank’s big win; Stefano Bertamini, CEO of Al Rajhi Bank said “Over the past two years, we have been executing a major transformation throughout the bank and we have already achieved great progress. This transformation has now become the basis for our strategy moving forward, which is called ‘ABCDE’. The strategy focuses on five key areas: the ‘A’ stands for accelerate growth; ‘B’ is to become employer of choice; ‘C’ stands for customer focus; ‘D’ is digital leadership; and ‘E’ is execution discipline. This strategy enabled us to outperform the industry in terms of both financial and non-financial metrics, which gives us confidence we are on the right track.” Bank Syariah Mandiri (BSM) topped the efficiency ranking of all Islamic banks in Indonesia, and was chosen to receive two awards: [1] Strongest Islamic Retail Bank in Asia-Pacific 2017; and [2] Strongest Islamic Retail Bank in Indonesia 2017. These awards were celebrated by BSM through an extensive

IRBA’s SIRB Awards also bring out performances and achievements of many Islamic retail banks that otherwise may remain unnoticed in the global Islamic financial services industry. One such example is Islami Bank Bangladesh Limited (IBBL), which is a star Islamic retail bank in Bangladesh but is seldom mentioned in the international conferences on Islamic banking and finance. IRBA have highlighted the impressive performance of IBBL by presenting two SIRB Awards to it, each for two years in a row, namely, Strongest Islamic Retail Bank in South Asia, and Strongest Islamic Retail Bank in Bangladesh for the years 2016 and 2017. Bosna Bank International (BBI) was named as the SIRB in Europe. As the bank is the only Islamic bank operating in Bosnia & Herzegovina, the Award Committee decided not to issue a country award in favour of BBI. Technically, however, BBI should also be acknowledged as the SIRB in Bosnia & Herzegovina. In the country awards, the most prominent winner was Dubai Islamic Bank (DIB), which won the accolade for being SIRB in the UAE for the third consecutive year. Established in 1975, DIB is the largest Islamic bank in the UAE by assets and the fourth largest Islamic bank in the world. The Bank currently operates 90 branches across the UAE, is present in seven markets worldwide and is expanding its global footprint to further grow and develop the industry.

“We are delighted to be recognized as the ‘Strongest Islamic Retail Bank in the UAE’ for the third consecutive year. This award reinforces Dubai Islamic Bank’s leadership position as the ‘bank of choice’ across many of our consumer product offerings and distinguishes DIB’s ongoing dedication and efforts to drive the transformation of the Islamic finance market. Supported by our long history and expertise in driving growth within the retail banking sector, we remain committed to enhancing our customers’ banking experience by providing them with a unique combination of innovative products, unparalleled services and expert market knowledge. With customer centricity at the core of what we do, we will continue to focus on strengthening and establishing long term relationships with our customers while meeting their evolving banking needs,” said Sanjay Malhotra, Chief of Consumer Banking of DIB. Similarly, Bank Nizwa was chosen as the SIRB in Oman for the second year in a row. The Bank achieved the highest growth rate in Oman’s banking sector reaching 200% after tax during first half of 2017. This milestone was achieved courtesy of a surge in total assets, which reached 613 million OMR at the end of June 2017 and a gross financing portfolio that grew to 485 Million OMR during the 1st half of the year. Bank Nizwa also recorded a 45% growth in assets and a 37% growth in revenue during the second quarter of 2017, driven by greater efficiency in asset quality and healthy activity across multiple businesses. “From the onset, we have been committed to innovation and developing our product and service portfolio to always better serve our expanding customer base. Receiving this prestigious accolade highlights the success of our approach and pays tribute to our vision of spreading the benefits of Shari’a-compliant banking to every corner of Oman. We will continue to embrace a proactive business model that will directly contribute to the overall growth of this emerging,” commented Khalid Al Kayed, CEO, Bank Nizwa.

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Dato’ Wan Mohd Fadzmi Wan Othman was crowned as Islamic Retail Banking Leadership Award 2017

Irwan Abdullah received the award for Critics’ Choice Most Innovative Islamic Retail Product 2017 on behalf of HelloGold

Dr. Mohsen Abu Awad represented Islamic International Arab Bank to receive Critics’ Choice Best Islamic Credit Card Award for 2017 for Arabi Islamic Installment Credit Cards

Iyad Asali, General Manager Islamic International Arab Bank was honoured as IRBA CEO of the Year 2017

East Africa Bank was named Critics’ Choice Best Islamic Retail Bank in Djibouti 2017. Ismail Guyo, CFO and Head of Financial Institutions represented the bank at IRBA

Khalid Al Maarafi represented KFH Bahrain to pick up Critics’ Choice Best Prize-Linked Islamic Retail Investment Product 2017 for the Libshara Savings Account

Esam Alkheshnam, CEO of ITS received the Critics’ Choice Best Islamic Retail Banking Solutions Provider 2017 award on behalf of the company.

Khalid Al Othman, SVP and Head of Retail Banking picked up the award for Critics’ Choice Best Islamic Retail Bank in Saudi Arabia 2017 on behalf of Bank AlJazira

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Critics’ Choice Awards (CCAs) Winners of this category come from a number of institutions involved in Islamic retail finance, which also include non-bank Islamic financial institutions. The non-bank Islamic retail finance winner institutions this year included the likes of National Bonds Corporation, First Habib Modaraba, HelloGold and OneGram, etc. These awards fall under Critics’ Choice Awards (CCAs). Under CCAs, a number of individual, product and institutional awards are issued. The CCAs allow the awards committee to include those who cannot be captured through the financial data on Islamic retail banks. For example, Islamic banking windows are not included in the data set used for efficiency analysis. CCAs ensure that this important segment of the Islamic retail banking industry is not left out. Similarly, individuals and products cannot be included in the efficiency analysis that utilises only bank-level data.

Noor Bank has emerged as a premier brand in Islamic retail banking. It received the CCA for Best Islamic Retail Banking Brand 2017 for the second year in a row.

National Bonds Corporation was the proud winner of Critics’ Choice best Islamic Savings Product Awards 2017. Commenting on this win, Mohammed Qasim Al-Ali, CEO of National Bonds Corporation said “We are pleased to receive this industry distinction that reaffirms our progress in the right direction as we continue to innovate our value offerings to ensure the best dividends for our bondholders.” As one of the leading investment companies in the region, National Bonds seeks to make regular savings a compulsive habit through incentivizing bondholders with rich rewards programmes. First Habib Modaraba is an excellent example of Islamic retail investments. It was therefore chosen to receive Critics’ Choice Best Islamic Retail Investment Product 2017. Muhammad Shoaib Ibrahim, Chief Executive Officer of First Habib Modaraba commented, “According to Modaraba concept in Islamic finance, Modaraba is a kind of partnership wherein one party provides finance to other for the purpose of carrying business and sharing profits earned through mixture of investment and expertise. Enriching every relationship and creating huge benefits through sharing maximum profits with the investors. It is a progressive partnership based on trust, confidence and mutual respect.” Another Islamic retail investment product of immense significance is Libshara Savings Account offered by Kuwait Finance House Bahrain. It received Critics’ Choice Best Prizelinked Islamic Retail Investment Product 2017. Based on the Mudaraba concept, prizes are donated from the Bank’s shareholders’ money, not deducted from the profits or capital of the Mudaraba. Libshara Savings Account offer a unique opportunity to clients who never won and prizes. For example, clients who never-won in the past 24 months are entitled to enter a special draw in “our savers” segment.

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HelloGold received the Critics’ Choice Most Innovative Islamic Retail Product award for 2017. The Critics’ Choice Committee was greatly impressed by the Mobile App that the company has developed to offer the product on a retail level to almost anyone who has a smart phone. Founded in 2015 and headquartered in Kuala Lumpur, Malaysia; HelloGold built the world’s first Shari’a-compliant gold digital application that changes the way people buy and sell gold. The Critics’ Choice Best Islamic Cryptocurrency Award 2017 was presented to OneGram. OneGram is a collaborative effort of an international group of companies that is leading one of the most exciting innovations in the digital payments industry. OneGram Coins (OGC) are digital cryptocurrency that are backed by physical gold on a 1 to 1 basis. For example, one coin will be equivalent to one gram of gold. Hence, OneGram uses blockchain technology to create a “new kind of cryptocurrency”, where each coin is backed by one gram of gold at launch.

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Meethaq Islamic Banking (Bank Muscat) won for the second time in a row the Critics’ Choice Best Islamic Retail Banking Window in Oman 2017 award. Meethaq Islamic Banking is led by Sulaiman Al Harthi, Deputy CEO and Group Head of Islamic Banking at Bank Muscat, who received the award on behalf of the bank. “Meethaq is honoured to win the Islamic Retail Banking Award in recognition of vital contributions to Islamic banking and finance in Oman. Meethaq is contributing significantly to the growth and development of the Omani banking sector and we are witnessing an upswing in Islamic finance and investment compatible with the provisions of Shari’a laws,” said Sulaiman Al Harthy. Noor Bank has emerged as a premier brand in Islamic retail banking. It received the CCA for Best Islamic Retail Banking Brand 2017 for the second year in a row. The award was received by Mufazzal Kajiji, Head of Retail Banking. Noor Bank began operations as Noor Islamic Bank in 2008, and it was rebranded as Noor Bank in 2014, the year when the total income of the

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Meethaq Islamic Banking (Bank Muscat) won Critics’ Choice Best Islamic Retail Banking Window in Oman 2017. Sulaiman Al Harthi represented the bank at the awards ceremony

Niken Andonowarih picked up the Strongest Islamic Retail Bank in Indonesia 2017 on behalf of Bank Syariah Mandiri.

Mohammed Qasim Al-Ali, CEO of National Bonds Corporation, collected the Critics’ Choice Best Islamic Savings Products 2017 on behalf of National Bonds

OneGram was announced as the winner of the Critics’ Choice Best Islamic Cryptocurrency Award 2017

Mufazzal Kajiji, Head of Retail Banking at Noor Bank picked up the Best Islamic Retail Banking Brand 2017

Sanjay Malhotra, Chief of Consumer Banking at Dubai Islamic Bank took home Strongest Islamic Retail Bank in UAE 2017 for Dubai Islamic Bank.

Mufti Muhammad Khalid Hasani was chosen as the Critics’ Choice Upcoming Shari’a Scholar of the Year 2017

Muhammad Abdul Hamid Miah, Managing Director and CEO of Islami Bank Bangladesh Limited received 2 awards Strongest Islamic Retail Bank in Bangladesh and Asia Pacific.

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bank was reported to have trebled. Obviously, rebranding worked for the bank! “We are proud to accept this prestigious award, which reinforces our brand presence amongst the region’s expanding retail banking customer base,” commented Mufazzal Kajiji. “The United Arab Emirates offers a wealth of opportunities to provide Shari’a-compliant financial products that are ethical and transparent. Improving the reach of our retail banking services is a core focus area for us – and we are witnessing strong growth in targeted segments, including personal finance, home finance, cards and deposits. Going forward, we will launch a number of initiatives aimed at delivering differentiated, personalised services to meet our customer’s varying needs.” Adnan Fasih, Head of Islamic Banking at Habib Bank AG Zurich, was named as the Upcoming Personality in Islamic Retail Banking for the year 2017. He also received another award on behalf of HabibMetro Sirat, which was announced as the Critics’ Choice Best Emerging Islamic Retail Banking Brand 2017. Adnan Fasih is the main architect behind HabibMetro Sirat and aims at making it the best Islamic banking brand in the world. Sirat has operations in Pakistan and the UAE, with probable expansion into other countries like the UK and South Africa. Mufti Khalid Hasani received the accolade for Upcoming Shari’a Scholar 2017. He joins the previous two winners in this category, i.e., Mufti Aziz ur Rahman (2015) and Dr. Abdulbari Mashal (2016). Mufti Muhammad Khalid Hasani is a young Shari’a scholar of growing repute and respect in Islamic banking and finance. As Shari’a Coordinator at Dubai Islamic Bank Pakistan, his responsibilities include providing Shari’a advisory to different departments within the bank and helping in product development and structuring. Given the growth of Islamic retail banking in Pakistan, Mufti Khalid Hasani has gathered impressive and in-depth knowledge of Islamic financial transactions. “I am pleased that our Critics’ Choice Committee selected Mufti Khalid Hasani as Upcoming Shari’a Scholar 2017, as he is a dedicated young man, with huge commitment to serving Islamic

The most significant CCA this year was Best Islamic Credit Card 2017 presented to Arabi Islami Instalment Credit Cards issued by Islamic International Arab Bank (IIAB) of Jordan.

banking and finance,” said Professor Humayon Dar, Chairman of Islamic Retail Banking Awards. “He is a man to follow, as in my opinion he will excel to achieve maximum heights in his chosen area of specialisation.” Other winners in the CCA category included Dubai Centre for Islamic Banking & Finance at Hamdan Bin Mohamed Smart University which was chosen to receive the Critics’ Choice Islamic Banking R&D Award for the third year in a row and Islamic Banking Department of State Bank of Pakistan who took home the IRBA Islamic Retail Banking Advocacy Award 2017. International Turnkey Systems (ITS) was accorded the Critics’ Choice Best Islamic Retail Banking Solutions Provider 2017. Upon receiving the award on behalf of ITS, Esam Alkheshnam, the Chief Executive Officer said, “It is truly an honour to receive the Critics’ Choice of Best Retail Banking Solutions Provider for our ETHIX Suite.” Alkeshnam added: “We are extremely proud to receive this global recognition from IRBA acknowledging ETHIX as a world-class solution. Such rewards are true testimonies for us that we are on the right direction leading the market in retail and in Islamic finance.” The most significant CCA this year was Best Islamic Credit Card 2017 presented to Arabi Islami Instalment Credit Cards issued by Islamic International Arab Bank (IIAB) of Jordan. The Critics’ Choice Committee and the research team at Cambridge IF Analytica analysed all Islamic credit cards issued by Islamic banks and other financial institutions

(involved in Islamic financial services) from all over the world. All the Islamic credit cards were classified on the basis of the underlying contracts used to structure them, i.e., tawarruq, ujra, waqf, etc. These cards were also assessed on the basis of authenticity of Shari’a assurance processes, social impact, and the overall value proposition of the products for the issuing bodies as well as the end users. The Arabi Islami Instalment Card (with its different variants) was chosen as the winner, as it beat all other products in the peer group on the above counts. It is the only Islamic credit card with reasonable significance, in terms of its impact on the volume of the business of the issuer, which is based on qard hasan (with zero return earned by the issuer). The beauty of the product lies in developing a strong sense of loyalty amongst customers for the issuer, making it a viable Islamic financial product in its own right. Islamic Banking Department of State Bank of Pakistan received IRBA Islamic Retail Banking Advocacy Award 2017. As an Islamic banking regulator, the State Bank of Pakistan ensures that Islamic retail banking remains sound and safe for all the shareholders and that its growth continues to fulfil socio-economic challenges in the country. The report on Knowledge, Attitude and Practices of Islamic Banking in Pakistan (popularly known as KAP Study) undertaken by the Islamic Banking Department was a pathbreaking initiative that paved the ways for a number of developments in Islamic banking in the country.

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CCAs for Best Islamic Retail Banks in Chosen Countries The following CCAs were announced for Best Islamic Retail Banks in selected countries: •

Al Salam Bank Bahrain - Best Islamic Retail Bank in Bahrain

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East Africa Bank - Best Islamic Retail Bank in Djibouti

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Bank AlJazira - Best Islamic Retail Bank in Saudi Arabia

Although these banks were not covered in the efficiency analysis, the Critics’ Choice Committee decided to highlight the exceptional success these three banks have achieved in Islamic retail banking in their respective area of jurisdictions. According to Anwar Murad, Deputy Group CEO of Banking; Al Salam Bank Bahrain has always been at the forefront of offering an innovative Shari’a-compliant banking product and services that reflected in our position as a key player amongst Islamic banks. “We also would like to extend our gratitude to all our valued customers for continuously supporting the Bank’s direction with full confidence and trust as well as appreciation to the Bank’s high calibre management team and employees for their seamless efforts towards making ASBB as one of the pioneering Shari’a-compliant Banks in the Kingdom,” he added.

Given the huge criticism attracted by Islamic credit cards in general, due to their close resemblance with the conventional credit cards and rather weak Shari’a foundations of the structures, Arabi Islami Instalment Credit Card represents a genuine innovation in Islamic retail banking. We believe that such products are going to spearhead a new generation of Islamic financial products, which would increase the scope and scale of Islamic banking and finance.

Bank AlJazira, which was converted into a fully Shari’a-compliant bank in 1998, is now recognized as one of the leading Shari’a-compliant fast growing financial institutions in Saudi Arabia. “This award confirms our commitment in providing the highest standards in giving products and services to our clients and at the same time giving us a leading position in Saudi Arabia,” commented Nabil Al Hoshan, CEO and Managing Director. “Receiving this award for the second time is a great honour not only to Bank AlJazira and a constant reminder of our effort and will serve as an inspiration in order for us to achieve more success in the future.”

IRBA Celebratory Awards (ICAs) The top IRBA Celebratory Award (ICA) is Islamic Retail Banking Leadership Award, which is presented to an Islamic retail banker who has demonstrated his leadership in Islamic retail banking in the world, in his country, or within his organisation. The inaugural Islamic Retail Banking Leadership Award was presented to Hussein Al Qemzi, CEO of Noor Bank, in 2015. This was followed by Musa Shihadeh, General Manager & CEO of Jordan Islamic Bank, in 2016. This year’s winner of this coveted award was Dato’ Wan Mohd Fadzmi Wan Othman, former President and CEO of Agrobank Malaysia. Dato’ Wan Mohd Fadzmi was chosen to receive this year’s top ICA for his exceptional leadership skills for not only converting Agrobank into a full-fledged Islamic bank with a focus on financial inclusion, agriculture financing and support for the halal industry but also for making it one of the most profitable Islamic bank in Malaysia. “I congratulate Dato’ Wan Mohd Fadzmi on this huge recognition for his leadership role in Islamic retail banking. May his success story and commitment in supporting the role of Islamic finance in achieving sustainable development and promoting real economic development serves as an inspiration to us all,” said Professor Humayon Dar.

Meanwhile, commenting on the award, Dato’ Wan Mohd Fadzmi said the award is a special recognition to Agrobank and all the employees who worked hard and showed strong commitment. Under his leadership, the Bank recorded a remarkable growth of 16.9% with total financing value reaching RM8.7 billion in 2016, marking one of the best successes of the bank thus far. IRBA CEO of the Year is another top ICA, which is presented to a CEO of an Islamic retail bank for their all-round performance as top manager and leader. This year’s IRBA CEO of the Year award was presented to Iyad Asali, General Manager & CEO of Islamic International Arab Bank (IIAB) of Jordan. IIAB also received a Critics’ Choice Award for its credit cards - Arabi Islami Instalment Credit Cards - named as the Best Islamic Credit Card for 2017. Amer Bukvic, CEO of Bosna Bank International (BBI), was chosen as the IRBA Transformational Leader in Islamic Retail Banking for 2017. Amer Bukvic is an Islamic banking leader of exceptional talent and multi-pronged leadership skills. He is an Islamic banker of very different style and approach. As CEO of

BBI, he has achieved impressive milestones in terms of bank performance, and it is primarily owing to his leadership that the bank is considered as a Tier-1 bank in Bosnia & Herzegovina in the entire banking industry of the country. This is a remarkable achievement in its own right. The awards committee chose him for the accolade not only based on his banking performance but also considered his pioneering role in founding Sarajevo Business Forum, which has become a premier event and business platform for businesses (Islamic as well as conventional) from around the world, especially South Eastern Europe (SEE). Islamic Retail Banker of the Year 2017 was given to a professional with exceptional talent, experience and expertise. Akif Shaikh, AGM & Head of Consumer Business at Al Rajhi Bank, is the winner of this accolade. He is a rising star in Islamic retail banking, and the Awards Committee saw in him a future CEO of an Islamic bank. Akif Shaikh was a founding member at Mashreq Al Islami (UAE) & Al Hilal Bank (UAE) core setup team who played a significant role in the launch of the Islamic window and full-fledged Islamic bank in record time.

ISFIRE PERSONALITY REPORT

ISLAMIC ISLAMIC FINANCE FINANCE REVIEW REVIEW || DECEMBER DECEMBER 2017 2017

MUJTABA KHALID Head of Islamic Finance Centre at Bahrain Institute of Banking & Finance (BIBF)

ISFIRE Personalities are leading men and women drawn from the global Islamic financial industry and the related institutions. Over the last seven years, these personalities have emerged as a prestigious club of leaders in Islamic banking and finance (IBF). Through short rapid-fire kind of interviews, we aim to bring out hidden aspects of their personalities for the benefit of those who would like to play leadership roles in IBF. This issue’s personality is a young man who has already started leaving a mark in Islamic financial services industry, especially since he joined Bahrain Institute of Banking & Finance (BIBF) as Head of Islamic Finance Centre. Mujtaba Khalid joins a very distinguished faculty of ISFIRE Personalities that include Chairmen and CEOs of Islamic banks and financial institutions, leading Shari’a scholars, practitioners and lawyers. Previous ISFIRE Personalities include Hasan Bilgarami (CEO of Bank Islami Pakistan), Raja Teh Maimunah Raja Abdulaziz (CEO of Aminvestment Bank, Malaysia), Sheikh Nedham Yaqubi (Shari’a scholar, Bahrain), Amman Mohammed (CEO of FNB Islamic), and many more (a complete list is re-produced in this issue).

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ISFIRE REPORT PERSONALITY

ISLAMIC ISLAMIC FINANCE FINANCE REVIEW REVIEW || DECEMBER DECEMBER 2017 2017

ISFIRE PERSONALITY REPORT

What was your earliest ambition?

Which movie is your all-time favourite?

Probably wanting to build really big robots, like the ones I used to watch in cartoons.

Itâ&#x20AC;&#x2122;s a tie between The Matrix and Forrest Gump.

What do you enjoy the most? Competitiveness, therefore I love sports - either playing or watching. I also really enjoy spending time with my daughters.

Who has been your greatest mentor? Most definitely my father!

Where are you the happiest? Why are you into Islamic banking and finance? Short answer; to make a difference, in shaa Allah. Long answer; years ago, due to reading books like Liars Poker, Barbarians at the Gate, and watching movies like Wall Street and The Boiler Room, I was very impressed and keen on getting into investment banking. For this, I pursued an undergraduate degree in Accounting and Finance awarded by the London School of Economics, followed by an MSc in Investment Analysis. Somewhere during that time, I started studying about socialism and ethical/socially responsible finance (maybe because this was 2007/2008, and the global financial crises had an impact on my thinking). During this time, I came across an article on Islamic finance which really appealed to me - the whole concept is very beautiful - the application sometimes might not be perfect but the concept is amazing.

At home with my kids!

If your 15 years old sees you today what would he say? Not bad Mr. Khalid...not bad!

In a few sentences describe your 65 years old. I would hope my 65 year old self is content, happy and still having fun, in shaa Allah.

Any disappointment in life? What do you do in your spare time? I work-out, read books and articles as well as try spending time with my daughters.

I have had my share of disappointment but not enough to remember.

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ISFIRE PERSONALITY REPORT

Introduction: Islamic Bankers Association (IBA) is a new international industry representative body for practitioners of Islamic banking and finance. It is officially incorporated in United Kingdom, with its registered office in London. The IBA membership is open to individuals and corporates, and aims to become the largest industry representative body for Islamic banking and finance in the world.

Membership categories include: Corporate Membership: For all Islamic banks and the institutions offering Islamic financial services – IIFS (Annual Fee: £3,500) Associate Corporate Membership: For all businesses that offer their services to Islamic banks and IIFS (Annual Fee: £5,000) Individual Membership: For all the employees of Islamic banks and IIFS, with work experience of a period of five years or more (Annual Fee: £100) Young Professional Membership: For all the employees of Islamic banks and IIFS, with work experience of a period of less than five years (Annual Fee: £50) Associate Individual Membership: For any professional whose application is endorsed by at least one existing member of IBA (Annual Fee: £100) Islamic Bankers Association is a non-profit organisation, registered in England and Wales as a company limited by guarantee, and does not offer any financial products and as such is not regulated by Financial Conduct Authority.

If interested in becoming a member, please get in touch with Khuram Shehzad on:

+44 (0) 20 3617 1089 or kshehzad@edbizconsulting.com

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ISFIRE REPORT

PERSONALITIES

Hasan Bilrami

CEO BANK ISLAMI PAKISTAN

Raja Teh Maimunah Raja abdul Aziz CEO HONG LEONG ISLAMIC BANK

Dr Nursofiza Azmi

HEAD OF STRATEGY & POLICY DEVELOPMENT, ASIAN INSTITUTE OF FINANCE

Sulaiman Al Harthy

GROUP GENERAL MANAGER ISLAMIC BANKING, BANK MUSCAT

Azhar Aslam

HEAD OF ISLAMIC BANKING STANDARD CHARTERED BANK

Dr M Yaqub Mirza

PRESIDENT & CEO STERLING MANAGEMENT GROUP

Moinuddin Malim

Issam Al Tawari

Sohail Jaffer

Nasir Ali khan

CEO MASHREQ AL ISLAMI

DEPUTY CEO FWU GROUP

Stefano Padovani

PARTNER - HEAD OF ISLAMIC BANKING NCTM

CHAIRMAN RASAMEEL

RISK AUDITOR NATIONAL BANK OF ABU DHABI

Roslina Abdul Rahman

MANAGING DIRECTOR AMUNDI MALAYSIA

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ISFIRE REPORT

PERSONALITIES Amman Mohammed Amman Mohammed CEO, FNB Islamic CEO, FNB Islamic

Amman Mohammed CEO FNB ISLAMIC

Junaid Wahedna Junaid Wahedna CEO, Wahedna Invest

ISLAMIC FINANCE REVIEW | FEBRUARY 2017

CURRENT PERSONALITY ARTICLE

CEO, Wahedna Invest

Junaid Wahedna CEO WAHEDNA INVEST

NIZAR AL NIZAR ALSHUBAILY SHUBAILY ISLAMIC FINANCE EXPERT Islamic Finance Expert

Sheikh Nedham Yaqubi Mohamed Izam Mohamed Yusof Sheikh Mohamed Mohamed Yusof CEO, Izam IAP Integrated RenownedNedham Shari'a ScholarYaqubi Renowned Shari'a Scholar

Sheikh Medham Yaqubi RENOWNED SHARI’A SCHOLAR

Jonathan Lawrence Jonathan Lawrence Jonathan Lawrence

Partner & Co-head of Islamic Finance, Gates of Islamic Finance, Partner &K&L Co-head Gates OF PARTNER & K&L CO-HEAD ISLAMIC FINANCE, K&L GATES

Muhammad Kashif COO Muahmmad Kashif EAST AFRICA BANK Muahmmad COO, East Africa BankKashif COO, East Africa Bank

CEO, IAP Integrated

Mohamed Izam Mohamed Yusof CEO IAP INTEGRATED

Kashif Mohammed Naeem Kashif Head ofMohammed Consumer Banking, Naeem Bank Khartoum Head of ofMohammed Consumer Banking, Kashif Naeem Bank of Khartoum HEAD OF CONSUMER BANKING BANK OF KHARTOUM

Kamran Sherwani Kamran Sherwani Kamran Sherwani

HEAD OF SHARI’A ADVISORY & COMPLIANCE ADCB ISLAMIC BANKING Head of Shari'a Advisory and Compliance, Islamic Banking HeadADCB of Shari'a Advisory and Compliance, ADCB Islamic Banking

DAAN Elffers

FOUNDER OF ISLAMIC REPORTING INITIATIVE (IRI)

Amer Bukvic

CEO BOSNA BANK INTERNATIONAL (BBI)

Othman Abdullah

CEO SILVERLAKE

e s u a P for t h g u Tho Lahore is considered as the “Heart of Pakistan” and its people are known for their “big heart.” For a few years now, Lahore has opened itself to the global community of Islamic economics, banking and finance (IEBF). Lahore University of Management Sciences (LUMS) received a grant from State Bank of Pakistan (SBP) to set up a Centre of Excellence for Islamic Finance but has yet to make a mark in this field. More prominent universities, however, are COMSATS Institute of Information Technology (Lahore Campus of COMSATS University), University of Management & Technology (UMT), and Minhaj University Lahore (MUL), which have shown greater commitment to IEBF. CIIT and UMT have organised annual international conferences in this field for a few years, and now MUL has entered this field by announcing its 1st World Conference in Islamic Economics and Finance to be held on January 3-4, 2018 at Pearl Continental Hotel, Lahore.

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PAUSE FOR THOUGHT

Given the growing activities around IEBF, the government of Punjab should leverage on this by adopting it as a strategic area to promote Lahore as a global Centre of Excellence for IEBF. SBP should also play its role to audit the activities of the so-called Centre of Excellence in Islamic Finance at LUMS, as it has so far failed to register itself as a serious player in this field. In view of many industry observers, CIIT and UMT have shown far more commitment to IEBF than LUMS, and SBP should reconsider its support for LUMS and instead start supporting those institutions that are more committed to the cause of IEBF. LUMS was chosen ahead of International Islamic University Islamabad (IIUI) and CIIT, of which the last one has certainly beefed up resources in IEBF, and is very active in promoting education in this area through its regional campuses throughout the country. The provincial government of Punjab has a greater role to play. It should set up a task force under the leadership of a renowned Islamic finance expert of international repute, with an objective to identify opportunities in IEBF, which could be exploited to attract foreign capital into the Punjab in general and Lahore in particular. It is also incumbent upon the government of Punjab to show its commitment to IEBF by way of initiating full conversion of the Bank of Punjab into an Islamic bank. There is also a greater need to incentivise Islamic banks in the country to relocate their headquarters to Lahore, which is fast becoming centre of activities for many economic sectors. Lahore can also be chosen to set up what may be called as Lahore International Islamic Financial Centre (LIIFC). The proposed LIIFC should offer incentives to Islamic banks, asset management companies, takaful operators, and microfinance institutions from around the world to domicile their businesses in an Islamic financial freezone set up on the lines of Dubai International Financial Centre (DIFC). To gain prominence in IEBF, the government of Punjab must develop a vibrant Islamic capital market. This can be done by regularly issuing international, national, provincial, and municipal sukuk. Given the huge infrastructural developments in the province, infrastructure sukuk have a potential to play in the economic development of the province. With a population of over 100 million, Punjab offers an attractive array of investment opportunities.

There is no doubt that a city like Lahore cannot compete with the likes of Kuala Lumpur, Dubai and Bahrain, which have far superior infrastructure for operations of Islamic banks and financial institutions. However, the government of Punjab has an opportunity at hand to develop Lahore as one of the competing centres of excellence for IEBF. To do so, it must start cooperating and collaborating with the institutions and other market players in the well-established centres of excellence for Islamic finance. Annual conferences and seminars are good starting points but the ball should not stop there. A detailed and comprehensive strategy to follow up on the networking and connections should be devised to ensure positive and sustainable outcomes of such advocacy events. The government officials and provincial politicians are least visible in the conferences on IEBF, organised by the universities in Lahore. Such a lack of interest should be changed into a genuine commitment to IEBF on part of the provincial government.

ISLAMICITY OF ISLAMIC BANKING WHAT IS MARKET PERCEPTION AND THE WAY FORWARD This ISFIRE Report looks into the Shariâ&#x20AC;&#x2122;a/Islamic credentials of Islamic banking in light of the perception held by important stakeholders in the Islamic financial services industry, namely employees of Islamic financial institutions and their customers. The findings are based on a global survey conducted by Cambridge IF Analytica, using technological tools of social media and online interactions with a sample of employees of Islamic financial institutions and their customers. The sample also includes non-users of Islamic financial services.

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ISFIRE REPORT

Debate on whether Islamic banking is truly Islamic or if it fulfils Shari’a requirements in letter and spirit is long standing. On one side of the spectrum are those who consider Islamic banking a complete sham, and on the other side are those who find nothing wrong with the current practices being conducted in the name of Islamic banking. Cambridge IF Analytica conducted a global survey of perceptions to gauge how employees of Islamic financial institutions and their clients view Islamic banking in terms of Islamicity and Shari’a-compliancy. A total of 1,737 respondents from 19 countries took part in the survey (see Figure 1). Top three participating countries were Malaysia (24%), Pakistan (19%) and the UAE (7%). Figure 1 shows that it is indeed a well-diversified sample. Out of 1,737 respondents; 351 were either employees of Islamic financial institutions or have previously worked for such institutions in the past. There were some Shari’a scholars who responded to questions and shared their views on authenticity of Islamic banking.

Figure

56,3%

Egypt

51,3%

Kazakhstan

107,6%

Bangladesh

13,1%

332,19%

Morocco

Pakistan

14,1%

Nigeria 33,2% India

9,1%

Jordan

88,5% USA

112,6% UK

413,24%

Malaysia

98,6%

Indonesia

21,1% Qatar

13,1%

Kuwait

44,3%

Bahrain

31,2%

Oman

91,5%

94,5%

Sudan

Saudi Arabia

117,7% UAE

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ISFIRE REPORT

WE ASKED TWO SIMPLE QUESTIONS: [1] Is Islamic banking truly Islamic?

A total of 9,000 people were randomly chosen from a dataset of 15,000 individuals, held by Cambridge IF Analytica. The chosen sample was sent the first question through emails, out of which 2,234 responded. These respondents were then asked to answer the second question, and only 1,737 responded with their answers. The 497 who did not respond were then excluded from the sample. The respondents were further asked to give at least one reason for their choice. It was an open-ended question that generated about 100 answers, which were grouped into 16 answers (see below for further details).

[2]

Is Islamic banking truly Shari’a-Compliant?

THE OBJECTIVES OF THE SURVEY WERE: [1]

To assess if the chosen stakeholders believed that Islamic banking was truly Islamic;

Answering the first question, 47% showed their belief that Islamic banking was truly Islamic, and slightly more (53%) thought otherwise (see Figure 2). Interestingly, 16% thought Islamic banking was not truly Islamic but it was still Shari’a-compliant.

[2]

To assess if the chosen stakeholders believed that Islamic banking was truly Shari’a-compliant; and

[3]

To find out if the chosen stakeholders differentiated between Islamicity and Shari’a-compliancy.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

Figure

ISFIRE REPORT

Is Islamic banking truly Islamic?

816 47%

921 53%

YES

278 16%

Islamic banking is NOT truly Islamic BUT is Shari’a-compliant?

Yes Is Islamic banking truly Shari’a-compliant?

1,094 63%

643 37%

The above results are from the full sample, comprising respondents from general public as well as employees of Islamic financial institutions. It is interesting to see if there is a difference of response between the general public and those who are more exposed to Islamic banking, e.g., employees of Islamic financial institutions, who have more transactional and operational knowledge of Islamic banking. A sub-sample comprising employees of Islamic banks and financial institutions (351 in total) revealed strong views on the Islamicity and Shari’a-compliancy of Islamic banking (see Figure 3). An overwhelming 85% believed Islamic banking to be truly Islamic and even a bigger percentage (89%) deemed Islamic banking to be truly Shari’a-compliant. Only 4% thought Islamic banking not to be truly Islamic, although it fulfilled Shari’a requirements. This shows that those working for Islamic financial institutions do not in general differentiate between Islamicity and Shari’a-compliancy. This should not, however, not be equated with the perception on authenticity of Islamic banking (see below). The general public have strikingly different views on Islamicity and Shari’acompliancy (see Figure 4). Only 37% of the general public believed in the Islamicity of Islamic banking, while 56% deemed Islamic banking truly Shari’acompliant. 19% of them differentiated between Islamicity and Shari’acompliancy.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

ISFIRE REPORT

Figure

Is Islamic banking truly Islamic?

299 85%

52 15%

YES

15 4%

Islamic banking is NOT truly Islamic BUT is Shari’a-compliant?

Yes Is Islamic banking truly Shari’a-compliant?

313 89%

38 11%

In a global survey of 1,737 respondents, 351 reported to be either employees of Islamic financial institutions or have previously worked for them. 85% of them viewed Islamic banking to be truly Islamic, while only 15% thought it was not. Out of those, an even greater percentage (89%) responded affirmatively to the question of Shari’a-compliancy of Islamic banking. Only 11% suggested that Islamic banking was not truly Shari’a-compliant. 4% of the respondents in this sub-sample of employees did not see Islamic banking truly Islamic but deemed it truly Shari’a-compliant.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

Figure

ISFIRE REPORT

Is Islamic banking truly Islamic?

517 37%

869 63%

YES

263 19%

Islamic banking is NOT truly Islamic BUT is Shari’a-compliant?

Yes Is Islamic banking truly Shari’a-compliant?

781 56%

605 44%

In a global survey of 1,737 respondents, 1,386 were drawn from general public. 37% of them viewed banking to be truly Islamic, while 63% thought it was not. 56% responded affirmatively to the question of Shari’a-compliancy of Islamic banking, and 44% suggested that Islamic banking was not truly Shari’a-compliant. 19% of the respondents in this sub-sample of general public did not see Islamic banking truly Islamic but deemed it truly Shari’a-compliant. From amongst the general public who have used Islamic banking in the past or are at present dealing with them, 69% and 71% believed that Islamic banking was truly Islamic and Shari’a-compliant, respectively. However, 22% of them insist on making a distinction between Isalmicity and Shari’a-compliancy (see Figure 5).

ISLAMIC FINANCE REVIEW | DECEMBER 2017

ISFIRE REPORT

Figure

Is Islamic banking truly Islamic?

344 69%

157 31%

YES

12 2%

Islamic banking is NOT truly Islamic BUT is Shari’a-compliant?

Yes Is Islamic banking truly Shari’a-compliant?

356 71%

145 29%

In a global survey of 1,737 respondents, 501 happened to be those who were currently using Islamic financial services or in the past had used these services. 69% of them viewed Islamic banking to be truly Islamic, while 31% thought it was not. An overwhelming 71% responded affirmatively to the question of Shari’a-compliancy of Islamic banking, and only 29% suggested that Islamic banking was not truly Shari’acompliant. 22% of the respondents in this sub-sample did not see Islamic banking truly Islamic but deemed it truly Shari’a-compliant.

ISLAMIC FINANCE REVIEW | WWW.ISFIRE.NET

Figure

ISFIRE REPORT

Is Islamic banking truly Islamic?

401 45%

484 55%

YES

44 5%

Islamic banking is NOT truly Islamic BUT is Shari’a-compliant?

Yes Is Islamic banking truly Shari’a-compliant?

445 50%

440 50%

In a global survey of 1,737 respondents, 885 were those who had never used Islamic financial services. 45% of them viewed Islamic banking to be truly Islamic, while 55% thought it was not. 50% responded affirmatively to the question of Shari’a-compliancy of Islamic banking, with an equal proportion suggesting that Islamic banking was not truly Shari’a-compliant. 19% of the respondents in this sub-sample did not see Islamic banking truly Islamic but deemed it truly Shari’a-compliant.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

ISFIRE REPORT

Those who have never used Islamic financial products exhibit different opinions than those who have. 45% of those who never used Islamic financial services opined that Islamic banking was truly Islamic, while almost half of them thought it was truly Shari’a-compliant. 19% of them differentiated between Islamicity and Shari’acompliance (see Figure 6). Table 1 summarises the above discussion.

TABLE: 1

SUMMARY OF RESULTS IN TERMS OF GROUPS OF RESPONDENTS IS ISLAMIC BANKING TRULY ISLAMIC?

IS ISLAMIC BANKING TRULY SHARI’A COMPLIANT?

YES

FULL SAMPLES (1,737)

47%

53%

63%

37%

EMPLOYEES (351)

85%

15%

89%

11%

GENERAL PUBLIC (1,386), OF WHICH

37%

63%

56%

44%

USERS OF ISLAMIC FINANCIAL SERVICES (501)

69%

31%

71%

29%

NON-USERS (885)

45%

35%

50%

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ISFIRE REPORT

WHAT IS THE DIFFERENCE BETWEEN ISLAMICITY AND SHARI’A-COMPLIANCE? What is the difference between Islamicity and Shari’a-compliancy in the context of IBF? It will require another survey to find out what exactly the respondents mean by this differentiation. However, it suffices to say that Islamicity has more to do with the spirit of Islamic teachings, while Shari’a-compliancy is related with the letter of the Islamic law. There is some anecdotal evidence that people refer to maqasid al-Shari’a (higher objectives of Shari’a) rather than technicalities of fiqh al-mu’amalat al-maliya (jurisprudence of financial transactions) when referring to Islamicity. If so, then there should not be any meaningful difference between the two terms, as anything Shari’a-compliant should by default be Islamic as well, and vice versa. Furthermore, Islamicity may also be considered as a general terms while Shari’acompliance may be deemed more specific and technical in nature. However, it seems as if the respondents have something else in mind when answering these questions. Thankfully, the number of respondents making this distinction is small. However, this distinction is instructional in terms of understanding of Islamic banking.

ISLAMIC FINANCE REVIEW | DECEMBER 2017

ISFIRE REPORT

KAP ANALYSIS OF UNDERSTANDING OF ISLAMIC BANKING It is interesting to observe that 16% of the respondents in our global survey differentiated between Islamicity and Shari’a-compliancy of Islamic banking. For different sub-samples, the degree of differentiation differed significantly. Table 2 presents the extent of differentiation exhibited by various sub-samples.

TABLE: 2

EXTENT OF DIFFERENTIATION BETWEEN ISLAMICITY AND SHARI’A COMPLIANCE EXTENT OF DIFFERENTIATION

FULL SAMPLES

16%

EMPLOYEES OF ISLAMIC FINANCIAL INSTITUTIONS

GENERAL PUBLIC, OF WHICH

19%

USERS OF ISLAMIC FINANCIAL SERVICES

22%

NON-USERS OF ISLAMIC FINANCIAL SERVICES

19%

The respondents who differentiate between Islamicity and Shari’acompliancy may very well be those who lack an unambiguous understanding of Islamic banking. Based on the data on differentiation between Islamicity and Shari’a-compliancy for the three groups – (a) employees of Islamic financial institutions, (b) users of Islamic financial services, and (c) non-users. Figure 7 presents the summary of results. It suggests that practical exposure to Islamic banking on transactional and operational levels contributes to understanding of Islamic banking the most (50%). This is

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ISFIRE REPORT

followed by attitude (27%) [e.g., religious beliefs and a priori attitude towards Islamic banking]. Knowledge and literacy contribute the least, albeit significantly (23%). It appears as if no less than working on structuring of Islamic banking transactions and practical familiarity with the operations of Islamic banking are effectively helpful for the comprehensive understanding of Islamic banking. Similarly, holding strong religious beliefs lead to favourable understanding of Islamic banking.

The respondents who differentiate between Islamicity and Shari’a-compliancy may very well be seen as those who lack unambiguous understanding of Islamic banking. Employees of Islamic financial instutions are the most consistent in their revelation of Islamicity and Shari’acompliance. Non-employees, however, exhibit almost

Figure

equal levels of inconsistency. Through a formula, we have quantified the contribution of knowledge, general attitude and practical exposure (KAP) to understanding of Islamic banking. Our sample suggests that practical exposure contributes 50% to the understanding of Islamic banking. Contributions of knowledge and general attitude is 23% and 27%, respectively.

91 (50%) 49 (27%)

42 (23%)

Knowledge Factor

Practical Advantage

Attitude Quotient

The least contribution of general knowledge and literacy to the understanding of Islamic banking can be explained with the help of the diverse body of information on social media and in other sources of information. The existing body of literature on Islamic banking is at best confusing. The terms like Shari’a-compliant and Shari’a-based and the debates on whether Islamic banking should be ethical and subscribe to Ethical, Social and Governance (ESG) framework create a lot of uncertainty in minds of people as regards authenticity of Islamic banking.

ISFIRE REPORT

ISLAMIC FINANCE REVIEW | DECEMBER 2017

DETAILED ANALYSIS In addition to a Yes or No to the two questions posed to respondents, they were also asked to give at least one reason behind their answers. These answers are helpful to understand the concepts of Islamicity and Shariâ&#x20AC;&#x2122;a-compliance as envisioned by the respondents. However, to get a conclusive answer on the nature of Islamicity and Shariâ&#x20AC;&#x2122;a-compliance as perceived by people, there is a need for further exploratory and experimental studies. We produce the following groups of responses to the two questions:

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ISFIRE REPORT

IS ISLAMIC BANKING TRULY ISLAMIC? Sample of Answers 1.

Islamic banking can never be perfectly Islamic, as there is no Muslim in the contemporary world who is a perfect Muslim.

Islamic banking is Islamic because its stakeholders have decided to name it as such.

Islamic banking is (almost) exactly the same as conventional banking in terms of economic profiles of its products, but it remains significantly different from conventional banking in processes.

Because Islamic banking is not uniquely Islamic, many practitioners and industry observers have started asking for making it Islam-neutral in nomenclature.

Islamic banking doesn’t in general fulfil maqasid al-Shari’a (objectives of Shari’a) but then other businesses owned by Muslims also are not meant to achieve more than narrow self-interest in terms of pursuit of profit and private gains.

Although Islamic banks attempt to maximise their owners’ interests, there shouldn’t be any credible objections to calling them Islamic.

IS ISLAMIC BANKING TRULY SHARI’A-COMPLIANT? Sample of Answers 1.

Islamic banking is truly Shari’a-compliant.

Islamic banks follow generally acceptable Shari’a principles governing business and finance, and are therefore perhaps the only expressly claimed Shari’a-compliant businesses in the contemporary world.

Islamic banking (and related Islamic financial businesses) is the only example of business that is directly guided by Shari’a scholars.

The distinction between Shari’a-compliant and Shari’a-based is superficial. Banking can either be Shari’a-compliant or Shar’a-repugnant; other classifications don’t make any real sense.

Given that Islamic banking is Shari’a-compliant, both suppliers and demanders of Islamic banking services are involved in permissible business activities.

Being Shari’a-compliant, Islamic banking is for sure better than conventional banking.

If Islamic banking is entirely the same as conventional banking, then conventional banks must start practicing Islamic banking. The fact that they don’t do Sonia a proof that Islamic banks are Shari’a-compliant.

Shari’a-compliancy is technical in nature and it shouldn’t be automatically related with social responsibility. Hence, a Shari’acompliant bank may not necessarily be socially responsible.

Shari’a-compliancy doesn’t come for free. Hence, Shari’a-compliant financial services may in fact be more expensive than conventional banking and finance.

10.

Only Shari’a scholars may proclaim a bank to be Shari’a-compliant.

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The top response to Question 1 suggests that over on-fourth of respondents did not deem Islamic banking to fulfil maqasid al-Shari’a (see Figure 8). Paradoxically, over one-fifth of the respondents said Islamic banking to be truly Shari’a-compliant. This may be confusing as the respondents merely repeated the wording of Question 2 with an affirmative statement. If we ignore this tautological statement, then about

IS ISLAMIC BANKING TRULY ISLAMIC? In response to the above, 1737 respondents gave the following statements, in addition to their YES or NO to the question

26%

20%

11%

Islamic banking is Islamic because its stakeholders have decided to call it Islamic

11%

Islamic banking is not more socially responsible than conventional banking

Although Islamic banks attempt to maximise their owner’s interests, there shouldn’t be any credible objections calling them Islamic

Islamic banking is like another form of business and, hence, should not be called Islamic

Islamic banking is (almost) exactly the same as conventional banking in terms of economic profiles of its products, but it remains significantly different from conventional banking in processes

Islamic banking doesn’t in general fulﬁl maqasid al-Shari’a

More needs to be done to make Islamic banking truly Islamic

Islamic banking has proven to be more stable than conventional banks

Islamic banking can never be perfectly Islamic, as there is no Muslim in the contemporary world, who is perfectly Muslim

Figure

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one-fifth of respondents found Islamic banks to follow generally acceptable Shari’a principles governing business and finance. They also thought that Islamic banking was the only form of business that was expressly proclaimed to be Islamic by shareholders/owners (see Figure 9).

Figure

IS ISLAMIC BANKING TRULY SHARI’A-COMPLIANT? In response to the above, 1737 respondents gave the following statements, in addition to their YES or NO to the question

21%

19%

13%

11%

Islamic banking is truly Shari’a-compliant

Islamic banks follow generally acceptable Shari’a principles governing business and ﬁnance, and are therefore perhaps the only expressly claimed Shari’a-compliant businesses in the contemporary world

Islamic banking (and related Islamic ﬁnancial businesses) is the only example of business that is directly guided by Shari’a scholars

Islamic banking can either be Shari’a-compliant or Shari’a-repugnant; other classiﬁcations dont make any sense

Given that Islamic banking is Shari’a-compliant, both suppliers and demanders of Islamic banking services are involved in permissible business activities

Being Shari’a-compliant, Islamic banking is for sure better than conventional banking

If Islamic banking was entirely the same as conventional banking, then conventional banks must start practicing Islamic banking; the fact that they don’t do so is a proof that Islamic banks are Shari’a-compliant

Shari’a-compliancy is technical in nature and it should not be automatically related with social responsibility; a Shari’a-compliant bank may not necessarily be socially responsible

Shari’a-compliancy does not come for free, and hence Shari’a-compliant ﬁnancial services may in fact be more expensive than conventional banking and ﬁnance

Only Shari’a scholars may proclaim a bank to be Shari’a-compliant

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WHO QUESTIONS AUTHENTICITY OF ISLAMIC BANKING THE MOST? It must be stressed that the survey found an overall positive response on Islamic banking in terms of Islamictiy and Shari’a-compliance. However, there were certain groups whose responses could be deemed as a criticism of Islamic banking. The reasons given by the respondents in support of their Yes or No answers were further analysed to find out which group of the respondents questioned the authenticity of Islamic banking the most. It was not surprising to see that the bulk of criticism on Islamic banking was lodged by those associated with the universities and other institutions of higher learning. More than half of students and academicians gave reasons that could be grouped into criticism on Islamic banking.

Figure

30%

23%

19%

13%

11%

Students

Academicians

Conventional bankers and ﬁnance professionals

Employees of Islamic ﬁnancial institutions

Others

WHO QUESTIONS AUTHENTICITY OF ISLAMIC BANKING THE MOST?

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It is important to clarify Figure 10, as the results should be treated in a context. It must be clarified that there were only 357 respondents whose response could be deemed as to construe questioning authenticity of Islamic banking. This is a relatively small number (over 20% out of 1,737). However, this is not negligible. Table 3 provided further details on the respondents who questioned authenticity of Islamic banking.

TABLE: 3

GROUP-WISE RESPONSE ON AUTHENTICITY OF ISLAMIC BANKING NUMBER OF RESPONDENTS IN THE TOTAL SAMPLE

NUMBER OF RESPONDENTS QUESTIONING AUTHENTICITY OF ISLAMIC BANKING

PERCENTAGE CONTRIBUTION TO RESPONSE

STUDENTS

113

107

30%

ACADEMICIANS

23%

CONVENTIONAL BANKERS

196

19%

EMPLOYEES OF ISLAMIC BANKS

351

13%

1,030

11%

1,737

357

100%

OTHERS SHARI’A SCHOLARS TOTAL

CONCLUSIONS The above analysis suggests that Islamic banking is perceived to be Islamic and Shari’a-compliant by different stakeholders. The staunch supporters of Islamic banking are actually employees of Islamic financial institutions and Shari’a scholars. Also, it is interesting to note that a priori religious beliefs happen to favour understanding of Islamic banking. The general knowledge about Islamic banking is important but it is also creating a lot of confusion around the phenomenon.

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CAMBRIDGE-IFLP

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The steady progress from niche to mainstream indicates the strong demand for Islamic financial instruments at the global level. With further internationalisation of the industry, the need for highly skilled staff is a significant challenge as the lack of qualified talent can impede the industry’s growth. What is more worrying is the widening leadership gap that threatens the sustainability of the global Islamic financial services industry.

Dato’ Izani Ghani being interviewed by Professor Humayon Dar Recognising the critical need to address leadership gap that is prevalent in the industry, Cambridge IF Analytica launched its Islamic Finance Leadership Programme (IFLP) with the first programme held in 2013. “The objective of this programme is to nurture the right type of talent for the industry that is clearly facing shortage of high-quality human resources especially at the top and senior management levels,” said Dr Sofiza Azmi, CEO of Cambridge IF Analytica and Programme Director. “Through our annual leadership programme, we hope to close the ever widening leadership gap that continues to persist in the global Islamic financial industry”, she added. “The leadership programme aims to prepare the next generation of leaders by providing them with a unique mentoring opportunities, rigorous leadership training from renowned leaders as well as industry-specific case studies in Islamic finance,” explained Professor Humayon Dar, Founder of Cambridge IFLP and Chairman of Edbiz Corporation. This summer, Cambridge IF Analytica successful completed its 3rd edition of Cambridge Islamic Finance Leadership Programme (“Cambridge-IFLP”), which was held from August 13-18, 2017, at Clare College, a member of the University

of Cambridge syndicate. Founded in 1326, Clare College is the second oldest college at the University of Cambridge. Cambridge-IFLP enjoys the reputation of being the first and the only global leadership programme specifically structured for middle and upper-middle management personnel of Islamic financial institutions. Designed and structured by Cambridge IF Analytica, the programme is delivered by some of the most influential leaders in Islamic banking and finance. A total of 50 delegates, speakers and mentors from 15 countries from the US, Europe, Middle East and Asia participated in the 5-day residential programme. The Programme includes Leadership Interviews, Leadership Activities, Leadership Talks, Leadership Walk and Case Study. Notable mentors and speakers included Iqbal Khan (CEO of Fajr Capital), Iyad Asali (General Manager of Islamic International Arab Bank, Jordan), Mohamed Amersi (Chairman and Founder of a number of telecom companies and a pioneering personality in Islamic legal documentation) Rafe Haneef (CEO of CIMB Islamic Bank), Stella Cox (CEO of DDCAP, UK), Dato’ Izani Ghani (Executive Director of Khazanah Nasional Berhad), Dr. Hamed Meerah (Secretary General of Accounting & Auditing Organisation for Islamic

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Islamic finance resonates clearly with the 2030 Agenda and unleashing its potential is an opportunity for sustainable development that cannot be missed. - Rafe Haneef

Financial Institutions, Bahrain), Dr. Zahid Parvez (Principle of Markfield Institute of Higher Education, UK), Professor Mehmet Bulut (Vice Chancellor of Istanbul Sabahattin Zaim University, Turkey), Professor Mehmet Asutay (Professor of Islamic Political Economy at Durham University Business School), and Dato’s Dr Mohd Daud Bakar (Chairman of Amanie Advisors). The Cambridge-IFLP is uniquely designed to expose participating middle and upper-middle management personnel of Islamic financial institutions to the well-established Islamic banking and finance leaders. Hence, the pedagogical methodology applied to the Programme gives priority to real-time leadership perspectives, implicitly assuming that leadership is more like an art rather than a science. “We believe that leadership can best be understood by studying and closely observing the leaders themselves. Hence, our programme has been designed to allow our delegates to benefit from the presence of a number of mentors who are leading personalities in the global Islamic financial services industry,” said Dr. Sofiza Azmi. “Leadership workshop, along with interactive social activities and Leadership Activities, allow the delegates to seek mentorships and develop relationships with these leaders as delegates will be able to interact with them formally and informally.”

The 3rd Cambridge-IFLP was

A STAR-STUDDED PROGRAMME, with CEOs of Islamic financial institutions and Shari’a scholars serving as mentors. “We studied all the top executive and leadership programme offered by the top universities in the world, and concluded that the existing programmes are too academic and principally taught by professors who may not have sufficient practical knowledge and understanding of organisational level issues,” said Dr. Sofiza Azmi, Programme Director of Cambridge-IFLP. “Ours is a leadership programme with an exclusive focus on practice, led by practitioners,” she continued. For this year’s programme, Cambridge-IFLP included 8 Leadership Interviews, 7 Leadership Talks, 3 Leadership Dialogue, 2 Leadership Workshops and 3 Leadership Activities. Leadership Interviews provided great first-hand insights into leadership values, philosophies and qualities as well as an opportunity for delegates to flesh out questions to the leaders themselves. When asked to identify key values that a leader needs to have; Iyad Asali stressed on integrity, and satisfying all stakeholders including staff, clients, owners and Allah swt. He also emphasised on safeguarding the interest of all stakeholders as goal of a sustainable business.

And the punting we go!

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A very energetic group of leaders Khazanah Nasional continues to play a leading role in the development of Islamic finance, especially in sukuk issuance where it continues to pioneer world’s first and most innovative sukuk issuances and structures. Dato’ Izani Ghani shared his leadership journey at Khazanah and Khazanah’s role as a catalyst for Islamic finance. Dr Hamed Hassan Merah shared his leadership role at AAOIFI and the leadership role of AAOIFI in setting international standards for the global Islamic finance industry. With a number of Leadership Talks given by industry leaders, the delegates benefitted from in-depth knowledge and understanding from industry experts on how to develop themselves into effective and influential leaders in their respective organisations and in the global Islamic financial services industry. “It is always a treat to listen to the likes of Iqbal Khan whose inspiring concluding speech at the 2017 Cambridge-IFLP was the perfect closing of the programme,” said Professor Humayon Dar. Leadership Talks covered wide range of topics and perspectives including structuring and product development, human resource development, and leadership perspectives. Professor Mehmet Asutay highlighted the need for Islamic finance industry to innovate by developing new products but at the same time “doing things differently”; for which he stressed that “transformational leadership must be the model for the development of leadership for the sustainability of Islamic finance industry.” His leadership talk centred around the need for transformational leadership through knowledge creation for the sustained development of Islamic finance. Thus, for the innovative nature of the industry, the industry needs to develop new generation of leaders who can ‘flow without blurring and freezing’ by saying and by conducting new practices and institutions. Professor Asutay went on to explain that “the development of leadership for the industry is only possible through research as well as action based policy research.” He added that “education of the new generation of Islamic financiers should be beyond theoretising the experience of the banks but developing new capacities through research.” Rafe Haneef shared his views on the future of Islamic finance for which he stressed on the need for the industry to progress from “what is permissible” to “what is sustainable”. The core principles of Islamic finance are the main tenets of the 2030 Agenda for Sustainable Development and are similar to those of impact investment: inclusiveness, equitable and participatory growth, social and distributive justice, open and accountable institutions, sustainability and women’s empowerment. “Since Islamic finance resonates clearly with the 2030 Agenda and unleashing its potential is an opportunity for sustainable development that cannot be missed,” said Rafe Haneef. “However, at present, Muslims neither lead nor actively participate in global sustainability standards,” he added. Although the principles of Islamic finance require promotion of environmental and social goals, the industry has not contributed to these factors significantly. Moving forward, Islamic financial institutions need to change their orientation by incorporating ESG factors in the broader concept of Shari’a compliance as a key business driver.

Collage

Men in black

Professor Humayon Dar with Haimee

Iqbal Khan delivering his Keynote Leadership Speech

Dr Zahid Parvez talking about Islamic Leadership Delegates anxiously waiting for the whole grilled lamb to arrive

More discussions during coffee break

Professor Humayon Dar presenting a token to Professor Mehmet Asutay

CEOs of Spaghetti Inc

Farshad Cader joined the Cambridge IFLP Hall of Fame

Leadership punt they say

Leaders capturing memories at Old Court, Clare College

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Much to be discussed to move the industry forward Talking on the subject of “Islamic Leadership in a Globalised World”, Dr Zahid Parvez said that living through a period of unprecedented and transformative change requires new visions for leaders to be successful and greater ability to adapt due to continuous change. This involves adopting new approaches, acquiring new skills and new tools as changing environments will demand new and changing organisational structures (ways of organising) and new ways of leading. Hence, three leadership competencies are required for future leaders include leading self, leading people and leading organization. Dr Parvez also explained the fundamental differences between conventional leadership and Islamic leadership. Whilst the orientation of conventional leadership is premised on material success, relativism and duniya (short term), Islamic leadership according to Dr Parvez “achieve goals through God oriented (seeking pleasure of God), value and principle oriented (universal) and akhirah oriented, i.e. maximisation of long-term benefits by considering implications of present actions on long-term benefits such sustainability, justice, human well-being. Hence, Islamic leadership places greater emphasis on soft factors such beliefs and values; knowledge and insights that provide foresight and wisdom (hikmah); and personal abilities and competencies. He explained that belief and values include iman (vision and conviction), niyyah

(motivation and drive), taqwah (conscious of moral behaviour/ conduct), shura (considering issues from multiple perspective), tawakkal (confidence, courage, trust in Allah that enables sabr and sacrifice) and muhasibah (evaluation, learning from doing, accountability). Datuk Dr Mohd Daud Bakar shared some interesting insights into leadership lessons from Emirates Airline Sukuk, which is based on his award-winning book titled “Emirates Airline Sukuk”. He presented 10 critical points of leadership which amongst them are ‘think and do big for a better impact’, ‘make necessary connection to the ecosystem’, ‘have big picture mentality’, ‘lead by sharing not by imposing’ and ‘engage with new and relevant stakeholders’. The Keynote Leadership Speech by Iqbal Khan was inspirational as well as motivational. He highlighted the visionary work of the Islamic finance industry’s pioneers and discussed the many leadership lessons from their achievements. These include ‘work for your passion, not your pension’; ‘never underestimate the power of dedication, humility, and hard work’ and ‘those who serve others are blessed beyond measure’. He concluded that although industry pioneers had many unique characteristics, they collectively shared an important vision and objective, which is to create, sustain, and advance values-based and impact-focused industry institutions.

A network of high-lev

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Celebrating Syed Alwi’s birthday He further added that “Islamic finance industry has been fuelled by pioneering institutions and industry-building organisations – many of whom continue to drive the industry forward.” Some of the pioneering institutions he referred to were Khazanah Nasional, IRTI, Kuwait Finance House, IFSB and Durhan University. Iqbal Khan stressed that “these industry institutions act as the glue that holds the wall and wallpaper together. We need to learn from our successful institutions and build on their achievements.” Some of the lessons presented were: •

Democratise knowledge, and create industry-wide graduate trainee programmes for the next generation of leaders

•

Create a “brown bag” culture in order to spread light, liberty, and learning across our institutions and industry

•

Create enduring value and maximum impact – for shareholders, employees, markets and constituent communities

•

Make it easy to do business: Thinking outside the box to innovate, improve service, and ultimately benefit the customer

•

Focus on excellence and execution, without compromising on values

Delegates enjoying lunch at the Great Hall

evel

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He also pointed out that the Islamic finance industry and its industry institutions have come a long way since its early years. However, the industry still has a long way to go in order to meet the hopes and aspirations of the industry’s pioneers. “How do we progress Islamic finance in authenticity and reach and create a global demonstration effect to drive our industry towards the next stage of its evolution?” put forward by Iqbal Khan. According to him, in order to create a truly global demonstration impact, the Islamic finance industry’s future leaders must focus on building, maintaining, and supporting industry-building institutions. In concluding this speech, he reminded the delegates that although “we cannot influence the things that are not under our control, we can control our very own sphere of influence: salah, good deeds, people whom we touch, dominant thoughts or ideas and people whom we spent the most time with.

When great leaders meet great things happen

During the 5 days at Clare College, delegates took part in several social activities that are a must on the “to do” list when one is visiting the University of Cambridge. This included punting on the River Cam and enjoying one of Shakespeare’s famous play at King’s College garden. Every year, the university holds Cambridge Shakespeare Festival and this year marks the 30th year of the event. During the garden party held at the Scholar’s Garden, delegates had the opportunity to enjoy the British summer weather while at the same time horned their leadership skills during the Cambridge IFLP Treasure Hunt activity organised on the college grounds. This year, six Cambridge Islamic Finance Leadership Awards were announced. Winners were selected based on their active involvement and participation during the entire programme, the originality of ideas expressed and shared, demonstrated superior leadership qualities in all activities conducted and were of great inspiration and role model to others. The winners included: Saif Hamdan Al Alkeem, Head of Priority Banking for the UAE at Abu Dhabi Islamic Bank (ADIB); M. Farshad Cader, Senior Manager/Head of Financial Institution at Kuwait Finance House (KFH); Muhamad Yusri Wahsalfelah, Deputy Head, Government Relations and Special Projects at Bank Islam Brunei Darussalam (BIBD); Irwan Abdalloh, Head, Islamic Capital Market Development at Indonesia Stock Exchange; Obeid Ruff, Islamic Finance Attorney from USA; and Marina Mardi, Assistant Vice President Finance at Khazanah Nasional Berhad.

Leadership game - Build a tower, build a team

These awards were given to outstanding delegates who had demonstrated exceptional leadership qualities during the programme, participated actively and constructively in all discussions, and their inputs added value both to the programme and other delegates. All delegates received their certificates from Dr. Hamed Meerah, Secretary General of AAOIFI, whilst the Cambridge Islamic Finance Leadership Awards were presented by Iqbal Khan of Fjar Capital.

Quotes from the

DELEGATES Mohammad Yusri Wahsalfelah Deputy Head, Government Relations and Special Projects Bank Islam Brunei Darussalam “Firstly, I would like to take this opportunity to sincerely thank my institution Bank Islam Brunei Darussalam (BIBD) for giving me the best opportunity to be enrolled in the 3rd Islamic Finance Leadership Programme (IFLP) held at Clare College, University of Cambridge, United Kingdom. IFLP in my humble view is a programme one of its kind of which it brings in successful people, businessmen and visionaries to sit together and share their real life stories that shaped and changed not only them but also the Muslim as well as the world community as a whole. It is a visionary and forward looking programme of its kind to well equip Islamic finance practitioners in the real world. It is an excellent platform for all participants to exchange thoughts, experiences, pose hard questions and share real issues as well as challenges with the aim for everyone not only to learn but most importantly to gain wisdom towards creating a steady path and opportunities for Islamic finance as a leading, right and crucially blessed platform for businesses to grow further. The programme has successfully achieved its noble cause and has created harmony and fostered strong brother/sisterhood to all participants, speakers as well as volunteers of the programme. This is key as via strong and mutual understanding, cohesiveness as well as good spirit of humanity, all difficulties and challenges can be overcome together. Finally, I would like to take this opportunity to convey my deepest appreciation to Professor Humayun Dar and Dr Sofiza Azmi of Cambridge IF Analytica for their tireless efforts in promoting Islamic finance as guided way of Muamallah. May Allah S.W.T help and bless them and the entire Muslim ummah towards achieving “Baldatun Tayyibatun Wa Rabbun Ghafur”.

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M. Farshad Cader Kuwait Finance House (KFH) “The Cambridge IFLP was a phenomenal and unique experience, a must attend leadership programme for all the budding or aspiring future leaders in the Islamic banking and finance discipline. I, firmly believe that Cambridge IFLP will help to inculcate the Islamic facets of leadership coupled with banking acumen. I was overwhelmed by the choice of speakers, blend of the areas or subjects covered and the great networking opportunity with an audience across the globe. I was truly honoured to be part of IFLP 2017.”

Obeid Ruff Islamic Finance Attorney and Certified Fraud Examiner, Washington, USA I had high expectations for this programme, which Cambridge IFLP greatly exceeded. Not only was I able to learn more about industry issues I had questions about, but I was interacting with the literal product developers and compliance advisors on those exact issues! The programme format and the professionals I was able to engage with at Cambridge IFLP is the best professional educational endeavour I have pursued. While in attendance I collaborated on a PhD project, developed 2 bank products, and joined a network of high-level professionals who I remain in contact with and anticipate will remain life-long friends. This programme is an experience that becomes part of a foundation and networking movement, and delivers far more than a week long event.”

Quotes from the 90

Quotes from the

DELEGATES Marina Mardi Assistant Vice President Finance Khazanah Nasional Berhad “The Cambridge IFLP is a good platform to be in the same room with well established Islamic Finance’s leaders from different backgrounds - this being heads of financial institutions and well known shariah scholars. They were willing to spare some time from their busy schedule to share their knowledge and experiences with the delegates of IFLP. Delegates were filled with latest updates from Islamic Finance in a very comprehensive discussion mode. With a quality list of delegates, IFLP has step to another level on giving a high standard leadership training with focus on Islamic Finance. From friendly facilitators to casual interaction between delegates and speakers, I personally felt like family with everyone involved in the Programme and I think this is the x factor of this Programme. Congratulations Cambridge IF Analytica for a thoughtful experience!”

Cambridge

MBRID

Analytica

IFLP

4th

CAMBRIDGE

ISLAMIC FINANCE LEADERSHIP PROGRAMME

JULY 29 - AUGUST 3, 2018

C L A R E CO L L E G E , C A M B R I D G E

Leadership Talks Leadership Activities The Cambridge Islamic Finance Leadership Programme (Cambridge-IFLP) aims to prepare the next generation of outstanding leaders in

Leadership Interviews

Social Activities

Islamic banking & ﬁnance by providing them with unique mentoring opportunities, rigorous

Cambridge Cases

leadership training from renowned leaders, and industry-speciﬁc perspectives through case studies speciﬁcally written for this programme.

Leadership Workshops

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