A Growth Trajectory

Zeeshan Awan Head of Islamic Banking at NBF responds to questions from MEA Finance about the direction of travel and development of Islamic Finance in the world of today, highlighting digital innovation as a positive, the complimentary natures of Sharia principles with ESG principles and how standardisation could add to the growth of Islamic Finance

Will digital transformation help to grow the market share of Islamic Finance in the region and the wider world?

We tend to agree on this. Digital transformation is impacting the dimensions of the financial market, where it is changing the way customers interact with financial institutions. In this setting, Islamic finance is part of this ecosystem and is being impacted too. Digital transformation is already changing and improving customers’ digital experience and will further improve the efficiency of processes for financial institutions, thereby reducing costs and better pricing for customers.

At NBF, we see ourselves as a financial partner for clients across their professional and business needs. Although many have seen an acceleration in digital transformation plans as a result of the pandemic, we have been on this path long before. In fact, we have made significant advancements in digitization resulting improved customer experience, enhanced efficiency and optimisation, improved security and better resilience. We are also at the forefront of many of the country’s efforts to become a cashless society. We went live with the Emirates Digital Wallet ‘klip’, a cashless payment application that allows customers to store, transfer and conduct payments in a seamless and secure manner.

Zeeshan Awan, Head of Islamic Banking at NBF

That said, banks are required to maintain caution when navigating an ever-evolving environment with unprecedented risks and challenges. At NBF, we believe we can achieve this by leveraging our multi-sector expertise and acting as the financial partner for our clients.

Are Shariah-compliant social principles appealing to investors whose decisions are following ESG principles?

ESG investing and Islamic investments may be united in one investment opportunity, given that they are both guided by principles of morality, transparency and fairness. Hence, it is possible for an investment to be both sharia compliant and ESG compliant.

Islamic finance and ESG investing are complementary capital-raising and investment approaches with many shared principles, such as being a good steward of society and the environment. With many more similarities than differences, both offer products that serve Muslim and non-Muslim investors alike and both possess strong practices and policies that each can learn from the other. growth in the Sukuk issuance beyond 2022. Islamic finance is on the rise and the appetite for such financial instruments will be more appealing to investors in the coming five years.

In the current economic environment, will we see increased M&A activity between Islamic Banks in the region? Do you feel that the universal standardisation of Islamic Finance is a realistic prospect?

How do you predict the rate of Sukuk issuance in the region will change in the coming five years?

According to the recent “Fitch Rating” report, Sukuk volumes are expected to grow in 2022 and remain a key financing source in core Islamic finance markets. Growth will be anchored by robust Islamic investor appetite, funding diversification goals and Islamic-finance development agendas in a number of countries. We stand by this report predicting further We have already seen an active M&A movement between regional banks in the UAE. This consolidation is generally seen to benefit the merged banks and the overall market structure in terms of stronger pricing power, more investment capability, lower funding costs and greater profitability. We expect further M&A activity in 2022 and the continuity of this consolidation amongst banks whether Islamic or not Islamic banks. According to “Fitch Ratings”, M&A activity is expected to grow in 2022 as many Islamic banks have weak franchises lacking strong competitive advantages, particularly in pricing, cost of funding and growth opportunities, a prediction that we are in favour of.

ISLAMIC FINANCE AND ESG INVESTING ARE COMPLEMENTARY CAPITAL-RAISING AND INVESTMENT APPROACHES WITH MANY SHARED PRINCIPLES

To an extent yes. Standardization helps the industry players with quick solutions for the plain vanilla type of products. However, each market has its own dynamics. The market should develop broad standards and it should be left at the discretion of Shari’ah scholars to interpret these standards given the circumstances of the market.

Universal standardisation of Islamic finance practices on the other hand helps the ESG investing. However, challenges of the “integrated framework” remain a key part of this equation to achieve better harmonisation. Addressing these types of challenges would facilitate the ongoing growth of Islamic Finance and its standardisation: the need for standardisation, establishing frameworks that facilitate green Sukuk issuance, and ensuring investor protection.