A clear direction for growth

Chief Executive Officer of Bahrain Islamic Bank (BisB), Hassan Jarrar points out that while there remain sectors where Islamic Finance can grow, there are areas of concern in today’s world where it has a distinct lead, and that creating the right stewardship directives and with good insights, it can be more robust in the face of uncertainty

Hassan Jarrar, Chief Executive Officer, BisB

Sukuk instruments remain more complex and time consuming for issuers when compared with conventional bonds, so do you expect to see meaningful moves toward streamlining of Sukuk issuance to heighten attractiveness?

Despite the overall developments we have witnessed within the Islamic capital market space, tapping into Sukuk instruments still remains both challenging and time consuming compared to their counterpart conventional bonds.

The fact is, although the ongoing pandemic COVID-19 is a force to be reckoned with and unlike anything the world at large has had to deal with in terms of the sheer consequences and the breadth of its economic impact that reverberated around the world, it has further cemented what we had learned and had historically established from previous crises, in the likes of the collapse of oil prices back in 2014.

What the pandemic has further cemented, is that when issuers need faster access to capital markets they typically use conventional instruments - the first half of 2020 saw total volume of Sukuk issuances drop 38% compared with the same period in 2019; exceptions include issuers that have already established programs or can tap a recent issuance.

Do you see the GCC/Middle East taking a lead over other Islamic finance centres in Islamic financial activity and innovation as the world emerges from the pandemic?

We have yet to emerge unscathed from the ongoing COVID-19 pandemic, which has had an unprecedented effect on banks, industries, countries, and individuals around the world. Moreover, we have all had to deal with headwinds, and this overarching climate of uncertainty can be expected to persist throughout the first half 2021, and possibly beyond, bringing significant challenges for the banking industry.

In terms of size, in light of the recent wave of mergers sweeping across the GCC, particularly in the Kingdom of Saudi Arabia (KSA), I do foresee the GCC taking the lead.

However, on the innovation and digitisation front, leadership and competitive advantage is expected to remain with Islamic institutions in Southeast Asia, mainly Malaysia. With that said, competition remains robust among the likes of Bahrain, Dubai and KSA, each vying to become the Islamic banking hub of the region.

Do you think that the principles of Islamic finance are better suited to the economic recovery of nations post -pandemic?

I think the very principles of Islamic finance, if adhered to properly, are suitable for any economic cycle. We have observed back in the 2008 global financial crisis, that what happened to institutions as a result of some leverage related practices, would not have happened had those instruments been Islamic in nature.

The challenge for Islamic banks is that they must continue to adhere to prudent risk practices while balancing charitable and donation activities aimed at supporting small businesses and charitable organisations.

If there is anything to be learned in a post COVID-19 world, it is that we have to start creating stewardship directives that have a purposeful combination of insights – that come not only from

historical data and resilience research, but in anticipating the unexpected in order to create an ecosystem of services that are more robust against future uncertainty.

Would global common standards be a boost for the wider uptake of Islamic financial services and the financial markets of Islamic nations?

A global set of standards that would be acceptable to all stakeholders is still lacking while the Accounting and

I THINK THE VERY PRINCIPLES OF ISLAMIC FINANCE, IF ADHERED TO PROPERLY, ARE SUITABLE FOR ANY ECONOMIC CYCLE

In the light of the rise of ESG considerations and socially responsible business and investments, do you predict a burgeoning role for Islamic Finance in global financial activities?

In my view, the basic principles of Islamic banking, or as it should be referred to more accurately as ethical banking, go hand in hand with initiatives such as ESG.

The whole idea of conservation, discouragement of excessive waste, community involvement, cleanliness and care for earth and the environment are all ideas, which Islamic teachings continue to stress at its very core.

Several Islamic banks have already launched ESG related finance programs. That said, we are from reaching the finish line and much more work needs to be done for us to witness any sizeable activities of substantial scale.

Auditing Organization for Islamic Financial Institutions (AAOIFI), the Islamic Financial Service Board (IFSB), and the International Islamic Financial Market (IIFM)-are working together to drive this agenda.

Such critical reviews of existing standards and the adoption of an inclusive approach taking on board the views of all stakeholders would ultimately lead to standardization of the full spectrum of Sukuk (from fixedincome-like instruments to equitylike) factoring the requirements of regulators, sukuk issuers, and investors in addition to the legal aspects of it. When Sukuk issuance become comparable with conventional instruments, from both a cost and effort perspective, naturally they will then find a more prominent place on the books of issuers and investors.