Scholar calls for global shari'ah compliant dispute resolution mechanism

Islamic finance scholar Professor Dr Akram Laldin from Malaysia has said there is a need for a global shari'ah compliant dispute resolution mechanism at the eighth Shari'a Scholar session hosted by The Waqf Fund, a Bahrain-based special fund to support Islamic finance training, education and research.

Dr Laldin is a board member on Bank Negara Malaysia's Shari'a Advisory Council, AAOIFI and a number of Islamic financial institutions in Malaysia and globally.

Dr Laldin also stressed that shari'ah scholars hold heavy responsibility and should be proactive in developing themselves through continuous training, not just in shari'ah but also in relevant areas such as economics, finance, banking, accounting, and law in order to be able to give a religious verdict after full knowledge and understanding of the matter.

According to Dr Laldin, several key challenges are seen in shari'ah compliance, suggesting the need for a global dispute resolution body, which does not exist at this time:

• Conventional mindset of key decision-makers and a lack of conviction and belief in what they are doing
• Not following the right process
• Copying conventional products without due consideration to shari'ah
• Implementation challenges in the absence of understanding of shari'ah
• Lack of understanding of shari'ah by the auditors
• Advertising and promotion not in line with shari'ah
• Restructuring products or transactions without ensuring shari'ah compliance

More SMEs in halal industry should embrace Islamic finance

Source: WHS website.

While Islamic finance and the halal industry are clearly complementary, both being based on shari'ah compliance, they diverge more often than converge, said panellists at the Breaking Down the Silos – Halal Food and Islamic Finance plenary discussion, which is a part of the World Halal Summit 2015 Business Forum.

Moderator Rushdi Siddiqui, CEO of Zilzar Technology said, “Halal food makes up 20% of the world’s food production, and yet so (few) of the halal industry players actually use Islamic financing to fund their businesses.”

Badlisyah Abdul Ghani, CEO of CIMB Islamic Bank said that only 5% of halal industry players actually use some form of Islamic financing. He also pointed out that convergence is the best way to ensure the sustainability of each sector in the long term.

As the halal food industry is currently highly fragmented and primarily dominated by SMEs in Muslim countries, more niche Islamic banking facilities are needed. Rushdi suggested the creation of an Islamic bank catered exclusively for SMEs as a way forward to meeting the needs of SMEs in Muslim countries.

It was also pointed out in the session that consumers often misunderstand the guiding philosophy of a halal product. It is about creating an ethical value chain for the product, right from its inception to its place on a store shelf, and that includes the manner in which funds were procured to finance and sell the product.

There is much to be done as well to educate SMEs on the advantages of utilising available Islamic financing facilities. In Malaysia for example incentives such as a 100% stamp duty exemption are available to users of Islamic financing services.

posted from Bloggeroid

Upcoming Islamic finance masterclasses in Jakarta, Singapore and Malaysia

RHT Academy, RHTLaw Taylor Wessing, Taylor Wessing, and Azmi & Associates are co-organising masterclasses across two days on Islamic finance in Indonesia, Singapore and Malaysia in March and April 2015. 

Titled Islamic Finance: Contemporary Challenges 2015 & Masterclass, the Singapore event will be held on 26 and 27 March 2015 at the Suntec Convention & Exhibition Centre while the Kuala Lumpur event is planned for 6 and 7 April at the JW Marriott, Kuala Lumpur. The Jakarta event is to be on 30 and 31 March, with the venue yet to be confirmed; 

The events are ideal for C-suites and business leaders as well as legal and compliance leaders, and will cover questions such as:

• How will shari’ah structures be affected by the vision of ASEAN Economic Community? 
• With the newly elected Indonesian President, what are the possible regulatory developments for Islamic finance in Indonesia? 
• How will the advancement of technology enforce shari’ah compliance?

Speakers include Nizam Ismail, Partner in Banking & Finance and Corporate, RHTLaw Taylor Wessing and Director, RHT Compliance Solutions; Mohammad Ridzuan Abdul Aziz, Director, RHT Compliance Solutions; Sherroy Ong, Associate Director, RHT Compliance Solutions; Vernon Loh, Partner. Banking & Finance, RHTLaw Taylor Wessing; Hamid Yunis, Partner, Head of Global Islamic Finance Practice (UK), Taylor Wessing; Habib Ullah, Partner, Head of Banking & Finance (Middle East), Taylor Wessing; Nada Jarnaz, Senior Associate, Taylor Wessing; Ahmad Lutfi Abdull Mutalip, Partner, Azmi & Associates; Erwin Winenda, Partner, Hanafiah Ponggawa & Partners; and Dr Emir Hrnjic, Director of Education and Outreach - CAMRI, NUS Business School, National University of Singapore.

For more details, please contact Ms Raihan Roslan at +65 6381 6987 or email raihan.roslan@rhtlawtaylorwessing.com. Registrations before February 28 in Singapore enjoy a discounted rate. Group discounts are available.

Ethica calls for more job experience opportunities in Islamic finance

Dubai’s leader, Sheikh Mohammed bin Rashid al Maktoum, has listed 2016 as the year Dubai should establish itself as the capital of the US$8 trillion global Islamic economy. What this means in practical terms for the world’s 2 billion Muslims was the theme of December's inaugural Industry and University Partnership (I-UP) Forum 2014 at Dubai Knowledge Village.

At the forum Ethica Institute of Islamic Finance, a training and certification institute, commented on the need for more internship opportunities and other job creation initiatives. 

Azhar Mirza, CEO of Jardine Human Capital, noted, “Ethica is at the front lines of job training and they made some important points. There seems to be a lack of job creation in the space. To an outsider and on the charts and tables there is a perception that there are plenty of job opportunities in the space. The reality is far different. There are in fact exceptionally well qualified and experienced individuals who are unable to find positions in suitable organizations. Companies are simply unwilling to offer internship or work experience opportunities.”

In addition to a need for more hiring opportunities, delegates discussed the need for legitimate third-party standards. Some noted that if Dubai seeks to establish itself as the capital of the Islamic economy, it must first begin regulating its own banks for minimal shari'ah compliance, at least to the satisfaction of AAOIFI, the Islamic finance standard followed by over 90% of the world’s Islamic finance jurisdictions. 

One Islamic finance analyst said: "In Islamic finance, we don’t need more institutions, we need more quality. The level of Islamic finance training is either too academic, and therefore not sufficiently practical, or too far removed from Islamic finance, focusing entirely on banking, as the case in most universities with strong finance programmes but almost no complementary Islamic finance programme.”

2015 looks bright all round for Islamic banking and finance

The Islamic banking and finance market exceeded US$2 trillion in assets globally, strengthening in traditional markets such as Malaysia, Pakistan and the Middle East, and expanding into other destinations for the first time, including in Korea, Australia, and China, says the AlHuda Centre of Islamic Banking and Economics (CIBE), an advisor and consultancy for Islamic finance. 

According to the organisation, countries which recently entered into Islamic banking and finance have also shown good progress, including Azerbaijan, Kazakhstan, and Oman. 

Muhammad Zubair Mughal, Chief Executive Officer, AlHuda CIBE, predicts that the market could exceed US$2.5 trillion dollars in 2015, estimating that Islamic banking will account for 86% share, with sukuk (6%), Islamic funds (4%), takaful (2%), and Islamic microfinance (1%) rounding out the remainder of the pie. 

He added that there are more than 1,500 organisations offering Islamic financial services in more than 90 countries worldwide, and that non-Muslim countries take up 40% of this share. On the other hand, Muslim countries including Qatar, Saudi Arabia, UAE, Malaysia, Pakistan, Indonesia dominate in global Islamic banking, contributing 76% of the market. 

Muhammad Zubair Mughal forecast rapid growth of the sukuk market in 2015, and said it could be worth as much as US$150 billion. The Islamic fund market could be valued at US$100 billion. Takaful will contribute a more modest US$20 billion in 2015, a 15% growth rate, with India named as one of its new destinations. Islamic microfinance will also see a positive year, the CEO said. 

AlHuda CIBE wants to help bring Islamic finance to Japan

Japan, the third-largest national economy in the world, could improve its financial position internationally and regionally by supporting Islamic banking and finance, says Muhammad Zubair Mughal, Chief Executive Officer, AlHuda Center of Islamic Banking and Economics (CIBE).

Speaking at the Japan Halal Forum in Tokyo and at meetings in Japan, Muhammad Zubair mentioned that non-Muslim countries are already benefitting from Islamic finance, including in the US, South Africa, and the UK. 

Japan would not only expand its financial mix but also increase ties with regional financial centres near it, including in Malaysia, Indonesia, and Singapore, as well as further afield particularly to the Middle East. 

Muhammad Zubair noted that some Japanese banking and financial companies are already providing Islamic banking and takaful (Islamic insurance) services in Malaysia, the Middle East and some other countries. New investor bases might also be build through the Tokyo Stock Exchange developing Islamic indices and sukuk listings. Islamic banking and finance also complements the halal industry, which has the potential to attract new tourists in Japan and boost revenues through halal food exports.

Muhammad Zubair also disclosed that the AlHuda Center of Islamic Banking and Economics has a long term vision to develop the Islamic banking and finance industry in Japan. The organisation is initially offering capacity building services for the Japanese banking and financial market, and plan to conduct workshops on the topic in Tokyo at the end of February 2015 with the Association of Nippon Asia Halal Association, to be conducted in Japanese.

Moody's to conduct seminars on Islamic finance in Oman, UAE

Moody's is organising several seminars on Islamic finance from December 2014 to March 2015 in the Middle East. Islamic Finance: Risk Management is designed to help delegates understand the main risks involved with Islamic banks using recent developments in the industry. This two-day course is held in two locations, Oman and the UAE.

Location	Date	Price
Muscat	December 8 to 9, 2014	US$2,795
Dubai	March 15 to 16, 2015	US$2,795

Islamic Finance: Sukuk Theory and Practice discusses the need for an effective, structured approach to analyse and understand sukuk transactions. This two-day course in Dubai will help attendees assess different sukuk structures, compare those structures with conventional finance transactions, and review key provisions of sukuk documentation.

The course also includes an introduction to Moody’s methodology for rating sukuk issuances.

Location	Date	Price
Dubai	March 17 to 18, 2015	US$2,795

Islamic Finance: Contemporary Challenges & Masterclass events in Singapore, Malaysia

RHT Academy, RHTLaw Taylor Wessing, Taylor Wessing, and Azmi & Associates are co-organising two-day masterclasses on Islamic Finance in Singapore and Malaysia in March 2015. Both titled Islamic Finance: Contemporary Challenges & Masterclass, the Singapore event will be held on 26 and 27 March 2015 at the Suntec Convention & Exhibition Centre while the Kuala Lumpur event is planned for 30 and 31 March at the JW Marriott, Kuala Lumpur.

The events are ideal for C-suites and business leaders as well as legal and compliance leaders, and will cover:

> Cross-border issues
> Conflict of schools of jurisprudence and how to address
> Varying regulatory approaches
> Islamic fund management
> Islamic private wealth
> Islamic insurance (takaful)
> Developing an Islamic Finance compliance framework

Speakers include Nizam Ismail, Partner in Banking & Finance and Corporate, RHTLaw Taylor Wessing and Director, RHT Compliance Solutions; Mohammad Ridzuan Abdul Aziz, Director, RHT Compliance Solutions; Sherroy Ong, Associate Director, RHT Compliance Solutions; Hamid Yunis, Partner, Head of Global Islamic Finance Practice (UK), Taylor Wessing; Habib Ullah, Partner, Head of Banking & Finance (Middle East), Taylor Wessing; Nada Jarnaz, Senior Associate, Taylor Wessing, and Ahmad Lutfi Abdull Mutalip, Partner, Azmi & Associates.

For more details, please contact Ms Raihan Roslan at +65 6381 6987 or email raihan.roslan@rhtlawtaylorwessing.com.

Islamic finance sectors in Indonesia, Malaysia perform well: KFH Research

KFH Research, part of the Kuwait Finance House group, has released Islamic finance updates for Malaysia and Indonesia. According to the research firm, Malaysia continues to lead the Islamic finance world in terms of industry asset size and activity in the market, while Indonesia has seen a CAGR of 35.79% from 2005 through 2013. 

Islamic Finance Updates: Malaysia notes that Islamic finance assets in Malaysia amounted to US$365 billion in the first half of 2014, ahead of Saudi Arabia, UAE, Kuwait and Qatar. Amongst corporate issuers, 1H14 saw a wider range of sectors issuing sukuk, and debut sukuks issued by a major takaful operator and a real estate and investment trust (REIT). Malaysia’s Islamic banking sector continued to grow at a faster rate compared to the conventional banking sector. These developments were supported by continued efforts to enhance regulatory clarity in Islamic finance.

Islamic banking assets in Indonesia reached IDR250.1 trillion in 1H14, according to Islamic Finance Updates: Indonesia. In the first six months of 2014, new Indonesian sukuk issuances contributed IDR34.2 trillion (US$2.88 billion) or 4.3% of the global sukuk market. This compares with US$3.17 billion, or 5.2% of the market in 1H13. 

Esham may replace sukuk for Islamic finance

In conjunction with the recently-held Global Islamic Finance Forum (GIFF) 2014 INCEIF discussed esham as a shari'ah-compliant concept for modern Islamic finance. Esham was first introduced in the 18th century by the Ottoman government. It yielded fixed income to its investors, but also conforms to shari'ah law. 

INCEIF Professor of Comparative Economics History Professor Dr Murat Cizakca, an expert on the Ottoman economy, said esham could be an ideal saving instrument for the middle class in the Islamic world. 

Source: INCEIF. Following his presentation, Prof Murat Cizakca (lef) was joined by ISRA Executive Director Prof Dr Mohamad Akram Laldin (right) and First Holder INCEIF Chair of Islamic Finance Prof Dr Abbas Mirakhor (centre) in a panel discussion on esham from the shari'ah and commercial aspects.

Professor Cizakca presented a paper on the topic at the 11th IFSB Summit in Mauritius in May. In the paper he noted that any innovation is subject to at least three criteria. Besides avoiding riba (usury), it must not be an instrument of risk shifting but one of risk sharing. Thirdly, it must be capable of moving the society towards the Al-Ghazali/al-Shatibi optimum*.

INCEIF has also noted in an opinion that esham complies with Basel III, and could eventually replace sukuk.

The biannual GIFF 2014, entering its fourth year, was held from 2 to 4 September in Kuala Lumpur, Malaysia.

*For this concept Çizakça refers to Islamic Capitalism and Finance: Origins, Evolution and the Future (Cheltenhem: Edward Elgar, 2011), pp. 276-281.

Chartered Institute of Arbitrators and INCEIF announce course on Islamic finance & banking

The Chartered Institute of Arbitrators (CIArb) and INCEIF-The Global University of Islamic Finance have signed a MoU  to deliver courses on alternative dispute resolution (ADR) in Islamic finance and banking.

Source: INCEIF. INCEIF President and CEO Daud Vicary Abdullah signed the MoU on behalf of INCEIF while CIArb was represented by Chartered Arbitrator and Chair of the CIArb Malaysia Branch, Catherine Chau. 

The collaboration was announced on the sidelines of Global Islamic Finance Forum 2014, a biannual forum that offers a unique networking opportunity for regulators, industry practitioners, business leaders and shari'ah scholars. 


The collaboration between INCEIF and CIArb is focused on expanding the range of dispute resolution options available in Islamic finance. With the rise of the global Islamic financial services industry, this partnership is timely in facilitating the resolution of future commercial opportunities. 

The courses in Islamic Finance for Arbitrators will provide professional Arbitrators with the theory, the case law and the tools necessary to understand and settle financial, commercial and contractual disputes which arise within the framework of Islamic banking and finance.

To kickstart the collaboration, CIArb and INCEIF will conduct a short course, Certificate in Islamic Banking & Finance Arbitration, from 25 October to 1 November 2014 in Kuala Lumpur, Malaysia. The eight-day course is designed to provide a thorough understanding of the practices and procedures of Islamic banking and finance and the role of arbitration within it.

The course will cover:

• Shari'ah – Foundations for Islamic banking & finance
• The Islamic financial system with emphasis on Islamic banking & finance
• Financial infrastructure of Islamic banking & finance
• Islamic banking & finance products and services
• Legal documentation for Islamic banking & finance products for arbitrators
• International arbitration and its related components as a form of dispute resolution.

The course will be conducted by faculty from CIArb and INCEIF. The Course Directors will be Profesor Dr Nayla Obeid, FCIArb, Chartered Arbitrator, Chair of CIArb’s Board of Trustees, CIArbs’s Trustee for the Middle East and Indian Sub-Continent, and Founding Partner, Obeid Law Firm, together with Professor Dr Saiful Azhar Rosly, Director, Consulting & Executive Programmes at INCEIF.

Other subject matter experts include:

1. Professor Rashda Rana, Barrister & Arbitrator and Chair of the CIArb Education & Membership Committee
2. Associate Professor Dr Ahcene Lahsasna, Deputy Director for Centre of Research and Publication, INCEIF
3. Adjunct Professor Mohamed Ismail Shariff, INCEIF
4. Professor Dr Mohamed Wahab, MCIArb and Head of International Arbitration, Zulficar Partners
5. Professor Adnan Amkhan Bayno, FCIArb and Head of Chambers, Mena Chambers

Dr Comair-Obeid said: “Given the rapidly growing market for Islamic finance and the significant increase in confidence in  arbitration as the preferred mechanism for resolving both financial and commercial disputes, arbitrators trained in the fundamental principles of Islamic finance are fast becoming a market commodity.

“More and more financial institutions are providing an expanding range of financial products and services compliant with Islamic banking regulation and the basic tenets of shari'ah law. In order for arbitrators and ADR practitioners to be fully equipped to deal with disputes that arise therein, training in the fundamentals of Islamic banking and finance has never been more important globally.”

CIArb Director General Anthony Abrahams said: “The joint initiative between CIArb and INCEIF to train and educate arbitrators, practitioners and bankers in arbitration presents a world leading course aimed at resolving Islamic banking disputes. As this style and culture of financing grows into a major force within global banking so the mechanism for settling differences becomes of paramount importance."


INCEIF CEO Daud Vicary Abdullah said: “INCEIF is delighted to be partnering with CIArb in this landmark agreement to develop education and competency in the legal arbitration profession. With the rapid global growth of Islamic finance, it is vital that practitioners are well equipped with robust and consistent education to enhance their competency.”

Double-digit growth expected for Islamic finance world

Tenth World Islamic Economic Forum (WIEF) Knowledge Partner PricewaterhouseCoopers (PwC) has shared an outline of the global Islamic finance environment in conjunction with the 10th WIEF, to be held in Dubai in October this year. 

On the global front, Islamic finance is expected to register double-digit growth this year and cross the US$2.7 trillion mark by 2017. According to PwC,  Islamic finance has grown both in size and geographic coverage around the world. The industry continues to see the establishment of Islamic financial institutions in new jurisdictions. There has been product innovation across all Islamic finance asset classes as the industry diversifies beyond its traditional banking products and services. Islamic banking continues to be the main driver for Islamic finance and is likely to account for more than 75% of global Islamic finance assets while sukuk currently account for nearly 15% of the market, PwC said.

Asia and Africa are expected to contribute significantly towards the growth in Islamic finance with approximately 95% of the global Muslim population located in these regions. Southeast Asia and the Middle East remain centres of Islamic finance activity. The Gulf Cooperation Council (GCC) accounts for approximately one-third of global Islamic finance and assets have grown over five years at more than 20% CAGR, says PwC. 

Globally, institutions and governments are increasingly resorting to Islamic financing in order to meet their funding requirements. Governments of the UK, South Africa and the Philippines have announced sovereign sukuk issues, led by the UK which announced its maiden sovereign sukuk issue at WIEF 9 in London last year and completed the issue earlier this year to an enthusiastic response. 

As a result, development and implementation of laws and regulations for the issuance of sukuk has been introduced by a number of countries. Dubai recently issued a decree to set up the Dubai Islamic Economy Development Centre as part of a wider plan to become a global hub for Islamic finance which, in the UAE, is expected to grow at a five-year CAGR of 17% from 2013 to 2018 from a base of approximately US$95 billion in 2013. Over US$16 billion of sukuk are expected to be issued by 2014 and Dubai has already emerged as a centre for this asset class.

More than 2,500 participants from 140 countries expected at the WIEF this year. The event includes a panel on Islamic finance, with Toby O'Connor, Chief Executive Officer, The Islamic Bank of Asia, Dr Adnan Chilwan, Chief Executive Officer, Dubai Islamic Bank, Tirad Mahmoud, Chief Executive Officer, Abu Dhabi Islamic Bank, and Muzaffar Hisham, CEO, Maybank Islamic, Malaysia as panelists and Samad Sirohey, CEO, Citi Islamic, UAE as the moderator. 

Aafaq and MENACORP to offer Islamic finance products that leverage UAE stock market

Aafaq - Islamic Finance Company, a UAE-based shari’ah-compliant financial services group and MENACORP, an investment bank in the UAE, have entered into a strategic partnership in order to provide Islamic financing solutions to investors on the DFM, ADX and NASDAQ Dubai with respect to their trading needs on these UAE markets.

Aafaq - Islamic Finance Company provides a wide range of Islamic finance products and services which are approved by the Aafaq Shari’a Board. It offers financial solutions for corporate and retail segments along with other services such as Wages Protection System and Labour Guarantee Issuance. 

Source: aafaq - Islamic Finance Company. The agreement was signed between Sheikh Faisal Bin Saud Al Qasimi, Managing Director of aafaq – Islamic Finance Company, and Fathi Ben Grira, CEO of MENACORP. Dr Mahmoud Abdelaal, CEO, aafaq and Nabil Al Rantisi, MENACORP’s Managing Director-Brokerage, also attended and witnessed the signing ceremony.

In line with strategic growth plans of both companies, the alliance will provide the customers with diversified services by offering them an opportunity to enter the UAE’s finance and trading market.

“Aafaq is delighted to sign this partnership with MENACORP, as evident by the stable economic growth of the UAE, which can be accredited to the wise vision in leadership in addition to the existence of diverse and unique investment opportunities, especially in the financial market and in what these markets have recently envisioned to get upgraded to emerging markets. 

"This strategic alliance falls in line with our expansion strategies and will offer cutting-edge Islamic finance products and services so that customers can take advantage of the UAE’s thriving stock market. We are looking forward to working closely with MENACORP to offer Shari’a-compliant solutions to our customers,” said Sheikh Faisal Bin Saud Al Qasimi, Managing Director of aafaq – Islamic Finance Company.

Fathi Ben Grira, CEO, MENACORP, said: “Most of our clients are GCC-based investors who are attached to the principles edicted by shari'ah law for their financing requirements. The total value of our clients’ portfolio recently crossed AED8.5 billion and most of it is controlled by investors valuing the ethic of Islamic finance, especially for their transactions on the stock market. 

"Our partnership with aafaq – Islamic Finance Company will help us to serve these clients in accordance with their values. This deal is an important milestone for MENACORP as it is in line with our strategy which is to focus on our core business (execution on stock markets) and to rely on a leader such as aafaq – Islamic Finance Company for the financing needs of our clients.” 

Islamic finance can complement shift towards sustainable and responsible investments

Source: Securities Industry Development Corporation. Zainal Izlan Zainal Abidin,
Executive Director, Islamic Capital Market Business Group,
Securities Commission presenting his opening remarks
at the Islamic Markets Programme 2014.

The Securities Commission Malaysia (SC) and its training and development arm, the Securities Industry Development Corporation (SIDC), hosted the 9th Annual Islamic Markets Programme (IMP) themed 'Strengthening the Wellbeing of Societies' from 11 to 14 August 2014 in Kuala Lumpur, Malaysia, and saw 48 Islamic finance regulators, experts and practitioners from eight countries discuss the evolving role of Islamic finance in enhancing the wellbeing of societies and what it will take to ensure sustainable development of global Islamic finance. 

Speaking at the opening of the programme, Zainal Izlan Zainal Abidin, Executive Director, Islamic Capital Market Business Group at the SC said, “The Islamic capital market may seek to capitalise on a growing shift in preference especially in the developed markets towards sustainable and responsible investments, or SRI. 

"Islamic finance and SRI share similar underlying principles which suggest that the current significant growth of the SRI market can also potentially benefit the Islamic finance industry. The greater awareness as well as demand for social responsibility in conducting business is driving the growth of the SRI segment, and Islamic finance - which places similarly strong emphasis on preserving commercial and social balance - can offer a distinctive value proposition for global investors.”

The IMP is an established annual international platform for global subject matter experts, regulators and industry players to share information and insights on Islamic finance topics ranging from product innovation, human capital development and interpretation of shari'ah principles to issues of ethics and governance. 

First organised in 2006 with the objective of developing a talent pool and promoting knowledge sharing in the Islamic capital market, the IMP has hosted 401 participants from 38 countries to date and is an integral part of Malaysia’s strategy to become a recognised Islamic financial centre of excellence. This year’s event welcomed the first participants from Kuwait, Oman and Russia.

Finance industry shifting towards Islamic finance

As part of the preparation for the 10th World Islamic Economic Forum (WIEF), the Dubai Chamber of Commerce and Industry has issued a report based on a study by EY noting that global Islamic banking assets have seen a cumulative annual growth rate of about 16% from 2008 to 2012, reflecting the radical shift from conventional financial system in favour of Islamic finance. 

The 10th WIEF will be organised in Dubai by the Dubai Chamber and the WIEF Foundation from 28 to 30 October 2014.

Islamic banking products and services have consistently gained market share in recent times, growing up to 50% faster than the traditional banking sector in some markets. The UAE is emerging as a serious player in this sector with total Islamic banking assets worth about US$95 billion in 2013 compared to US$83 billion in 2012. This momentum is unlikely to lose steam as the Dubai Chamber report shows that the compound annual growth rate (CAGR) for Islamic banking assets in the UAE is expected to be about 17 per cent over the period 2013-2018.

“The report by Dubai Chamber shows that the prospects of Islamic banking are very promising as indicated by the significantly high growth rates of Islamic banking total assets,” said H.E. Hamad Buamim, President and CEO of Dubai Chamber. “The research note supports Dubai’s recognition of Islamic finance as a key pillar in the strategy to position itself as the centre for Islamic banking and finance as part of the Dubai Capital of Islamic Economy initiative.”

"Dubai has the potential to shape the course of the massive Islamic economy, and this is reflected in the choice of Dubai as the venue for the 10th World Islamic Economic Forum (WIEF). The Forum comes as a unique opportunity for Dubai to give a new direction to the Islamic finance industry, and help consolidate efforts, share knowledge and experiences to leverage the emerging opportunities in the changing dynamics of the global economy,” H.E. Buamim added.

The report estimates that there are 38 million Islamic banking customers around the world with two thirds of them in Qatar, Indonesia, Saudi Arabia, Malaysia, UAE and Turkey (also known as the QISMUT region). Among these six prominent Islamic finance countries, Saudi Arabia is the biggest market in terms of Islamic banking assets with estimated value of about US$285 billion in 2013 compared to US$245 billion in 2012. 

The research note also shows that Saudi Arabia represents about 43% of the total Islamic banking assets in all the six countries. It also accounts for about 53% of Saudi Arabia’s total domestic banking assets.

According to the World Islamic Banking Competitiveness Report 2013–14, while one-fifth of the banking system assets across QISMUT have transitioned to Islamic banking, in Saudi Arabia, supply push has seen share of Islamic banking cross 50% of system assets.

In 2012, QISMUT was one of the fastest growing markets for Islamic banking, with total Islamic banking assets worth about US$567 billion and registering a CAGR of 16.4% over the period from 2008 to 2012.

The Dubai Chamber research also shows that the global Islamic banking profit pool is projected to reach US$30.5 billion by 2018, driven mainly by a higher retail focus. In 2012, the QISMUT Islamic banking profit pool was estimated at US$9.4 billion and it is expected to reach US$26.4 billion by 2018.

Commenting on the findings, Ashruff Jamal, PwC Global Islamic Finance Leader, said: “Dubai is powering ahead with the creation of its recently announced ‘Capital of the Islamic Economy’ initiative. A number of the building blocks of this initiative, spanning seven key pillars, are already in place as the emirate eyes the US$8 trillion global Islamic economy which accounts for approximately 11% of Global Gross Domestic Product. This will inevitably position Dubai as the global destination of choice for Islamic products, finance and services, encourage public-private partnership in this rapidly growing sector as well as attract local and foreign investments as the emirate ramps up for Expo 2020.”

Jamal added: “A fundamental part of the global Islamic economy is the Islamic finance sector, which is witnessing rapid growth as Islamic financial institutions look to deploy their liquidity into regional and international expansion such as the acquisition of Barclays’ retail portfolio by Abu Dhabi Islamic Bank, and Dubai Islamic Bank’s acquisition of a 25% stake in Indonesian Islamic lender Bank Panin Syariah. Another ‘first’ is the recent announcement of an Islamic Exim (export-import) bank which will be the only institution of its kind in the world with three unique features; it will be Shari'ah compliant, trade based and run largely by the private sector.”

Highlighting Dubai’s status as a leading financial centre for the issue of sukuk, Jamal said: “Dubai’s Islamic capital market is witnessing rapid expansion with more than US$16 billion of sukuk expected to be in issue by the end of this year with Dubai’s sovereign sukuk being ranked as one of the world’s best performing instruments.”

The Dubai Chamber report, however, points out that many Islamic retail banks suffer from lower profitability than the conventional banks, mainly due to higher expenses attributed to complex products, lengthy process steps and more interfaces. It is estimated that on average leading Islamic banks posted 19% lower return on equity (ROE) than comparable conventional peers. The average ROE for the top 20 leading Islamic banks is about 12.6%, compared to an average of 15% at comparable conventional banks, it states.

The Dubai Chamber research note supports recent indications that Islamic finance is extending reach, particularly in the Middle East and North Africa (MENA) region. According to Kuwait Finance House 2013 estimates, the MENA, excluding the Gulf Cooperation Council (GCC) states, remains the focal market for Islamic finance, with US$599.4 billion in total assets, followed by GCC with US$536.9 billion assets. Islamic finance is also gaining ground in North America and Europe with banking assets worth US$59.8 billion and total assets reaching US$71.6 billion in 2013, reflecting the industry success in transcending barriers to gain greater market share in new areas.