Islamic finance industry needs to move from awareness to action

For the second consecutive year, the Islamic Corporation for the Development of the Private Sector (ICD), the private sector development arm of the Islamic Development Bank (IDB), in collaboration with Thomson Reuters, has released findings from the Islamic Finance Development Indicator* (IFDI 2014) at the Global Islamic Finance Forum in Kuala Lumpur, Malaysia.

Khaled Al Aboodi, CEO of ICD said: “The ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI) is the only numerical measure representing the overall health and development of the Islamic finance industry worldwide. It is an unbiased, multi-dimensional barometer that considers the progress of the Islamic finance industry beyond measurement of profits and assets growth. 

"In 2013 we saw awareness of Islamic finance spread worldwide. The next step is to translate that awareness into action. The ICD will continue to facilitate the use of Islamic financial products and services in order to empower the private sectors in Organisation of Islamic Cooperation (OIC) countries.”

Key findings from the ICD Thomson Reuters Islamic Finance Development Indicator 2014 report are:

• 2013 global Islamic finance assets = US$1.658 trillion; Malaysia overall leader 
• 2013 global Islamic banking assets = US$1.214 trillion; Sudan best performing
• 2013 global takaful assets = US$27.8 billion; Qatar best performing 
• Gap between the awareness indicator (most developed) and quantitative development (weakest) 
• Twenty-eight countries have Islamic finance regulations. Only Bahrain, Malaysia, Nigeria and Pakistan have regulations covering all sectors.
• For global financial centres, Singapore is the most developed. 

• Singapore is in the sukuk top 10
• Singapore and the UK are in the corporate governance top 10
• Singapore is in the conferences top 10
• UK is in the knowledge and seminars top 10

The IFDI measures five key components that combine to depict the bigger picture of the state of Islamic finance: quantitative development, governance, corporate social responsibility (CSR), knowledge and awareness. 

The IFDI global average development value is 10. Malaysia is the most developed Islamic finance nation out of 92 countries, scoring 93. Bahrain (76) and Oman (64) are second and third, respectively. The other four GCC countries are also ranked in the top 10, along with Jordan, Pakistan and Brunei.

The awareness indicator has a high global average value of 29 development points for the news sub-indicator, which assessed 92 countries. The other two sub-indicators for awareness are: seminars (global average value seven) and conferences (global average value nine). There were 231 Islamic finance seminars and conferences and 14,490 exclusive news announcements in 2013. 

There is a gap between awareness development and quantitative development, which scored the lowest global average of six. Significantly, the awareness indicator saw the lowest percentage of countries – 21% – scoring higher than the global average. This indicates that while awareness about Islamic finance is widespread, it is not deeply-rooted enough to be translated into action. 

Islamic finance activities are still largely concentrated in the GCC and Malaysia, with Jordan, Pakistan and Brunei also in the top 10. Action is needed to move all other countries from awareness to quantitative development.

Moving from awareness to knowledge is one challenge for the Islamic finance industry worldwide. Globally, 66 countries contributed to this indicator. There were 477 institutions providing Islamic finance courses and degrees and1,363 research papers were published between 2011 and 2013. 

There is greater interest on Islamic finance in Sub-Saharan Africa, which closely trails leaders Europe and other MENA in the courses category and is home to more institutions offering degrees than Southeast Asia. In Southeast Asia and the GCC, more institutions offer degree programmes than courses, which reflects a focus on longer-term human capital development.

The global average score for the quantitative development stands at a very low six development points. There is a highly uneven development of Islamic finance worldwide, even among the top 10 most developed nations. Fifty-three points separate Malaysia in first place and fifth-placed Qatar, and there are 64 points between Malaysia and tenth-placed Brunei. 

The global aggregate value of Islamic finance assets reached US$1.658 trillion at the end of 2013 mainly from Islamic banking assets which accounted

for 73% of the total, followed by sukuk that contributed US$279.8 billion. Other Islamic finance institutions (OIFIs) contributed US$85.5 billion while Islamic funds and takaful assets stood at US$50.7 billion and US$27.8 billion, respectively. Islamic finance assets are expected to reach up USto $2 trillion within a couple of years.

Governance considers regulations, shari'ah governance and corporate governance. The global average value for governance is 12 development points. Only 28 out of 92 countries have Islamic finance regulations. Unsurprisingly, the overwhelming majority of jurisdictions (86%, 24 countries) with regulations are Muslim-majority countries. Of the remaining four, Nigeria has a significant Muslim population and three Muslim-minority countries round off the top 10: Mauritius, Singapore and the Philippines.

Only four countries have full coverage of regulations: Bahrain, Malaysia, Nigeria and Pakistan. Bahrain pips Malaysia to the top spot with its superior shari'ah governance score.

The CSR Indicator considers CSR Funds Disbursed and CSR Disclosure. Overall, average disclosure for financial reporting is high but there is a low level of CSR disclosure; on average only 30% of items are disclosed. There is particularly a lack of disclosure of training and employee welfare activities. Oman was the best performer for CSR disclosure but distributed a far lower amount of CSR funds than Jordan and Bahrain.To download the report, click here.

*The ICD Thomson Reuters Islamic Finance Development Indicator is a composite weighted index that measures the overall development of the Islamic Finance industry by providing an aggregate assessment of the performance of all its parts, in line with the objectives of Islamic principles. 

It is a global level composite indicator with country and unit specific level indicators. The composite indicator is released annually, featuring a full report detailing each country and unit specific level indicator and their raw numbers.
Each indicator within the composite indicator's constituents will be equally weighted and aggregated, i.e. all variables are given the same weight. In addition, normalisation is required prior to any data aggregation as the variable indicators in a data set have different measurement units. 

For the country composite indicator level, country indicators are normalised to allow for meaningful comparisons over time for a given country and between countries. Various economic indicators (e.g. population size) will be considered while measuring the health of the Islamic finance industry in each country.

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.”

AIBIM to organise fourth Global Islamic Finance Forum in KL

The Association of Islamic Banking Institutions Malaysia (AIBIM) will organise the fourth Global Islamic Finance Forum (GIFF 2014) in Kuala Lumpur from 2 to 4 September 2014 in support of Malaysia International Islamic Financial Centre (MIFC) initiatives.

Themed "Marketplace for Global Linkages", this forum aims to discuss the opportunities that Islamic finance can offer the global financial community by bringing together global Islamic financial industry players, market participants, shari'ah scholars and regulators.

Events at GIFF 2014 include a Regulators Forum, International Islamic Capital Markets Forum, Islamic Banking & Finance Conference, CEOs Dialogue (Banking and Takaful), Executive Master Class, Islamic Finance Colloquium, and Islamic Venture Capital & Private Equity Symposium. Fringe events will include exhibitions from local and international organisations, networking sessions and private business meetings.

In view of the growing global interest in Islamic finance, GIFF 2014 is expected to draw interest from chairmen, CEOs and top level management local and international participants from the Middle East, European and Asian countries.  

Supporting organisations for the event include Bank Negara Malaysia, the Securities Commission Malaysia, Malaysian Takaful Association (MTA), International Centre for Education in Islamic Finance (INCEIF), International Shariah Research Academy for Islamic Finance (ISRA) and IBFIM, an industry-owned institute dedicated to training personnel for the Islamic finance industry.
 
Attendance is by invitation only but open to those who register online and have an active interest in the industry. Click here to register.