Islamic finance and food sector need convergence

The two Sharia-compliant industries could work together for their mutual benefit
Dubai’s recently unveiled strategy to be the capital of the Islamic Economy brings with it a range of exciting opportunities as well as some interesting challenges.

Islamic finance and food sector need convergence

Islamic finance and food sector need convergence

Food and finance are the two most emergent opportunities. Islamic finance has excess liquidity and limited Sharia-compliant investment opportunities; the expanding Halal food sector is under-supplied and in need of capital. So what is stopping these two from working together for their mutual benefit?
Over the past decades, the Islamic finance and Halal food industries have developed in separate, isolated silos. Despite having common roots in the Quran, (and specifically even in the same chapter, Surat al Baqarah) there has been very little interaction between these two Sharia-compliant industries.
On the one hand, there are continued reports of excess liquidity in the Islamic finance sector, albeit mostly related to institutional funds that are looking for fixed-income investments opportunities. According to data from Thomson Reuters, Islamic finance assets reached $1.32 trillion (Dh4. 8 trillion) at the end of 2012; average growth over the past four years has been at 19 per cent and sukuk market is growing at 10 per cent.
Overall, growth is 50 per cent faster than conventional banking in many of the core markets and, yet, somehow there is the feeling that something is missing; engagement with the real economy has not been achieved.

Islamic finance and food sector need convergence

Islamic finance and food sector need convergence

The food sector, on the other hand, struggles to keep up with demand from increasingly aware Muslim consumers who are becoming more vocal in terms of what products they want, as well as what they do or don’t consider to be Halal.
Level of traction
One glaring difference between the two is in terms of engagement. Over 70 per cent of the Muslim world is still “un-banked” in any shape or form, let alone with an Islamic bank. Islamic finance does not have much traction with the average man in the street, and most would not be that familiar with the technical terms.
In the food sector, it is a totally different story. Not only is the average Muslim fully engaged with the Halal food market, they also have strong opinions about what constitutes Halal compliance. Indeed, the expansion of the food sector is driven from both the consumer and producer ends, as consumers become more aware and vocal, and producers look for new opportunities in increasing saturated markets.
Another point of divergence is that in the Islamic finance industry, Sharia scholars tolerate minor amounts of interest or impermissible income, and the investment can still be considered compliant. In the food sector, any minor trace of haram ingredient would be rejected out of hand by the overwhelming majority of Muslim consumers. While there is zero tolerance among informed consumers, there is, paradoxically, a considerable degree of tolerance of the prohibited among educated Islamic finance scholars.
The Islamic Finance industry is largely controlled by Muslims, by scholars and senior executives. Yet, the common complaint within the industry is that a high percentage (one bank CEO stated as much as 85 per cent) of Sharia-compliant funds get re-invested in the mainstream interest-based markets to earn the profit that is later returned to the investor as being “Sharia-compliant”.
In direct contrast, the Halal food industry is largely in the hands of non-Muslim controlled companies, and yet the majority of them are very aware and respectful of the need to be compliant, and will convert their production lines to being 100 per cent Halal in order to secure the trust of the consumers.
As these two sectors expand, we can expect to see more avenues of convergence over the course of time. Following the example of Saudi dairy giant Almarai, major corporations in the food, personal care and pharmaceutical sectors could issue sukuk for expansion, and at the same time increase their credibility in the Halal marketplace.

Job creation
Given the real employment shortage within the Arab world — it is estimated that 60 million jobs will be needed by 2020 — one would hope the increasing focus on the Islamic Economy will be a catalyst to create more overlap between the twin pillars of food and finance. However, until there is greater awareness by governments, more transparent regulatory frameworks in the food sector, and more adventurous capital in the finance sector, one suspects that the silos may remain in place for some time yet.
From the perspective of the Islamic economy, these two sectors clearly belong together, but it will take time and some imaginative, bold moves to bring them closer together.
One gets the feeling that when and where that happens, there will be a real engine of growth kicking into gear.
CREDIT: The writer is an advisor to Thomson Reuters on matters relating to the Islamic economy.

HDC, IDB to set up halal investment fund

The Halal Industry Development Corporation (HDC) is in discussion with the Islamic Development Bank (IDB) to set up a halal investment fund.

Its focus will include to finance the development of agriculture businesses especially for IDB member countries.

An MoU was signed recently between the two parties to set the ball rolling, HDC chief executive officer Datuk Seri Jamil Bidin told Bernama in an interview.

“We can use the fund as a mechanism and propose it to the wealthy countries like in the Middle East and Brunei to inject funds and then, channel it to IDB member countries that have the ability to produce food supply,” he said.

Usually, the countries that have resources to produce food supply do not have enough financial capability to expand their production and reach export markets.

Richer Organisation of Islamic Conference (OIC) countries like in the Middle East, on the other hand, have the financial capability but do not have the resources like land and manpower to produce food.

For example, Jamil said, countries like Sudan and Pakistan have the ability to become halal meat producers but they do not have the financial capability to be global meat exporters.

HDC, IDB to set up halal investment fund


In Malaysia, meanwhile, there were over US$500 million of halal investment opportunities, of which agriculture businesses were among the lucrative businesses that can be tapped into.

Jamil said this was where OIC countries can leverage on each other’s capability and at the same time ensure enough halal food supply for the Muslim world without relying on traditional food producers.

He said the move would not only tackle the shortage of halal food supply globally but also a way to tackle rising food prices.

“International food prices increased steeply from mid-2010 to 2011, raising alarm bells across the developing world about a repetition of the food price crisis of 2007-2008,” he said, citing data from the United Nations He said with growth in the economy, rising disposable income as well as increase in halal awareness, trading in halal products especially meat and food products would also increase exponentially.

Non-Muslim Dutch consumers had also shown interest in halal food where the total demand is estimated to reach about US$3 billion annually, he said.

With the possibility of supply-side disruption, he said, there was a dire need for invesment in agricultural projects especially in under-developed and developing Muslim countries.

“We are coming out with a blueprint with the IDB on food security to find a solution. The fund will be one of the proposed solutions as well as other new cooperation between us,” he said.

Jamil said the blueprint was expected to be finalised within the next six months.

Apart from agriculture projects, he said, the fund would also address the missing gap in other underfunded investment opportunities which are neither small nor big enough — valued between US$1 million and US$10 million.



UAE businesswomen look at opportunities in Islamic finance and halal food

KUALA LUMPUR: United Arab Emirates (UAE)’s leading businesswomen are looking into investment opportunities to work with Malaysians in two areas – Islamic finance and halal food.

President of the Abu Dhabi Business Women Council and chief operating officer of Al Jaber Group Fatima Al Jaber said Islamic finance and halal food were the two mutual areas that Malaysia and UAE could work together.

“Islamic finance is a very important sector that Malaysia is pioneering and I chair an investment bank (in the UAE). We are looking into investment opportunities in Malaysia,” she told Bernama after the UAE – Malaysia Power Ladies Roundtable 2011 here today.

Al Jaber is among ten influential UAE businesswomen who are in Malaysia for the Power Ladies UAE-Malaysia Roundtable 2011 tour. The Power Ladies tour, organised by Inside Investor, runs from December 5-9 and is aimed at providing the UAE guests with a greater understanding of the business opportunities available in Malaysia.

She said UAE offered huge opportunities for Malaysians in many areas included leisure, hotel, sports, property, healthcare and education.

“UAE is a consumer market. The sports and healthcare industry are growing. Education is another area. We have all types of school and universities in the UAE. There are also a great demand for certain types of properties there,” she said.

She also said that financial services were another area Malaysians could tap as foreigners were currently involved in the business in the Emirates.

“They should be two-way (business ties)…Malaysians should come to UAE and venture into these areas,” she added.

The Power Ladies group also mentioned that three important areas that they would look into before venturing into businesses in Malaysia were government rules regulations, taxation and the business environment.

The group, over the previous two days, met Bank Negara Malaysia Governor Tan Sri Zeti Akhtar Aziz, Malaysia External Trade Development Corporation chief executive officer Dr Wong Lai Sum, chief executive officer of the Malaysian Investment Development Authority Datuk Noharuddin Nordin, SME Corp Chief Operating Officer Datuk Hafsah Hashim.

Today, they are scheduled to meet the Prime Minister’s wife Datin Seri Rosmah Mansor and Duli Yang Maha Mulia Raja Permaisuri Agong Tuanku Nur Zahirah. — BERNAMA

Halal industry 'must make strategic global acquisitions'

Dubai: With Ramadan well under way, the development of the halal food industry in terms of financing and brand-building has assumed importance.

This year, Al Islami Foods has launched the ‘Shine This Ramadan’ promotional campaign to create awareness about various aspects of halal slaughter.

Gulf News speaks to Saleh Abdullah Lootah, managing director of Al Islami Foods about the halal industry in the UAE and the wider Arab world.

Gulf News: The halal industry always seems to emphasise emotive terms such as trust, integrity and cleanliness, why are these concepts so important?

Saleh Lootah: The objective of the halal industry is to highlight not only the importance of halal in terms of Sharia, but also emphasise the other benefits of halal, including from a hygiene and health perspective. From farm to fork, halal is simply better meat, free from bacteria, blood and tender. So the true benefits to consumers that we are trying to highlight go further than the religious aspect. Continue reading

Asia Focus – Assessing The Relative Growth Prospects Of Halal Markets

The race to meet the world’s growing appetite for halal foods is quickly heating up. With the global halal food market now valued at around US$661.6bn (according to World Halal Forum data) and expanding rapidly, consumer goods producers around the world are falling over themselves to develop products that comply with Islamic standards.

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In this article, we aim to identify the growth drivers behind the global demand for Shariah-compliant food and assess the relative growth prospects across Asian halal markets. Continue reading