Islamic finance to grow more

Issac John / 30 November 2013

$1.4b industry’s expansion seen at double-digits, with Malaysia and GCC to lead.

Islamic finance to grow more

Islamic finance to grow more

The industry in the GCC constitutes 28.7 per cent of assets at $445 billion as of 2012. — KT file photo.

Led by Malaysia and the GCC — the two regional heavyweights and pioneers of the industry — the $1.4 billion global Islamic finance industry is set for a double-digit growth.

“Undeterred by the uncertain recovery elsewhere in the world’s financial markets, global growth of the Islamic finance market has continued unabated this year,” Standard & Poor’s said.

In its report “Islamic Finance 2014: We Expect Continued Double-Digit Growth, And A Push For Regulation And Standards”, S&P said worldwide, Shariah-compliant assets are estimated at upward of $1.4 trillion are likely to sustain double-digit growth in the coming two to three years.

Despite more than a decade of heady growth, the industry is still in a formative stage. “But we believe it’s only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity,” said Zeynep Holmes, regional head of Eastern Europe of Middle East and Africa at Standard & Poor’s.

“Nevertheless, the speed at which the industry matures and joins the mainstream comes down to how market participants address a classic imbalance between supply and demand.”

S&P pointed out that Islamic finance remained a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centres and their various regulatory frameworks.

“In our view, expansion and enhancement of existing centers, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream.”

The ratings agency said it believed that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take centre-stage starting in 2014. Interestingly, newcomers in the industry — such as Oman, Turkey, and Nigeria, for instance — have started to trace the footsteps of fast-growing pioneers, such as Malaysia.

Rasameel confident on sukuk pipeline

DUBAI — Kuwait-based Rasameel Structured Finance expects a flurry of Islamic financing activity in the Gulf next year, in particular from corporations looking to tap the market for Islamic bonds, its chief executive said.

“There is an increase in activity, Dubai in particular and in the region in general, so we see a recovery coming up and I would expect to see more corporates come to market,” said Issam Al Tawari, Rasameel’s chairman and managing director.

The firm is working on corporate deals mainly in Kuwait and Dubai, including a sukuk for a healthcare company in the UAE that will fund the completion of hospitals and a research centre, he said in an interview. — Reuters.

“Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront.”

“The gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimize the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry,” Holmes said.

According to Ernst & Young, Islamic banking assets are to grow to $1.8 trillion in 2013 and beyond $2 trillion by 2014. The industry in the GCC constitutes about 28.7 per cent of assets at $445 billion as of 2012 and registered a growth of 14 per cent over 2011.
Global sukuk issuances reached about $140 billion in 2012. Worldwide year-to-date issuance dipped 25 per cent from last year to $77.4 billion, as of September 22, 2013.

The global Takaful market is estimated at $12 billion as of 2011, and it is expected to touch about $25 billion by the end of 2015. Takaful insurance premiums in the GCC is expected to reach about $15.38 billion by the end of 2016.

TheCityUK’s UK Islamic

Islamic banks’ profit rises 9 pct

Turkey’s participation banks’ net profits rose to 786 million Turkish Liras ($393 million) in the first nine months with a 9 percent rise year-on-year, according to data from the Participation Banks Association of Turkey (TKBB).

Islamic banks’ profit rises 9 pct

Islamic banks’ profit rises 9 pct

Turkey’s participation banks’ net profits rose to $393 million in the first nine months with a 9 percent rise year-on-year. DAILY NEWS photo.

The fund volume collected by the participation bank rose to 59.8 billion liras with a 22 percent increase in the same period, TKBB General Secretary Osman Akyüz said yesterday. The share of liras in the funds is 59 percent, with foreign currency funds making up 41 percent of the total. The funds that are used reached 63.9 billion liras at 28 percent, Akyüz added.

“Total assets reached 90.7 billion liras with a 29 percent rise as equity volume reached 8.6 billion with a 16 percent rise,” he said.

Akyüz also noted that as the participation banks’ net profits had risen 9 percent in the first three quarters of the year, totaling 786 million liras, they continued to have a strong potential for growth. “We foresee that the estimated 25 percent growth in assets will surpass around 6-7 points,” he said.

Turkey’s participation banks are Albaraka, Kuveyt Türk, Türkiye Finans and Bank Asya.


OIC states urged to raise intra-trade by 20%

Friday 22 November 2013

OIC states urged to raise intra-trade by 20%

OIC states urged to raise intra-trade by 20%

The President of the Islamic Development Bank Group ( IDB ) Ahmad Mohamed Ali has called on IDB member countries to raise the targeted volume of trade between its member countries to 20 percent by the year 2015, as recommended during the Islamic Summit held in Makkah in 2005. The IDB chief made this statement while speaking at the opening session of the 29th Standing Committee for Economic and Commercial Cooperation (COMCEC) in Istanbul, Turkey, in the presence of Turkish President Abdullah Gül, who is current chairman of COMCEC.

Ali urged the COMCEC and the Coordination Group “to seek ways and means to realize the desired increase in the intra-trade volume before the next Islamic Summit in Turkey in 2016. He also recalled the Aid for Trade Initiative for Arab States, which was launched by the International Islamic Trade Finance Corporation ( ITFC ), the trade arm of IDB , stating that the Initiative could be a major tool in increasing intra-trade. Turning to the financing performance of some the IDB Group affiliates, he said that the total trade financing of ITFC for the year 1434H has topped $5 billion, double the average level of operations in the last five years.

He also said that the Islamic Corporation for the Insurance of Investment & Export Credit (ICIEC) has provided insurance facilities of more than $3 billion for export credit last year. On the sidelines of the meeting, a tripartite memorandum of understanding (MoU) was signed by the Republic of Niger, the Turkish Humanitarian Relief Foundation and IDB , to cooperate under the Alliance to Fight Avoidable Blindness and establish the first Ophthalmic Center in Niger spending $2 million.

The IDB will provide some medical equipment for the center. The MoU was signed by Niger Ambassador to Turkey, Abdullahi Muradi; Turkish Relief Foundation President, Fahmi Boluent Yaldriem; and IDB President Ali. The COMCEC opening session was attended, among other dignitaries, by Cevdet Yilmaz, minister of development in Turkey and Professor Ekmeleddin Ihsanoglu, secretary-general of the Organization of Islamic Cooperation (OIC).
© Arab News 2013

Experts Gather To Debate And Address Skills Gaps In The UAE’s Islamic Finance Sector

In response to His Highness Sheikh Mohammed bin Rashid Al Maktoum’s ambition to make Dubai the capital of the world’s US$8 trillion Islamic economy in just three years, industry experts, government officials, and leading academics met today to discuss the existing and emerging skills gaps within the Islamic finance sector – one of the seven pillars of Dubai’s Islamic economy initiative.

Experts Gather To Debate And Address Skills Gaps In The UAE’s Islamic Finance Sector

Experts Gather To Debate And Address Skills Gaps In The UAE’s Islamic Finance Sector

The senior level debate, organised by Dubai International Academic City (DIAC) in collaboration with the organisers of the Global Islamic Economy Summit, Thomson Reuters, saw participants review the key findings of a Workforce Planning Study , which has identified some of the major themes and skills gaps within the fast-growing Islamic finance sector.

The Workforce Planning Study revealed that dedicated Islamic banking skills are in high demand from GCC banks, particularly at the entry level, closely followed by financial risk management and customer segmentation and analytics skills. Of the 60 banks surveyed;

• 50% said that they find it difficult to hire graduates for entry level positions.
• 23% said that they find it difficult to hire for mid-level positions.
• Just 5% of banks say that they find it hard to hire for senior positions.

The study also offers some critical recommendations about how the UAE can address the skills gaps arising from the sector’s growth, such as genuinely bridging the communication gap between industry and academia.

Commenting after the discussion, Dr. Ayoub Kazim, Managing Director of Dubai International Academic City and Dubai Knowledge Village said: “Islamic finance is a central pillar in Dubai’s strategy to become the world’s capital of the Islamic economy. Demand for skilled workers in this field has never been higher, and as a home for the region’s education and training institutes, we have an important role to play in bringing academia, industry and government closer together to ensure the future success of the sector.

“Roundtable debates such as these, informed by evidence found in the Workforce Planning Study, enable our academic partners and training institutes to tailor their education programmes to the demands of local business. This is a smart and forward-looking approach to education – and it is one that ties back to Dubai’s overarching vision of developing a thriving, knowledge-based economy.”

Essa Al Mulla, Executive Director, Emirates National Development Programme, Knowledge and Human Development Authority (KHDA), said: Islamic finance plays a crucial role in the UAE’s financial system. The debate not only highlights the existing skills shortage in the sector, but also provides a platform to discuss innovative ways to encourage sustainable and long-term skills development. At present, there are a number of institutions in Dubai offering programmes in banking and finance; however, we need programmes specialising in Islamic Finance.”

Rashid Mahboob, Senior Vice President, Customer Excellence at Dubai Islamic Bank, said: “This high level discussion offers an early insight into the skills gaps that exist within the Islamic finance sector, as well as how to nurture the human capital needed to meet the sector’s expected growth.

“In the future, there will be an increasing focus on excellence in all aspects of employment, and this will be particularly true for those working within Islamic finance. To prepare for this, universities and training providers must refine their programmes and courses to support the sector, equipping young talent with the level of specialism and sophistication that is required by employers. Similarly, employers must dedicate themselves to providing genuine on-the-job training.”

Professor Abdullah Al Shamsi, Vice-Chancellor of the British University in Dubai, during his presentation, observed: “According to PricewaterhouseCoopers, Islamic financial assets are growing 17% per year and are set to reach $2.67 trillion by 2017. These developments vouchsafe the growing significance of Islamic finance and banking in the aftermath of the global economic crisis.

“Clearly realising the market needs for trained manpower in this industry, the British University in Dubai has already initiated steps to introduce a full-pledged postgraduate program in Islamic economy and finance from the next academic year. Currently, we are preparing the necessary documents to be submitted to MOHESR for its inspection and approval.”

Initial findings from the ICD Thomson Reuters Islamic Finance Development Indicator report show that there are over 533 institutions globally offering courses or degrees in Islamic finance. The UAE sits in third position with 31 course providers and 9 degree providers, which is ahead of the US, Indonesia and Saudi Arabia, but behind the UK and Malaysia.

According to a recent analysis by Tahseen Consulting, a specialised advisor on strategic and organisational issues in the Arab world, US$87-124 billion could potentially enter the UAE Islamic banking system by 2015, creating approximately 7,800 new jobs at Islamic banks if the current asset concentration ratios remain similar. Additionally, 500 jobs will be created in other Islamic financial services segments. By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

DIAC and Thomson Reuters’ roundtable took place at the Dubai Knowledge Village Conference Centre. Some of the attendees included; Standard & Poor’s, Simmons & Simmons, Dubai Holding, Dubai Islamic Bank, Sharjah Islamic Bank, Abu Dhabi Islamic Bank, Dubai Financial Services Authority (DFSA), Imarat Consultants, the Knowledge and Human Development Authority (KHDA), and other DIAC academic partners.

EIIB-Rasmala launches Islamic trade finance fund

Nov 19 (Reuters) – EIIB-Rasmala, a venture between London-based European Islamic Investment Bank and Dubai’s Rasmala Group, has launched a sharia-compliant trade finance fund as a low-risk investment product, the firm said on Tuesday.

EIIB-Rasmala launches Islamic trade finance fund

EIIB-Rasmala launches Islamic trade finance fund

Islamic trade finance remains a tiny part of global banking business, but it is gradually attracting interest among banks and asset managers because of the rapid growth of global trade, including in Gulf economies.

The Cayman-domiciled fund is linked to emerging market trade transactions and the firm hopes to attract $100 million into the fund over the coming year, said Eric Swats, head of asset management at EIIB-Rasmala.

The fund targets a return of 4 percent with low volatility as the firm continues to expand its sharia-compliant product range, Swats added.

Since last year, EIIB-Rasmala has launched three Islamic funds including a leasing fund and a sukuk fund seeded with $25 million of the company’s own capital.

Earlier this year, Kuwait-based Asiya Investments launched an Islamic trade finance fund with $20 million in seed capital, aiming to cater to small Asian manufacturers.

Talent exodus could put Cameron’s Islamic finance ambitions in jeopardy.

Talent shortages or even a talent exodus could endanger David Cameron’s ambitious plans to make London a global centre for Islamic finance, recruiters say.

Talent exodus could put Cameron’s Islamic finance ambitions in jeopardy.

Talent exodus could put Cameron’s Islamic finance ambitions in jeopardy.

Last month, the prime minister set out plans to establish a new Islamic index on the London Stock Exchange, which will help investors comply with Islamic finance principles, such as bans on investing in alcohol. Other principles of Islamic finance include a prohibition on interest, and excessive uncertainty in contracts.

Cameron also detailed proposals for Britain to become the first country outside the Muslim world to issue its own Islamic bond, known as a ‘sukuk’.

Faizal Karbani, founder of Simply Sharia, tells Recruiter that while the UK has a good pool of talent on which to base growth in the sector, “there is a real danger we could lose talent overseas”.

Karbani says that this is already happening, with many British finance professionals, lured by low tax and attractive remuneration packages, working in Dubai, Abu Dhabi, and Qatar.

Cameron’s announcement has sparked interest in the sector, says Samina Akram, founder of specialist Islamic finance consultancy Samak Consultants, adding: “It is going to be an exciting time for the industry.”

Akram says that while London is generally well placed in terms of skills, there are certain shortages, with a lack of Islamic scholars being a particular problem. Scholars decide whether a particular financial offering or service complies with Islamic law, she explains.

Islamic finance is global in its nature, and this is a problem for the UK, she says, because “very few UK scholars have international credibility”. Indeed, Akram estimates there are only “about 10 in the world” who are true global experts.

A spokesperson at the Bank of London and The Middle East (BLME) tells Recruiter there is no shortage of expertise in London, with many students also looking to enter the sector.

BLME prefers to hire people with experience in Western finance and to train them “to understand the Islamic finance aspects of what we do”, she says.

Contemporary financing techniques underpin development of Islamic finance

As uncertainty persists in certain parts of the global economy, it has created an opportunity for Islamic finance to continue to flourish and expand into new economies.

Contemporary financing techniques underpin development of Islamic finance

Contemporary financing techniques underpin development of Islamic finance

This was clearly evident at this year’s World Islamic Economic Forum (WIEF), held in London at the end of last month. At the forum, the British prime minister David Cameron announced Britain’s intention to become the first non-Muslim state to issue sukuk (Islamic bonds).

The issue size is expected to be fairly modest – in the region of £200 million (Dh1.17 billion). But the announcement has been viewed as a symbolic backdrop to Britain’s clear ambition to capture more of the growing Islamic finance market.

Earlier this year, Dubai declared its own intention to become the capital of the global Islamic economy, estimated to have a total value of US$8 trillion, including the Islamic finance industry.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, set a three-year timetable for Dubai to achieve its goal. It has already been confirmed that the emirate will host next year’s WIEF, marking the 10th anniversary of the forum.

The growth of Islamic finance is attributable to many different factors, but that growth would not have been possible without the development of the contemporary financing techniques or structures that underpin the industry.

These techniques have developed in accordance with strict Islamic principles. They all tend to have a common reliance upon a trade or transaction involving underlying assets as a fundamental part of each Islamic contract. This structuring avoids some of the fundamental prohibitions that would otherwise be associated with these kinds of financing products.

What are the main characteristics of sukuk? They are a type of certificate or note that represent a proportionate interest (sometimes also described as a participatory interest) in an underlying asset or investment.

They are generally considered to be debt securities (akin to bonds) which, depending on the underlying asset or transaction, can also be traded in the secondary market.

The sukuk certificates are often “layered” on top of other underlying Islamic financing techniques, which themselves are intended to derive a return from an underlying asset or investment. For example, ijara (or leasing), mudaraba (or investment partnership), or wakala (or investment agency) are commonly used to generate the periodic distributions (in other words, amounts comparable to the “coupon” on a bond) which are payable to the investors.

However, for modern-day purposes, the vast majority of sukuk structures are best described as being “asset-based” because the primary credit risk remains that of the issuer/obligor who is obliged to pay the sukuk holder irrespective of the performance of the underlying asset or investment.

This is to be distinguished from less prevalent “asset-backed” sukuk (in other words, securitisation) where recourse to, and revenues from, the underlying asset or investment play a more critical role.

The Islamic finance industry has developed on the basis of the following strict principles of Sharia (or Islamic law:

1. No interest: under Sharia, money is regarded as having no intrinsic value and also no time value. Money is considered as a means of exchange to facilitate trade. As such, Sharia principles require that any returns on funds provided by an investor should be earned by way of profit derived from a commercial venture in which that investor is involved. The payment and receipt of interest (riba) is prohibited and any obligation to pay interest is considered to be void. This rule also prevents an investor from charging penalties.

2. No uncertainty: uncertainty (gharrar), especially any uncertainty as to one of the fundamental terms of an Islamic contract (such as subject matter, price or delivery), is also considered to be problematic under Sharia. This principle is fairly broad, as it requires certainty on all of the key terms of a contractual arrangement.

Malaysia plans to be the first Islamic financial superpower

Could a new upstart be about the join the likes of London, New York and Tokyo as a global financial superpower? The Malaysian government would like to think so, at least.

Malaysia plans to be the first Islamic financial superpower

Malaysia plans to be the first Islamic financial superpower

Recently it announced bold plans to transform the country’s capital Kuala Lumpur into a major financial centre in a bid to raise its profile and spark greater international trade and investment.

The proposed new financial district, covering 70 acres and featuring 11 new buildings with 25 or more floors, has been dubbed “Asia’s Canary Wharf”. Known as the Tun Razak Exchange (TRX), the government believes this project is the foundation on which Malaysia will compete with regional financial superpowers such as Singapore and Hong Kong.

So is this a dream or can it be transformed into a reality? The Global Financial Centres Index, a research-informed measure of the competitiveness of a range of cities worldwide highlights the challenge that lies ahead for emerging centres like Kuala Lumpur.

In the most recent rankings the city dropped one place to 22nd globally but still featured in the Asian top 10. With London and New York ahead of the pack, Singapore and Hong Kong already in strong positions and the dynamism of Shanghai and Shenzhen to contend with, gaining ground on the superpowers will be tough for Malaysia.

And it may be too tough, unless TRX turns to a more niche approach and builds on the country’s established strength in the rapidly growing Islamic financial marketplace.

Islamic strengths

Demand for Islamic financial services is growing both regionally and globally, and Malaysia has been well placed to take advantage of this. It is Islamic finance that provides Malaysia with its advantage over neighbouring financial centres, and those mapping out the country’s future business model would be wise to play to their strengths.

According to its central bank, Malaysia’s Islamic banking assets total US$168.4 billion, a quarter of its banking system. This in turn accounts for over 10% of the world’s total Islamic banking assets.

The country’s Islamic financial sector is characterised by a robust and shariah-compliant regulatory system. It has a strong sukuk (Islamic bond) market – over 60% of the global total – making Malaysia one of the world’s leading Islamic capital marketplaces. This attracts institutions from across the globe and an associated pool of liquid cash.

Banking on finance

Malaysia is banking on the TRX to be a dedicated international financial hub, promoting Kuala Lumpur as a new nucleus of global economic growth. The project is seen as a crucial to the government’s economic plans, creating the critical mass needed to significantly boost productivity and accelerate Malaysia’s growth. The aim is to become a high-income economy by 2020.

But, if Malaysia is to join the top flight of international financial centres, it must leverage its status as an established Islamic finance hub. And it must address the challenges associated with the supply of high quality human capital.

The performance of international financial centres is underpinned by the quality of people, of the business environment, access to international markets, infrastructure and general competitiveness. To outperform Asian rivals on these attributes will be a challenge; there are continued concerns about the quality and employability of graduates, and while the World Bank says the ease of doing business has improved, there are still problems with infrastructure and general competitiveness. And the country’s ability to access international financial markets may depend on attracting major players away from established rivals.

Authorities are confident, however, that they will be able to attract these new players. The central bank estimates that up to 56,000 new finance industry positions will be needed in the next decade, including up to 40,000 jobs in Islamic finance.

However poor scores in international student assessments, declining English language capabilities and persistent concerns about the employability of graduates do not augur well.

Malaysia still has a people problem. Yes, the government may be able to build world-class facilities in Kuala Lumpur and offer tax breaks and other incentives to companies looking to operate from the new district. And yes, Islamic finance will still give the country a profitable niche to exploit.

But without a supply of educated, English-speaking workers, hopes of challenging regional neighbours in Hong Kong and Singapore may be little more than a Malaysian pipe dream.

Islamic Micro finance should be Introduced Internationally

Dr. Fatima Al-Blooshi discusses the need at the 3rd Global Islamic Micro finance Forum in Dubai

Islamic Microfinance should be Introduced Internationally

Islamic Microfinance should be Introduced Internationally

“Islamic Micro finance is an effective tool for the poverty alleviation and it should be introduced around the globe to state an effective policy for ultimate poverty alleviation from the world,” said Dr. Fatima Mohamed Yousif Al-Balooshi, Minister at the Ministry of Social Development in Bahrain.

Al-Blooshi was the Chief Guest in the 3rd Global Islamic Micro finance Forum (GIMF) held 6-8 October at Dusit Thani Hotel, Dubai. Delegates from more than 30 countries participated actively in the Forum, organized and conducted by AlHuda Centre of Islamic Banking and Economics (CIBE).

Al-Blooshi also added that Islamic Micro finance should be presided over and supported by the government in different countries in order to promote the these institutions. She also admired the endeavors of AlHuda CIBE at the inauguration of 3rd forum, and proposed to conduct the 4th Global Islamic Microfinance Forum in Bahrain.

Muhammad Zubair Mughal, CEO of AlHuda CIBE, also addressed the forum. “Poverty is increasing in Muslim countries rapidly, and consequently half of the world poverty has, approximately, been confined to the Muslim countries in the current age.”

“The involvement of interest in micro financing is one of the major causes behind this phenomenon, and that is why Muslims hesitate to avail micro finance facility. If Islamic Micro finance is not introduced resolving this issue, the world’s poverty will increase extraordinarily,” Mughal continued.

He said that the forum aimed to gather all the Islamic Micro finance Institutions on a single platform, to “streamline the policies for poverty reduction, to promote research and education in Islamic Micro finance industry and to enhance its outreach on global canvas.” Mughal added that current facts about the failure of micro finance system require an alternative and prudent Islamic Micro finance system to “enhance financial inclusion globally and ultimate global economic prosperity.”

Hamdan Mohamed Al Murshidi, President and Chairman of the Board at the UAE Arab Business Club, said “There is no other argument for addressing poverty through Islamic Micro finance, as it is the ultimate solution to the problem,” and also he committed himself to promote Islamic Micro finance globally.

Amjad Saqib, Executive Director of Akhuwat, agreed that Islamic Micro finance is a hope for the poor looking to resolve social and economic problems globally. By presenting Akhuwat as a case study, Saqib claims that there are about 380,000 families benefitting through Qarz e Hasana from Akhuwat. Meanwhile its portfolio has crossed PKR. 5 billion with an increasing trend day by day.

Can you make the below into a small sidebar? As small as you can realistically do it w/ so many names…

The forum was attended by researchers, scholars and Islamic Micro finance practitioners including:

Mufti Aziz Ur Rehman (Manager-Shariah, Mawarid Finance – Dubai),

Justice (R) Khalil Ur Rehman (Shariah Advisor – AlBaraka Islamic Bank & Chairman – Punjab Halal Development Agency Govt. of Pakistan),

Dr. Ajaz Ahmed Khan (Microfinance Advisor, CARE International UK),

Mr. Atef Ebrahim (Chief Executive Officer, Family Bank – Bahrain),

Mr. Zeinoul Abedien Cajee (Founding CEO/ Management Board, National Awqaf Foundation of South Africa),

Mr. Mamode Raffick Nabee Mohomed (Founder/ Secretary, Al Barakah Multi-purpose Co-operative Society Limited – Mauritius),

Ms. Rehab Lootah (Managing Director – Mawarid Consultancy Dubai – U.A.E),

Mr. Mohamed El Mehdi Zidani (Author – An Islamic Analysis of the Grameen Bank and Director Baraka Editions – France),

Mr. Pervez Nasim (Chairmen & CEO, Ansar Financial and Development Corporation – Canada),

Mr. Abdul Samad (Shariah Advisor, The Bank of Khyber – Pakistan),

Mr. Humayun Saeed Jamshed (Senior Director – Islamic Banking & Finance, SAB – France),

Mrs. Helena Lutege (Founder and Managing Director, BELITA Fund – Tanzania),

Mr. Ali Tariq (Executive Director, Iraqi Microfinance Network – Iraq),

Dr. Mohammed Kroessin (Global Microfinance Advisor – UK),

Mr. Zaigham Mehmood Rizvi (Renowned International Expert Islamic Banking & Housing Finance Washington – U.S.A.),

Mufti Barkatulla (Sharia Advisor, Islamic Bank of Britain, London, UK) and some other prestigious international speakers addressed in this forum.

© Business Islamica 2013

A big question mark in the Islamic finance industry

Is Islamic finance reaching the poor?

Apparently, it is a matter of pleasure that the global volume of the Islamic finance industry has crossed the USD1.3 trillion threshold, which is definitely providing the best and compatible sources of finance with interest-free modes.

A big question mark in the Islamic finance industry

A big question mark in the Islamic finance industry

According to a careful estimate, there are more than 2,000 Islamic financial institutions that are offering Islamic banking, Islamic insurance (takaful), Islamic funds, mudaraba, Islamic bonds (sukuk), and Islamic microfinance. Meanwhile, some other institutions actively provide Islamic financial services on different modes in adherence to Shariah principles of Islamic finance.

Yet if we look into the market share of the above-mentioned institutions, we get shocked and depressed for a while with the fact that Islamic banking and finance has been nearly confined to the “rich people” and as per the ideology of capitalism.

The profit urge has captured the Islamic financial industry and discriminated against the underprivileged people, letting them be deprived from Islamic financial services. Keeping in view these facts, it can be simply said that commercialism has captured Islamic finance institutions in such a way that business and finance with and for the poor has gone astray from their agenda.

According to the facts and figures from a March report by Consultative Group to Assist the Poor (CGAP), an associated institution to the World Bank, the global volume of Islamic microfinance has reached USD 800 million with service to about 1.3 million beneficiaries.

While as per the latest research (July 2013) conducted by AlHuda Centre of Excellence in Islamic Microfinance, the global volume of Islamic microfinance has reached at USD1 billion. The total number of Islamic microfinance Institutions stands at more than 300 globally, yet Islamic microfinance constitutes less than 1 percent of the overall USD1.3 trillion assets that comprise the Islamic finance industry. This, in itself, is a big question mark on Islamic finance industry and proving its misfortune.

These stated facts and figures give rise to different question such as: is social segmentation between poor and rich 1 percent to 99 percent? Does Islamic finance have financial resources only for the rich people? Not for the poor? Is Islamic finance an option only for the particular segment of society? Furthermore, is it justice system of Islam?

As per the analysis of Islamic finance in the light of Islamic teachings, we get into the heart of Islamic ideology towards finance, which aims at justice, cooperation, and welfare of the poor and financially deprived people of society with its best principles. Islam is in name a revolution, starting from the poor and ending at with the same.

If we have a look at comparative study of different religions regarding the viewpoint of poverty, then we come to know that poverty alleviation is not only a social responsibility in Islam, but rather a religious obligation as well. Zakat, charity, sadqa, fitr, ushur and qarz-e-hasan are all amongst the key religious responsibilities of Muslims, whereas it is a social responsibility in other religions rather than a religious one, a responsibility recognized and branded in the name of “Corporate Social Responsibility” (CSR). These institutions are doing good work for poverty alleviation and social development in the whole world. Unfortunately, the Islamic financial industry has widely ignored its social or religious responsibilities.

If we look at world poverty, we get surprising facts and figures. Currently, 46 percent of world poverty exists in the Muslim World, while the Muslim population in the world is 26 percent[SO1] . The United Nations have marked 26 out of 57 member countries of the Organization of Islamic Countries (OIC), as the least developed countries. Current statistical information is highlighting that the poverty in the Muslim World is increasing day by day.

In serious observation, it can be said that this is caused by no or little response of poor people to microfinance facilities because of interest; none or limited Islamic Microfinancing facilities provided by Islamic financial institutions; and finally, the least attention and interest of International Donor Agencies (UNDP, World Bank, IFC) towards Islamic microfinance. All of which, in turn, is throwing the Muslim world into an era of poverty.

As per the praiseworthy analysis of economics experts of the modern age (Mr. Tariq Ullah and Mr. Ubaid Ullah 2008), 650 million Muslims in the world are living below poverty line with less than USD2/per day income. On the one hand, only 1.3 million Muslims out of 650 million were aided in alleviating their poverty through Islamic microfinance services, whereas the remaining 649 million Muslim, living in poverty, are still looking for any financial assistance through Islamic way.

The Islamic finance industry is facing lot of criticism in different aspects, namely the acceptability of Islamic finance as a whole, but also through internal objections from Shariah scholars and conflicts in Shariah related issues. These are seen as the main challenges to the Islamic finance industry. But the issue of neglecting the poor is very critical, and if not resolved, can damage and bring a perpetual loss to the Islamic banking and finance industry.

Optimal results for the economic prosperity of Islamic finance can be ensured if Islamic microfinance institutions are established by the Islamic finance industry. Although Islamic microfinance can be energized by utilizing the available charity amount of the Islamic banking and finance industry–which is worth millions of dollars–tools such as alia zakat, sadqaat, waqf, and other Islamic microfinance products such as murabaha, musharaka, salam and istisna’, can be used prolifically for poverty reduction and social development.

Our Shariah scholars are also responsible for pursuing and insisting that the Islamic financial institutions execute and promote Islamic microfinance.

Otherwise, there is a definite chance of rumors that Islamic banking and finance services are only for rich people, creating the discrimination of “Do Have and Have Not” and ensuring that the industry ultimately benefits only rich people.

About: Muhammed Zubair Mughal is Chief Executive Officer of AlHuda Centre of Islamic Banking and Economics (CIBE) and has been working consistently for the last nine years towards poverty alleviation through the Islamic microfinance concept. He can be reached at [email protected]

© Business Islamica 2013