Digital services offer huge potential for Islamic economy initiatives

Dubai: A growing global Muslim population with a dominant youth demographic, besides high consumption and expenditure patterns coupled with a rising level of technology readiness, are creating a largely untapped need for Digital Islamic services, according to a recent study by Deloitte and Noor Telecom, a Kuwait-based, Sharia-compliant closed-shareholding company, in association with Dubai Islamic Economy Development Centre (DIEDC).

“The Digital Islamic Economy is a key pillar and area of focus for DIEDC and the Islamic world. The report underscores the criticality of building a sound digital infrastructure and ecosystem to foster the development of online services for the Islamic economy,” said Abdullah Mohammad Al Awar, CEO, DIEDC.

The study, a serious effort in studying and assessing the global Digital Islamic Economy points to a wealth of opportunities that could be tapped into by investors, as well as governments and non-profit organisations.

“Technology is arming us with tools that are far more powerful and effective than anything in the past — the impact of which is fully evident in the Muslim community. By observing and following this trend, we have identified a strong need for Digital Islamic Services” said Ayman Al Bannaw, Chairman and CEO, Noor Telecom.

The study builds and expands on Deloitte’s previous report ‘Defining the Digital Services landscape for the Middle East’, which identified digital services under social needs, specifically hobbies, education, health and religion as emerging categories with unique niches for the Arab world. Of these, religion was identified as the category with the greatest prospects that could surge with continued activity and development.

“Although the prospects are noteworthy, our findings reveal that very few Islamic internet platforms have achieved a significant scale. Some verticals are being catered to, but monetisation remains a challenge,” said Santino Saguto, Partner and Technology, Media and Telecommunications Leader, Deloitte Middle East.

Experts say funding remains a key challenge in developing the digital Islamic opportunities. “Currently there are no venture capital funds in the Middle East that specifically target Islamic needs, signifying a huge gap that could and should be filled,” said Saguto.

The study defines the Digital Islamic Services landscape under nine key industry verticals and areas, such as Halal Food, travel, Islamic finance, modest fashion, Islamic art and design, Islamic economy education, Smart Mosques, Islamic media and Islamic standards and certification.

Among these verticals, notably, the Islamic finance industry has made significant progress over the past decades but the sector has still to mature. This is evident when comparing the total asset size per capita of all Islamic banks globally, $750 per capita, against conventional banks in key economies, each larger by a factor of 100 or more. The study estimates that least two decades will be needed to bridge this gap.

Given ample room for growth and development, populous OIC countries — most notably Turkey, Pakistan and Indonesia — are also now emerging as high growth Islamic finance markets. But low asset penetration and GDP per capita in these countries is driving the need for access to digital Islamic funding services, especially those that can open up access to financing for the wider rural population through via micro-financing, crowd funding and mobile payments.

“The report findings indicate that the Islamic online services will continue to proliferate across the Middle East and the world at large over the next few years,” said Dr Hatim Al Tahir, Director, Deloitte Islamic Finance Knowledge Centre in the Middle East. “In some areas we can expect to see the region following global trends whereas in others we will see a unique, homegrown approach. We expect these developments to create interest for global, regional and local players and stakeholders alike.

(Gulf News Banking / 22 June 2015)

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The rise of the Islamic economy

The last decade has seen a sharp rise in Islamic banking services, which are starting to offer a real and attractive alternative to the sort of financial services most people have grown used to. Across the Middle East, Africa, and Asia, Islamic banking has grown to become a prominent means of financial management, while it is also emerging in Western economies that have not typically been associated with it in the past.

Islamic banking has fast gained prominence across the world. Globally, Islamic banking assets (see Fig. 1) were estimated at around 17 percent in 2013, while Islamic funds and sukuk led year-on-year growth with 14 percent and 11 percent respectively. Other key sectors of the Islamic economy have experienced success too. The global expenditure of Muslim consumers on food and lifestyle sectors grew 9.5 percent from previous years, and is expected to grow at a compounded annual rate of 10.8 percent until 2019. Global Muslim spending on tourism increased by 7.7 percent in 2013, while consumer spending on pharmaceuticals and cosmetics increased by two and one percent respectively.

This global pattern of growth has been repeated closer to home in the UAE, supported by significant efforts by the UAE government to drive and consolidate the country’s Islamic economy. The UAE is among the top countries in global Muslim spending on halal goods, tourism and cosmetics. Islamic banks in the nation have been growing at an average rate of 14 to 18 percent in recent years, compared to four to eight percent for conventional banks.

The benefitsClearly, the demand for an Islamic economy and Islamic banking is on the rise.

Islamic banking is based on the core principles of sharia law and, owing to its principled approach and high value proposition, nevertheless, it has gained popularity beyond the market of practising Muslims.

Islamic banking offers a plethora of products for customers or investors looking to participate. However, defined by a ‘real and rooted’ approach, with a focus on assets, it avoids the excessive complexity and ambiguity of some conventional products. For example, Islamic banking embraces risk-sharing as opposed to risk-transfer. In an Islamic finance (Islamic mortgage) and based on the Murabaha structure, the bank takes the responsibility of purchasing the item and re-selling it to the buyer at a profit. This arrangement enables the buyer to repay the bank in instalments. The bank protects itself against default by asking for strict collateral.

This joint approach to financing protects the buyer and the bank – while still providing for both parties to benefit. In essence, the Murabaha structure compels the bank to take on and manage risk, while providing payment stability to the customer. Another example of risk sharing is seen in Islamic trade finance, where banks actually own goods in transit and have to insure against loss or damage.

In addition, sharia law prohibits engaging in activities or transactions that are considered harmful to people, society or the environment. This ethical approach is at the core of Islamic banking and avoids transactions involving usury, interest, speculation, gambling, or industries contrary to Islamic values. So for investors that share these principles, irrespective of religion, Islamic finance provides a range of options.

Islamic banking’s emphasis on shared responsibility and community also creates a more inclusive economy. For example, several Islamic financial instruments are designed to assist investors with ‘zakat’, one of the five pillars of Islam that mandates giving a portion of your wealth to charity. In addition, Islamic banks donate all late payment fees and forfeited income to charity. Islamic banks have no incentive for extensive or nontransparent fee charging, since they will not be allowed to recognise it as revenue.

In addition Islamic finance has an ‘inbuilt anti-crisis mode’, which is perhaps one of the most compelling reasons why Islamic finance is so relevant to investors across the globe. For a world reeling from the after-effects of the global financial crisis, Islamic banking offers a steadier, safer approach. This is reflected in the in-depth screening process that eliminates companies deemed too risky because of excessive leveraging. The partnership structure of Islamic financing prompts both parties to be mutually responsible thus protecting individual investors. While profit is encouraged, it is just one of the reasons to participate in economic activity with community welfare taking equal, if not higher precedence. Money has no intrinsic value except as a medium of exchange and transactions have to be backed up by real assets and activities.

Indeed, in the aftermath of the global financial crisis, many proponents of Islamic banking pointed out how institutions offering these services tended to be far more resilient to the crisis than those at the heart of the crisis. The IMF produced a report in 2010 that showed how Islamic banking institutions contained the fall out of the crisis by having lower leverage and no investments in risky, non-sharia-compliant products.

Challenges of growth

Despite the growth of Islamic finance, there remain some hurdles to its growth.

There is an urgent need to standardise sharia regulations and unify sharia rulings across banks and markets. Multiple interpretation of the law by sharia scholars can leave the industry as well as investors unclear about certain aspects of Islamic banking.

In addition, there is a need for specific regulations related to Islamic banks against the current banking regulations being tailored towards conventional banking, i.e not taking into context the specific nature of Islamic financing. Islamic banks take on a higher exposure to real estate for example. There is also a need to differentiate Murabaha from normal lending as well as differentiate Musharaka from equity investments etc.

There are several other challenges: liquidity management tools remain limited for Islamic banks, locally and globally. There is also limited consumer awareness of Islamic banks’ offering and on the overall competitiveness of Islamic financing solutions. In addition, Islamic banks still have to count on conventional banks for international market access/global deals. There are also limited sharia-compliant avenues across the globe. The debt markets remain dominated by conventional offering with limited sukuk and other sharia-compliant debt capital market instruments available.

Dubai’s vision

The Islamic economy is here to stay, and will grow to form a sizeable part of economic activity. We have already started to see signs of success, with Dubai being the third-largest sukuk venue globally, with $20.38bn in total value of sukuk listings. The UAE itself is second after Malaysia in sukuk issuances worldwide (see Fig. 2).

Emirates Islamic has made significant contributions with the recent launch of the NASDAQ Dubai Murabaha Platform, a comprehensive Islamic Murabaha platform to provide local and regional banks with sharia-compliant financing solutions as part of Dubai’s Islamic Economy vision.

Emirates Islamic also has a deep commitment to innovation in Islamic finance, by providing a range of segments, products and services, including customised solutions. The bank’s customer-centric approach, focused strategy and product innovation has also led to its expansion. In a span of a few years the bank has increased its customer base by more than 30 percent, developed and launched multiple products and services to every segment whether mass or niche, and grown its branch network by over 50 percent, making it the fastest growing bank in the UAE. Emirates Islamic has over 55 branches and more than 150 ATMs/cash deposit machines across the UAE – a testament to the growing demand among customers for a more ethical and transparent way of banking.

Fuelled by such unprecedented growth rates, Emirates Islamic now stands as one of the three largest Islamic banks in the UAE, with one of the largest branch networks in Dubai. The efforts of the bank in recent years have been recognised by the general public and by prestigious publications – Emirates Islamic has received numerous accolades, both regionally and in the international arena, such as Best Islamic Bank, UAE 2015 by World Finance, Best Domestic Retail Bank 2014 by Islamic Business & Finance, and Best Corporate Bank 2013 by CPI Financial, among others.

(World Finance / 08 March 2015)

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Dubai Seeks to Become Islamic Economic Hub

DUBAI — Mareyah Mohammad Ahmad, a United Arab Emirates student in Dubai, says she plans to start a master’s degree in Islamic finance and banking this fall, following a Dubai government decree published in December that set up a new body for the industry, the Dubai Islamic Economy Development Center.

As part of the emirate’s goal of becoming the global hub of the Islamic economy, the center will provide legal and other services for the Islamic financial industry, including auditing services and an arbitration platform for conflict resolution.

Islamic, Shariah-compliant, finance is growing in both scale and sophistication but there is a catch: Experts say there is a shortage of qualified people to work in the field.

“There aren’t a lot of Emiratis specialized academically in this field, and I had always had an interest in how it works differently from conventional finance,” said Ms. Ahmed, who is studying finance at the British University in Dubai. “I made sure to get work experience in Islamic finance, too, and now if it becomes the capital of the Islamic economy, I should be able to get a good position.”

While general finance degrees and courses are easy to find in the United Arab Emirates, Islamic finance studies have remained limited, even for dedicated students like Ms. Ahmad, hindering efforts by the Gulf state to challenge the established market leaders, Kuala Lumpur and London.

At stake is a substantial and growing volume of potential business. According to a recent report by the ratings agency Standard & Poor’s, issuance of sukuk, or Islamic bonds, is projected to exceed $100 billion worldwide in 2014. That is about the same level as last year, but within that total, double-digit percentage growth is expected in issues by Gulf borrowers, to finance heavy infrastructure spending in the region.

Following the December decree, higher education institutions in Dubai are strengthening their programs in Islamic finance. New offerings include the master’s course that Ms. Ahmad hopes to join, at the British University.

Total Islamic financial assets are growing 17 percent per year and are set to reach a value of $2.67 trillion in 2017, according to Pricewaterhouse Coopers. A recent analysis by Tahseen Consulting, which advises on strategic and organizational issues in the Arab world, forecasts that employment in Islamic financial services in the Emirates will double, to 20,000, in 2015, from 10,000 now.

As the industry has evolved, academia has tried to keep up by offering relevant training. According to a report issued late last year by Thomson Reuters and ICD, the Islamic Corporation for the Development of the Private Sector, more than 530 institutions worldwide now offer courses or degrees in Islamic finance. The U.A.E., in third place behind Britain and Malaysia, has 31 course providers and 9 fully accredited degree providers.

But the jointly produced Islamic Finance Development Report, based on a survey of 60 banks in 15 countries, said that half had reported difficulties in hiring suitably skilled graduates for entry-level positions.

The Emirates has “a long way to go when it comes to quality teachers, diversity and number of programs offered and curricula,” said Abdullah Alshamsi, a business professor at the British University in Dubai. “It’s not all up to academia,” he added. “We have to work together with banks and lawyers and other stakeholders to address the shortage of skills.”

Dubai International Academic City is a free zone for international university campuses. Established in 2007, it has 21 campuses with 20,000 students in over 400 programs. But Ayoub Kazim, its managing director, said, “Historically, the focus on training and education in such a specialized industry has been pretty limited.”

“We are working on that,” the director said, “as we bring together industry experts, government officials and leading academics to identify the existing and emerging skills gaps within the Islamic finance sector.”

Within the banking industry, some institutions are developing their intern programs to provide more hands-on training for students to get practical experience. Emirates Islamic, for example, which has run a summer program for the past five years, expanded it this year to 20 interns from 12.

Still, more is needed. “Employers must dedicate themselves to providing genuine on-the-job training,” said Rashid Mahboob, senior vice president at Dubai Islamic Bank. “We need to work together with academia to nurture the human capital needed to meet the sector’s expected growth.”

Muneer Khan, a partner at the law firm Simmons and Simmons Middle East, who specializes in Islamic finance in London and Dubai, said, “What Dubai recognizes is that the local population is relatively small and the corporate community is not huge, so they want to be able to cater to a wider community as Islamic finance grows in popularity regionally and internationally.”

“Dubai wants to position itself in a way so that the expertise in terms of bankers and lawyers are available here to structure products anywhere in the world,” he added.

Over the past five years, Mr. Khan says, he has received resumés from hundreds of students worldwide who want to join the firm’s Islamic finance team: but while many had academic qualifications, most lacked work experience, he said.

In Britain, there are agreements under which leading law firms pay school fees for a student’s final year after an internship, which allows for synergy between industry and academia. Not so in Dubai, he said: When his firm takes on interns in Dubai, they lack essential skills because academic programs have failed to keep up with the industry.

“If banks, which are the largest potential Islamic finance employers, are saying to universities that students aren’t ready for business, they need to work directly with them to provide the right skills,” Mr. Khan said.

“If this isn’t resolved in the next few years, there will be a really serious problem in the marketplace.”

(New York Times / 13 April 2014)

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Dubai: Islamic finance talent gap to reach 8,000 plus

Dubai: Companies in the UAE will require a lot more than 8,000 new employees trained in Islamic finance next year as Dubai positions itself as the capital of the $8 trillion Islamic economy, a source from an institute told Gulf News.

The bulk of the additional manpower will be required by banks offering Sharia-compliant products and services. Recruiters in the UAE are already seeing a 50 per cent growth in demand for candidates with Islamic finance experience.

Many companies are currently looking to fill positions across all levels, from relationship management, project management to risk management and marketing.

Tahseen Consulting, a specialised advisor on strategic and organisational issues in the Arab world, recently projected that some $87 to $124 billion could potentially enter the Islamic banking system in the UAE next year, creating approximately 7,800 new positions.

“It’s quite a positive industry right now. The growth is showing a lot of positive movements, so hence there is a good potential or possibility of the number even going higher,” Geetu Ahuja, head of GCC at the Chartered Institute of Management Accountants (Cima), a provider of Islamic finance education, told Gulf News in an interview.

“The close to 8,000 projected manpower is only needed around Islamic finance banks, but if we’re looking at other institutions, there are a few more hundreds there itself which will be in demand by next year.”

The Gulf Cooperation Council (GCC) region is set to lead the expansion of the global Islamic finance industry, which is projected to post a double-digit growth by 2016. Estimates show that across the world, Islamic finance will need about 50,000 additional personnel by next year. Adnan Salam, principal consultant at Talent2, a recruitment specialist, said they have seen an increasing demand for Islamic finance professionals in the UAE and the wider GCC market, as conventional banks have been launching new Islamic products.

“At least 40 per cent of the overall roles we are currently working on within the banking and financial services team require Islamic finance qualified or experienced candidates. This is at least a 50 per cent increase compared to the same three-month period in 2013,” Salam told Gulf News.

“We are seeing positions that are in demand across all levels, predominantly within relationship management/sales, business analysis, project management, risk management — more specifically credit risk — and marketing, all related to Islamic finance.”

Analysts have said earlier that while the market is growing, there is a dearth of qualified personnel with Islamic banking skills. The Workforce Planning Study by Dubai International Academic City showed that 50 per cent of the GCC banks find it difficult to hire graduates for entry-level positions, while nearly a quarter (23 per cent) struggle to hire for mid-level roles.

Shailesh Dash, CEO of Al Masah Capital, said the talent shortage can be addressed by utilising the existing pool of professionals working in banks and financial services firms, and providing them with Islamic finance training.

“Instead of relying solely on some sort of certification to determine the authenticity of the professional’s Islamic finance knowledge, one could instead use existing finance [employees] and convert them to Islamic finance experts by giving them the requisite training,” Dash told Gulf News yesterday.

“This would be a far more efficient and quicker way to reduce the gap. By setting up a world-class system, the UAE not only fills a gap in the market, it also provides its national population another opportunity for gainful employment,” he added.

Dubai has announced plans to be the global capital of the Islamic economy, which includes Islamic finance, in the next three years.

(Gulf News.Com / 24 March 2014)

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Move to strengthen parallel economy

Dubai: The latest initiatives by Dubai Government to a set up a comprehensive platform of Islamic economy products and services will strengthen its position as a global centre for Islamic economy, analysts say.

The move will see new comprehensive regulatory regime being set up to standardise and regulate Islamic products, services and practices that will strengthen a ‘parallel economy’ – free from conventional and interest-based financial practices.

“UAE is a regional business and trade centre. The country already has world class ‘hard’ infrastructure. The initiative intends to add to the ‘soft’ infrastructure to encourage and attract Sharia compliant activity in, for example, financial services and the food industry,” Dr. Giyas Gokkent, Chief Economist of National Bank of Abu Dhabi, told Gulf News.

“Officials have indicated that this is also part of an effort to increase inward foreign direct investment which would boost economic growth.

With Islamic economic principles playing a growing significance in today’s global business environment, with Islamic economy size reaching $2.3 trillion and a growing community of 1.6 billion Muslims, the new initiatives are expected to further promote investments in Dubai, especially from economies spanning the Middle East, Africa, South Asia and Southeast Asia, Dubai Government said in a statement.

“This appears to be an initiative to attract foreign investment and establish the country as a centre for Sharia compliant finance and so on,” Gokkent says. “Sharia compliant activity in various sectors already exists and is subject to regulation.

Bahrain is also pursuing a strategy to become a hub for Sharia-compliant finance.

“The GCC accounts for a large proportion of Islamic finance activity given the size of its economy (13th largest in the World in aggregate). For example, about half of the global Sharia compliant mutual fund activity is in the GCC,” Dr Gokkent says.

Azhar Nazim, Partner, Global Islamic Banking Centre of Excellence at Ernst & Young, told Gulf News, that the move needed to be backed by a solid roadmap and set of actions. “Following the announcement, implementation will be key and it needs to be backed by roadmaps and actions,” he said.

Global Islamic banking assets are expected to reach $1.8 trillion by 2013, according to Ernst & Young’s World Islamic Banking Competitiveness Report 2013, up from the $1.3 trillion of assets held in 2011. This forecast is significantly higher than some of the earlier industry estimates. Globally, the Islamic banking industry continues to record robust growth, with the top 20 Islamic banks registering a growth of 16% in the last three years and Saudi Arabia emerging as the largest market for Islamic assets, it says.

According to the report, in 2011, the Islamic banking industry in Saudi Arabia, with an estimated $207 billion of Islamic assets, was ranked first. Malaysia, ranked second with total assets of $106 billion in 2011 and UAE ranked third with total assets of $75 billion.

Nazim said, he sees significant opportunities for the UAE to gain from Islamic banking as the UAE’s Islamic Banking sector represents only 17 per cent of the total banking sector. He said, if implemented properly, the country has a lot to gain from the global Islamic economic growth.

“The initiative is very timely and it is a broad-based approach,” he told Gulf News. “With this, Dubai could take a leadership role in the linkages of Islamic Economy with the real economy and the various sectors – finance, commodities, home finance, banking and insurance, etc.

“Also, it is important to have regulatory clarity – both for the financial system and the real economy,” he stressed.

Demand for Islamic tradeable securities – or sukuk, is expected to jump from $300 billion in 2011 to $950 billion by 2017, he said.

“The top 20 Islamic banks hold 57 per cent of the total global Islamic banking assets and are concentrated in the seven core markets for Islamic banking which include: Saudi Arabia, Kuwait, UAE, Bahrain, Qatar, Malaysia and Turkey,” he added.

The move comes four years after the global financial crisis that has affected the world economy – from which the major economies are still trying to recover.

Islamic banking and finance – which gained momentum following the global financial crisis, offers better returns, as they are based on real assets.

Regulations will be key, analysts say.

“Discussions with management and boards of leading Islamic banks suggest that major transformation is happening around Regulations, Risk and Retail Banking or the 3 R’s,” Ashar Nazim says.

“These 3 R’s of transformation are geared towards efficient capital planning, risk modelling, mitigating Sharia risk and building customer centric organizations. There are also meaningful developments on the regulatory front although a lot more needs to be done to create the right enabling environment for Islamic banks to implement the reform agenda,” said Ashar.

Islamic Economy

Although most people think about Islamic Banking when talked about Islamic Economy – which is much wide and covers all aspects of the economic life of a person to a society – has not been brought under a simple set of regulations. There are also issues relating to standardization and regulatory uniformity. Banks’s Sharia compliance varies globally – due to the lack of a single regulatory regime to govern Islamic banking or other aspects of finances.

Islamic economics in practice, or economic policies supported by self-identified Islamic groups, has varied throughout its long history, although these are prescribed to be sourced from the teachings of the holy Quran and the sermons issued by Prophet Mohammad (PBUH) about 1,400 years ago. Islamic economy is linked the lifestyle, governance prescribed by the Islamic theology.

Islamic theory and practice formed a “coherent” economic system with “a blueprint for a new order in society, in which all participants would be treated more fairly”. Michael Bonner, for example, has written that an “economy of poverty” prevailed in Islam until the 13th and 14th centuries. Under this system God’s guidance made sure the flow of money and goods was “purified” by being channelled from those who had much of it to those who had little by encouraging zakat (charity) and discouraging riba (usury/interest) on loans.

Trading in assets have been at the core of the Islamic economic principles.

Social responsibility in commerce was stressed in Islamic sociology. The development of Islamic banks and Islamic economics was a side effect of this sociology: usury was rather severely restrained, no interest rate was allowed, and investors were not permitted to escape the consequences of any failed venture — all financing was equity financing (Musharaka). In not letting borrowers bear all the risk/cost of a failure, an extreme disparity of outcomes between “partners” is thus avoided. Ultimately this serves a social harmony purpose.

The move to develop Islamic Economy is an age-old one. Although it actually started with the development of the first Islamic bank in the 1960s, it gained momentum in the 1990s.

However, in order to address the overall Islamic economy, various sectors have developed Sharia-compliant principles, such as: Islamic Banking, Islamic Insurance, Islamic Finance, Islamic Bonds – Sukuk, Islamic Equity – stock indices, Islamic Derivatives, Islamic Tourism, Halal Food, Halal commodities.

(Gulfnews.Com / 09 Jan 2013)

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