KUALA LUMPUR: FINDING A JOB IS OFTEN HARDER THAN EXPECTED FOR GRADUATES HOPING TO ENTER MALAYSIA'S ISLAMIC BANKING INDUSTRY, THE WORLD'S SECOND-LARGEST WITH US$124 BILLION IN ASSETS - EMPLOYERS ARE PROVING CHOOSY ABOUT QUALIFICATIONS.
THOUSANDS OF STUDENTS, A LARGE NUMBER OF THEM MUSLIMS FROM ACROSS THE GLOBE, HAVE FLOCKED TO THE MANY ISLAMIC FINANCE COURSES OFFERED IN MALAYSIA, SEEING THEM AS SPRINGBOARDS TO A CAREER.
MALAYSIA HAS AN ESTIMATED 50 COURSE PROVIDERS AND 18 UNIVERSITIES WHICH OFFER ISLAMIC FINANCE DEGREES, AND IT BOASTS THE LARGEST ACADEMIC OUTPUT GLOBALLY. THE COUNTRY HAS PUBLISHED 169 RESEARCH PAPERS ON ISLAMIC FINANCE IN THE LAST THREE YEARS, ACCORDING TO DATA FROM THOMSON REUTERS.
BUT WHILE THE MALAYSIAN ISLAMIC BANKING INDUSTRY'S OUTPUT IN MONETARY TERMS IS GROWING ABOUT 20 PERCENT ANNUALLY, EMPLOYMENT IN IT IS EXPANDING AT LESS THAN HALF THAT RATE - EVEN THOUGH AN ADDITIONAL 22,400 JOBS ARE NEEDED TO SUPPORT THE GROWTH, ACCORDING TO A BLUEPRINT FOR THE FINANCIAL SECTOR PREPARED BY THE CENTRAL BANK.
MALAYSIA IS EXPERIENCING A PROBLEM FACED BY ISLAMIC FINANCE SECTORS AROUND THE WORLD: TRAINING AND QUALIFICATIONS OFTEN DO NOT PROVIDE THE LEVELS OF SPECIALISM AND SOPHISTICATION THAT EMPLOYERS NEED.
THE PROBLEM IS LIMITING GROWTH OF THE INDUSTRY AND, SOME SAY, STIFLING INNOVATION THAT IS NECESSARY TO BRING ISLAMIC FINANCE FULLY INTO LINE WITH RELIGIOUS PRINCIPLES, AND PREVENT ITS PRODUCTS FROM MERELY BEING PALE REFLECTIONS OF CONVENTIONAL FINANCIAL INSTRUMENTS.
"A COMMON MISUNDERSTANDING OF THESE YOUNG GRADUATES IS THAT THEY BELIEVE THERE IS SUCH A THING AS A GENERIC JOB IN ISLAMIC FINANCE. IN REALITY, THE INDUSTRY IS LOOKING TO EMPLOY SPECIALISTS," SAID RAYMOND MADDEN, CHIEF EXECUTIVE OF THE ASIAN INSTITUTE OF FINANCE (AIF), SET UP BY MALAYSIA'S CENTRAL BANK TO DEVELOP HUMAN CAPITAL FOR THE REGION'S FINANCIAL INDUSTRY.
THIS MEANS GRADUATES ARE OFTEN INADEQUATELY EQUIPPED, AND FEW IN THE INDUSTRY ARE ACTIVELY TRYING TO SOLVE THE PROBLEM, HE SAID.
"IT'S A MAJOR ISSUE - NOBODY WANTS TO TAKE OWNERSHIP OF TRAINING GRADUATES IN AREAS THAT ARE MOST NEEDED BY THE INDUSTRY," ADDED SOFIZA AZMI, AIF'S HEAD OF STRATEGY AND DEVELOPMENT.
THE ISLAMIC FINANCE SECTOR'S NEED FOR SPECIFIC SKILLS IN RISK MANAGEMENT AS WELL AS INTERNAL AUDIT AND GOVERNANCE, PLUS A BASIC GROUNDING IN SHARIA LAW, IS NOT BEING COMMUNICATED, SHE SAID.
"MOVING FORWARD YOU NEED TO UNDERSTAND WHERE THE BANKS ARE GOING, HOW THEY ARE GOING TO EXPAND, WHAT THEIR PLANS ARE. THEN YOU CAN MAP OUT THEIR TALENT NEEDS."
ONE REASON FOR THE SKILLS MISMATCH IN ISLAMIC FINANCE IS THE YOUTH OF THE INDUSTRY; IT WAS BORN IN ITS MODERN FORM IN THE 1970S, AND IN MANY COUNTRIES HAS ONLY BECOME A MAINSTREAM INDUSTRY IN THE PAST DECADE.
THE INDUSTRY HAS MOVED INTO RELATIVELY COMPLEX AREAS, SUCH AS ISLAMIC MONEY MARKET INSTRUMENTS AND HYBRID ISLAMIC BONDS WITH EQUITY-LIKED CHARACTERISTICS, ONLY IN THE LAST FEW YEARS.
THE FRAGMENTATION OF ISLAMIC FINANCIAL REGULATION, WITH SHARIA BOARDS AND NATIONAL REGULATORS IN VARIOUS COUNTRIES TAKING DIFFERENT APPROACHES TO SOME CORE PRODUCTS AND CONCEPTS, MAY ALSO BE AN OBSTACLE TO EFFECTIVE TRAINING.
EMPLOYERS COULD PROVIDE SOME OF THAT SPECIALISED TRAINING, BUT BANKS IN MALAYSIA HAVE SO FAR BEEN RELUCTANT TO DO SO BECAUSE OF THE TIME AND COST INVOLVED. INSTEAD THEY TEND TO POACH SKILLED STAFF FROM RIVALS, A QUICKER AND CHEAPER ALTERNATIVE.
"THE BANKS WILL HAVE TO STEP UP. IF THEY NEED PEOPLE SPECIALISING IN AREAS, THEY WILL HAVE TO TRAIN INTERNALLY," AZMI ADDED.
UNIVERSITIES ALSO NEED TO REVAMP THEIR CURRICULA TO SUIT INDUSTRY NEEDS, BUT IT INEVITABLY TAKES A LONG TIME TO EVALUATE AND IMPLEMENT CHANGES, SHE SAID.
MALAYSIAN AUTHORITIES HAVE RESPONDED BY TRYING TO INTERVENE DIRECTLY IN THE JOB MARKET; THE INTERNATIONAL CENTRE FOR EDUCATION IN ISLAMIC FINANCE (INCEIF) WAS SET UP BY MALAYSIA'S CENTRAL BANK IN 2009 TO HELP WITH TRAINING.
BUT SYED OTHMAN ALHABSHI, INCEIF'S CHIEF ACADEMIC OFFICER, SAID THE CENTRE'S SIGNATURE CHARTERED ISLAMIC FINANCE PROFESSIONAL QUALIFICATION, A ONE-YEAR POSTGRADUATE PROGRAMME, HAD ONLY ATTRACTED A HANDFUL OF INDUSTRY EXECUTIVES TO ITS STAFF.
ONLY FIVE OF THE CENTRE'S FULL-TIME LECTURERS BOAST ACTUAL EXPOSURE TO THE SECTOR AND MOST HAVE RETIRED FROM ACTIVE INVOLVEMENT IN THE CORPORATE WORLD, HE SAID. THE CENTRE'S 12-MEMBER PROFESSIONAL DEVELOPMENT PANEL, WHICH MEETS QUARTERLY, HAS ONLY TWO ISLAMIC BANK HEADS, FROM BANK ISLAM AND OCBC AL-AMIN.
ABOUT 60 PERCENT OF INCEIF'S GRADUATES FIND EMPLOYMENT WITHIN SIX MONTHS, ACCORDING TO AN INTERNAL SURVEY, THE CENTRE SAID, DECLINING TO PROVIDE FURTHER DETAILS OF THE SURVEY.
WHILE THE CENTRE'S PROGRAMMES HAVE EVOLVED OVER TIME, ITS GRADUATES ARE NOT DESIGNED TO BE SPECIALISTS, SO THE TASK OF FURTHER TRAINING FALLS ON BANKS, SAID SYED.
"OUR FIRST JOB IS TO TRAIN THEM. IF THEY CAN GET A JOB HERE, ITS FINE. BUT IF NOT, WE CAN'T DO MUCH. IT'S UP TO THE EMPLOYER WHETHER THEY WANT TO TAKE THE EXTRA MILE."
SYED ADDED THAT JOB OPPORTUNITIES FOR ISLAMIC FINANCE GRADUATES WERE LIMITED PARTLY BECAUSE COMPANIES SUCH AS MAYBANK ISLAMIC, THE LARGEST ISLAMIC BANK IN ASIA, DID NOT NEED LARGE WORKFORCES AS THEY COULD LEVERAGE STAFF FROM THEIR PARENT FIRMS - IN MAYBANK'S CASE, MALAYAN BANKING.
AIF HOPES A NEW ADVISORY PANEL COMPRISING REPRESENTATIVES FROM ACROSS THE INDUSTRY CAN CLOSE THE GAP.
A NEW FINANCIAL SERVICES TALENT COUNCIL, BEING PLANNED BY THE CENTRAL BANK, IS TO INCLUDE INDIVIDUALS FROM THE EDUCATION MINISTRY, ISLAMIC BANKS AND UNIVERSITIES, IN THE HOPE OF SETTING A NATIONAL AGENDA FOR THE INDUSTRY'S TALENT NEEDS.
"IF YOU'VE GOT THIS DIVERSITY OF PEOPLE TO DISCUSS A PARTICULAR ISSUE, YOU'LL BE ABLE TO COME UP WITH A BETTER SOLUTION," AZMI SAID.
MANY FOREIGN STUDENTS EXPECT EASY ACCESS TO MALAYSIA'S JOB MARKET WHEN THEY OBTAIN LOCAL ISLAMIC FINANCE QUALIFICATIONS, BUT SOME ARE TURNED DOWN BECAUSE BANKS FACE COSTLY, TIME-CONSUMING VISA REQUIREMENTS TO HIRE FOREIGN STUDENTS.
"THEY WASTE ONE YEAR HERE, AND MANY OF THEM ARE UPSET WITH THIS," SAID OMAR ALAEDDIN, AN INCEIF GRADUATE AND CURRENT MEMBER OF ITS STUDENT REPRESENTATIVE COUNCIL.
SO MANY STUDENTS RETURN TO THEIR HOME COUNTRIES WITH MALAYSIAN ISLAMIC FINANCE QUALIFICATIONS. THIS HAS THE BENEFIT OF SPREADING KNOWLEDGE GLOBALLY, BUT THE STUDENTS CAN ALSO HAVE DIFFICULTY FINDING JOBS BACK HOME.
"AT THE BEGINNING THEY COME HERE THINKING THERE ARE HUNDREDS OF BANKS AND EMPLOYEES," SAID ALAEDDIN, WHO TEACHES RISK MANAGEMENT AND SHARIA AUDITING AT UNIVERSITI KUALA LUMPUR.
London is hosting a meeting of the World Islamic Economic Forum - the first city in a non-Muslim country to do so. David Cameron will use the opportunity to boast British credentials when it comes to Islamic finance, announcing plans to create a £200m Islamic bond by early next year.
Finance is described as Islamic when it complies with sharia, a set of moral laws laid out in the Qur'an and writings about the prophet. Sharia forbids making money from money which begs the immediate question; how can banks that don't charge interest survive? It's a question worth answering, not least because academics have argued that the financial crisis wouldn't have happened if the global economy was regulated by Islamic finance.
How It Works
Islamic finance is all about sharing risk between financial institutions and the individuals that use them. To do that, the two parties are tied into a longer-term relationship with each other that is supposed to shift incentives and avoid cut and run financial deals.
So, for example, sharia-compliant mortgages mean that the bank and the borrower share the risks of repayment rather than charging any form of interest. Similarly, Islamic bonds like the one announced by David Cameron today involve both parties owning the debt, rather than a simple promise to repay a loan.
Since it's Islamic, that also means that financial trading is off-limits for things that are forbidden even if no interest is charged - so investments can't be made in alcohol, tobacco, non-halal meat products such as pork, pornography or gambling companies. So if there's no interest and gambling on high-risk ventures is a no-no, how can Islamic banks be profitable? Hilary Osborne explains:
banks can profit from helping customers to purchase a property using a ijara or murabaha scheme. With an ijara scheme the bank makes money by charging the customer rent; with a murabaha scheme, a price is agreed at the outset which is more than the market value. This profit is deemed to be a reward for the risk that is assumed by the bank
You don't have to be Muslim to use Islamic financial services - a fact which has stimulated further interest in the sector. The Islamic Bank of Britain reported a 55% increase in applications for its savings accounts by non-Muslims last year after the Barclays rate-fixing scandal.
The Islamic asset management sector is gradually making a comeback after years of stagnation, having seen a total of 88 funds liquidated globally in the past two years as slumping equity markets reduced investor interest.
Firms such as Britain's Threadneedle Investments, which set-up in Malaysia this month, now plan Islamic funds that screen their portfolios following religious guidelines such as bans on tobacco, alcohol and gambling.
The new unit would leverage the Maybank group's network of business lines, which range from consumer banking to Islamic insurance, as well as its geographical presence across Asia.
"The missing link within the Maybank group is Islamic asset management," Nor Azamin Salleh, chief executive of Maybank asset management said on Tuesday.
The new unit aims to launch Asian-themed investment funds using a bottom-up investment strategy, with products to be marketed primarily in Malaysia and Indonesia, Salleh said.
"We are looking at trying to bring an ASEAN plus North Asia product. Our approach is more on the ground, a bottom-up approach," he said.
Earlier this month, Maybank acquired Indonesian asset management firm PT GMT Aset Manajemen, and it would also explore opportunities in the Middle East through Maybank Investment Bank's stake in Saudi Arabia's Anfaal Capital, Salleh added.
London is not content with its status as the leading capital of Islamic finance in the West and wants to compete with powerhouses in the Muslim world, British Prime Minister David Cameron declared at the World Islamic Economic Forum (WIEF) Tuesday in London, where he announced the launch of a new British Islamic Market Index and the first ever Islamic bond, or sukuk, issued by a non-Muslim country.
Calling London "the biggest center for Islamic finance outside the Islamic world," Cameron said Tuesday that the U.K.'s ambition is to boost its reputation among Islamic investors with these forays into Islamic finance, unprecedented for a non-Muslim country like Britain.
"I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world," he told an audience of international political and business leaders — including King Abdullah of Jordan, Afghan President Hamid Karzai and Pakistani Prime Minister Nawaz Sharif — gathered in London for the first ever WIEF summit held outside the Muslim world.
Though still a fraction of the global investment market, Islamic investments, which mandate stringent rules in accordance with Islamic law, are projected to constitute $2 trillion by 2014, a 150 percent increase from their 2006 value, according to consultancy Ernst & Young.
Malaysia's capital, Kuala Lumpur, has long been considered the stalwart of Islamic finance but London counts among a rising number of cities vying to overtake it.
London is the European headquarters for several major Middle East banks and a base of operations for the continent's Middle Eastern investors, whose assets include London's iconic Harrod's department store and the Manchester City soccer team. Islamic investment has financed London's Shard skyscraper — the tallest building in the European Union — and the 2012 Olympic Village.
The British government has encouraged a diverse range of capital, especially from China and the Middle East, to diversify Britain's investment landscape. Cameron has said that Islamic finance is expanding at a 50 percent faster rate than conventional banking, and analysts say these latest steps are designed to spur Islamic finance even further.
Jamie Durham, a partner in International Capital Markets at the law firm Allen and Overy in London, said the steps Cameron announced on Tuesday were a long time in the making.
"Britain has been looking to do this for some time now to showcase its Islamic finance industry," Durham told Al Jazeera. "I would see these moves as a symbolic way of highlighting the quantitative steps the U.K. has taken to support Islamic finance in the U.K. more generally."
The burgeoning field of Islamic finance has largely been fueled by Gulf investors who hope to tap into oil revenue, much of which is controlled by pious Muslims. Growing demand across the globe for retail Islamic banking services has similarly propelled Islamic investment.
In keeping with Islamic law, or Sharia, Islamic finance forbids charging interest and requires that deals be based on tangible assets. Gambling is prohibited by Islam, and so dealing in futures, which Islamic scholars say is akin to speculation, is not permitted.
Unlike conventional bonds, sukuk are described as investments rather than loans, with the initial payment made from an Islamic investor in the form of a tangible asset such as land. The lender of a sukuk earns money as profit from rent, in the case of real estate, rather than traditional interest.
Britain's $200 million sukuk is one-fifth the size first announced five years ago but is nonetheless expected to boost London's reputation as a center of Islamic finance — if not draw new investors into the market. Though Britain has established itself as a minor sukuk marketplace, bonds have rarely been issued from local firms — and never from the government.
"For years people have been talking about creating an Islamic bond, or sukuk, outside the Islamic world. But it's never quite happened," Cameron said on Tuesday. "Changing that is a question of pragmatism and political will. And here in Britain we've got both."
The investment-grade sukuk has been welcomed by local lenders who could use it as a liquidity instrument, said Richard Williams, finance director at Bank of London and the Middle East, the U.K.'s largest standalone Islamic bank.
"This challenge will now be resolved and is one of the final measures in creating a truly level playing field for the U.K. Islamic banks," Williams told Reuters on Tuesday.
Cameron also announced at the Forum that the London Stock Exchange will launch an Islamic index that filters companies by their adherence to Islamic principles, much in the same way that social responsibility indices classify companies to guide potential investors.
The prime minister cited mutual benefits for Islamic investors and Britain in launching these two initiatives, framing them as consistent with Britain's historical commitment to free trade.
"Investing in London is good for you, and opening London up to your investment is good for us," he told the Forum.
Britain's push to promote itself as a leading Islamic finance hub comes as competition heats up with other financial centres in Asia, led by Malaysia, and in the Middle East.
Britain first announced plans for a sovereign sukuk five years ago but that issue never materialised as the country's Debt Management Office decided the structure was too expensive.
The new proposal is less than a fifth of the size of the original and is designed to boost London's status rather than to diversify Britain's investor base.
"I don't just want London to be a great capital of Islamic finance in the Western world, I want London to stand alongside Dubai and Kuala Lumpur as one of the great capitals of Islamic finance anywhere in the world," Cameron told the World Islamic Economic Forum being held in London.
Sukuk are investment certificates which follow religious principles such as a ban on interest and gambling.
The global Islamic banking industry is expected to tip $1.8 trillion by the end of this year, according to consultancy Ernst & Young, and is starting to attract interest among big Western banks because of rapid growth of trade involving wealthy Gulf economies.
Malaysia, the world's largest marketplace for sukuk, is shifting efforts from local market development towards attracting global issuers, while Dubai is revising regulations to attract sukuk issuance and trading.
Britain is the European base for several Middle East banks and a major centre for Middle East investors, whose assets include Harrods department store and Manchester City football club.
London has sukuk legislation in place and has attracted more than $34 billion in sukuk listings from around the globe over the last five years. Sizeable issuance from local firms, however, has remained elusive.
The government sukuk, by enhancing London's status as an Islamic finance hub, should not stumble on the Debt Management Office's "value for taxpayer" objective, a test which the original plan of five years ago failed.
"The government was previously looking at a relatively large programme of sukuk issuance as part of its regular financing programme, but has now changed its strategy to look at a more modest sukuk issue in order to derive wider benefits such as instigating activity in the Islamic finance industry," a Debt Management Office spokesman said.
A smaller issue was also more likely to be cost effective, he added.
The investment-grade sukuk would be welcome news for local lenders which could use it as a liquidity instrument, said Richard Williams, finance director at Bank of London and the Middle East, the UK's largest standalone Islamic bank.
"This challenge will now be resolved and is one of the final measures in creating a truly level playing field for the UK Islamic banks," said Williams.
The London Stock Exchange also announced plans to launch an Islamic index which would identify companies which are filtered according to Islamic principles, which work in much the same way as socially responsible screens.
Islamic investments have already been used to finance London landmarks such as the Shard skyscraper and the Olympic Village.
The World Islamic Economic Forum is hosting its ninth annual conference in London this week, the first time it has been held in a non-Muslim country.
The Senegalese government would sell the sukuk in cooperation with the Jeddah-based Islamic Corporation for the Development of the Private Sector (ICD), an affiliate of the Islamic Development Bank, the institutions said.
"This project is the beginning of an ambitious programme which could lead to the financing of innovative infrastructure and energy projects through sukuk issuances,"a statement quoted Economy and Finance Minister Amadou Ba as saying.
A sovereign sukuk from Senegal would be an important step in developing Islamic finance in sub-Saharan Africa; so far, sukuk issuance has been small. Gambia has been selling small amounts of Islamic debt for years and Nigeria's Osun State last month sold a local currency sukuk worth $62 million.
Governments in countries including South Africa, Kenya, Nigeria and Senegal have been considering sukuk issues as a way to attract cash-rich Islamic funds from the Gulf and southeast Asia. Senegal has been studying the possibility of an issue since at least 2011.
Khaled Al-Aboodi, chief executive of the ICD, said the Senegalese sukuk would be the first of a series of regional programmes that would be offered to West African states.
The ICD, which promotes the economic development of its 51 member countries by financing private sector projects, has also been trying to expand the consumer base of Islamic finance in Africa by helping to establish institutions in countries such as Mali and Benin.
The Central Bank of West African States, which serves countries in the region, has in principle accepted that the Senegalese sukuk could be used in its repurchase operations, Aboodi said. This could make it an attractive investment for banks operating in the local money market.
For the past couple of years, the Australian government – prodded by the financial sector – has been pondering the regulatory and taxation changes that would be necessary to create an Asia-Pacific Islamic financing powerhouse.
However, with the change of government last month and continuing concern over the effects of easing Chinese growth on Australia’s commodities-led economy, there is a danger that Islamic finance has been consigned to a back burner.
Australia’s stable political and social environment – and its highly advanced financial market – have long created interest among Islamic finance professionals in building the country as a hub to serve not only the domestic Muslim population but also the large and less financially sophisticated markets nearby, such as Indonesia and Malaysia.
Some in the Arabian Gulf region say Australia could be very conducive to Islamic financial products.
“Islamic financing advocates the ‘real’ economy and commodity financing,” says Hatim El Tahir, the director of the Islamic finance group at Deloitte, another consulting firm, in Bahrain. “Australia has a rich real economy,” he adds, citing its agriculture, livestock and minerals and metals as “good assets for Islamic finance”.
There have been encouraging developments in the local market: in December, Sydney-based Crescent Wealth, the country’s first dedicated Islamic investment firm, launched Australia’s first Islamic superannuation fund.
Superannuation, known as “super”, is the country’s compulsory employee retirement fund.
“Sizeable superannuation or pension funds represent a large opportunity,” says Almir Colan, director of the Australian centre for Islamic finance and a consultant lecturer at La Trobe University in Melbourne.
“We are now seeing intense competition by fund managers to provide Sharia compliant alternatives.”
More recently, say observers, a number of institutional players have been investing, principally in property. “We believe current penetration is less than 1 per cent of its potential and hence we are excited about growth opportunities,” says Talal Yassine, Crescent Wealth’s managing director.
Mr Yassine estimates the current super savings of the Australian Islamic community at about A$11 billion (Dh38.87bn), a figure expected to double by 2020. “This is supported by the 40 per cent growth in the Islamic population in Australia since 2006,” he adds.
One relatively popular Islamic product in Australia is diminishing musharaka for home financing, says Matthew Stutsel, the national head of state tax at the accounting firm KPMG in Sydney. Some fund managers offer investments in Sharia-compliant investments, mostly equity funds.
Experts say Australia is well positioned for the development of several other Islamic financing instruments, including murabaha asset sales and purchases, ijarah leasing and mudaraba profit-sharing partnerships. One potential windfall could be the use of sukuk for large-scale projects.
“There is potentially a huge role for Islamic finance to play in helping to fund Australia’s infrastructure requirements,” says Alex Regan, a partner at the Corrs Chambers Westgarth law firm in Melbourne.
However, while such terminology is familiar in the Middle East, some asset managers warn exotic terms – like all financial jargon – can be off-putting to mainstream investors if Islamic finance seeks to move beyond Australia’s 400,000-strong Muslim community.
“In my view, Islamic finance and investment products need to be relaunched as ethical or responsible, without the unusual labels such as sukuk and musharaka,” says Glenn Woolley, the managing director of Intrinsic Investment Management, a Melbourne fund manager.
Mr Woolley, whose company caters to both Islamic and non-Islamic investors, says it is too early to identify any trends in Australia-based Islamic financing.
“There is interest in debt and equity funding as sources of capital,” he notes, however. “Equity portfolio management is growing.”
One major hurdle is taxation law. “Islamic finance’s very low penetration ... is largely due to the Australian tax legislation,” says Mr Regan. One such obstacle is the stamp duties applied to property transfers, a particular issue when Islamic finance requires multiple transfers of assets.
In its attempt to woo minority votes ahead of the 2014 General Elections, the Congress-led UPA is making every effort to introduce Islamic Banking in India.
The idea was first mooted by Raghuram Rajan in 2008 when he was Chief Economic Advisor to the Ministry of Finance. But the Rajan report did not get the stamp of approval from the RBI Governor of the time, D Subbarao. Rejecting the recommendations, Subbarao conveyed to the government that Islamic Banking was not legally feasible in the current statutory and regulatory framework. He had also made his stand public.
With the RBI governor taking a strong public position, the government too was forced to take a similar stand. With Rajan running the RBI, Minority Affairs Minister K Rahman Khan is now on overdrive to make Islamic Banking a reality. The minister told The Sunday Standard that it would not take much time before Islamic Banking becomes legal.
But the RBI did not confirm the ministry’s optimism. “There are no applications for any approvals lying with us for Islamic banking. Besides, it will take an amendment of the Regulations Act and the RBI Act to introduce Islamic Banking,” a RBI spokesperson told this paper. She said an approval given by RBI to a Kerala-based non-banking finance company that follows Islamic principles was not a blanket permission.
But the UPA is likely to go for it. “No political party, except BJP, will oppose such an amendment in this election year,” said a source in Khan’s office. He said there is a strong demand to introduce Islamic Banking in the country from various quarters. Muslim political parties, including IUML, had submitted a memorandum to the Planning Commission urging it to promote interest-free banking in the country, he said.
In case the government fails to bring in amendments, its next option is to allow more non-banking finance companies that adhere to Sharia principles. “The government shall take measures to permit delivery of interest-free finance on a larger scale, including through the banking system, which is in consonance with the objectives of inclusion and growth through innovation as recommended by Rajan,” said H Abdur Raqeeb, an Islamic Banking expert.
THE FINANCIAL crisis has made many question whether Western financial models can withstand future onslaughts, whether they are even fit for purpose. But Islamic finance (one of the fastest growing financial sectors) withstood the crisis comparatively well. A 2010 IMF study found that, on average, Islamic banks showed greater resilience than their conventional counterparts. So what are the implications of its rapid growth?
The philosophy of Islamic law promotes equity and justness. As such, Islamic finance disallows interest-based activities, gambling and speculation. Financing is allowed only to fund real economic activity, and funding or undertaking activities that do not yield real economic gains is prohibited. One example is derivatives trading. While Islamic finance recognises the use of derivatives for hedging purposes, it disallows naked trades of instruments deemed a speculative act.
But more broadly, Islamic finance is increasingly important in enhancing trade, cutting across borders, race and religious beliefs. According to Ernst & Young, 10 of the world’s 25 fastest-growing markets are in Muslim majority countries. Islamic financial tools will only boost trade between the Muslim and non-Muslim world. To date, global Islamic finance assets stand at $1.2 trillion (£743bn), and are expected to reach $2.6 trillion by 2017 according to a recent report from PwC.
And Malaysia has proven that Islamic finance can flourish alongside conventional financial markets. The sukuk market has been key to the development of Malaysia’s infrastructure and economy over the past two decades, constituting more than 65 per cent of Malaysia’s private debt securities. Islamic banking assets now make up 24.1 per cent of Malaysia’s total banking system, double the level a decade ago. Both systems work in parallel.
London is no stranger to Islamic banking. The UK is the leading western country for Islamic finance, with $19bn in reported assets. It has the largest number of Islamic financial institutions in any western country, and has reformed its tax laws to facilitate the sector. It can play the key role of global financial intermediary in promoting the use of Islamic finance worldwide.
I hope to see further developments. Employment opportunities in the industry could be plentiful, and gender neutral. A few years ago, a journalist came to Kuala Lumpur to write a cover on Islamic finance. She ended up writing a piece on women serving in senior positions in Malaysia’s Islamic finance industry. It was a revelation. The glass ceiling in a male-dominated industry had been shattered by women in a Muslim dominated state.
The Malaysian central bank governor is a woman (accorded “Grade A” status for the tenth time by Global Finance magazine), and is the country’s foremost supporter of Islamic finance. Malaysia also boasts female Shariah scholars and chief executives of Islamic banks. Close to half the Islamic banking population is made up of women.
I hope Malaysia’s story will inspire others to promote the development of the industry for the greater good.
Raja Teh is chief executive of Hong Leong Islamic Bank. She will be speaking at the World Islamic Economic Forum in London on 29 to 31 October.
KUALA LUMPUR, Oct 23 (Bernama) -- Construction and Islamic finance-related stocks may be among the biggest beneficiaries on the local bourse moving forward as the government unveils its plan in Budget 2014 on Friday.
Affin Investment Bank Vice-President and Head of Retail Research Dr Nazri Khan said construction counters, especially those with low content and high multiplier project owner, would likely benefit.
He said higher multiplier projects such as the Mass Rapid Transit (MRT) circle Line 2 and Line 3 and Southern Double Tracking as well as the proposed Kuching-Kota Kinabalu Pan Borneo Highway may kick-start.
However, big ticket high import items like Kuala Lumpur-Singapore High Speed Rail and third interchange linking Johor and Singapore could face a delay, he told Bernama.
As the government focuses on Islamic finance and takaful industry, industry players may get added incentives next year to encourage bigger market share and provide more protection among Malaysians, Nazri Khan said.
"Stocks going big into Takaful such as Takaful Malaysia, Allianz and MAA may benefit," he said.
The government may also launch a National Healthcare Project in the upcoming Budget that would provide every Malaysian with access to quality healthcare, he said.
"Healthcare stocks such as IHH Healthcare, KPJ Healthcare and TMC Life Sciences should benefit. Further, using Budget 2013 trend, Budget 2014 should again promote local tourism sector which means healthcare sector via medical tourism again will benefit," he added.
Generally, Budget 2014 should spur local market sentiments by introducing tough measures to boost trade competitiveness, improve fiscal credibility, address the recent downgrade by sovereign credit rating and encourage stronger private sector participation to boost economic growth.
Also, the upcoming budget would likely focus on the implementation of subsidy rationalisation programme, the implementation of goods and services tax (GST) and extension of BR1M for the low-income earners.
He also said banks and properties could be mildly affected as the government may continue with the properties-cool-down and bad-debt-measures involving houses, properties, automotive and personal loans.
Softer retail or corporate loans are therefore expected due to higher stamp duty, foreign cap, tougher RPGT (real properties gains tax) and higher loan-to-value (LTV) ratio for property purchases and shorter personal financing tenure, he added.
Nazri said assuming big positive impacts on key beneficiaries and minimal negative impacts on other sectors (likely losers banking and properties stocks), FTSE Bursa Malaysia (FBM KLCI) should trend towards a range of between 1,800 and 1,820 points before the budget presentation. (National News Agency Of Malaysia / 23 Oct 2013)
KUALA LUMPUR, Oct 23 (Bernama) -- Al Rajhi Bank Malaysia and Islamic Research and Training Institute (IRTI), a member of Jeddah-based Islamic Development Bank (IDB), see great potential in sukuk issuance and capital market activities in IDB member countries.
Al Rajhi Bank Malaysia Chief Executive Officer Datuk Azrulnizam Abd Aziz said bonds and sukuk had become an important long-term financing instrument in funding infrastructure development as tighter liquidity conditions and regulations under Basel 3 were constraining traditional long-term lending by banks.
"Major investment in infrastructure is still needed in developing emerging economies, to facilitate growth and reduce poverty.
"In Asia alone, it is estimated that US$8 trillion of investments are needed in transport, communication and infrastructure up to 2020," he said at the signing of a memorandum of understanding (MoU) between Al Rajhi Bank Malaysia and IRTI here on Wednesday.
Malaysia remained the forerunner in global sukuk issuance, most of which are for funding infrastructure development, he added.
The strategic collaboration is to provide support for sukuk issuance and Islamic capital market activities for IDB member countries and their corporations.
Under the MoU, IRTI has been tasked to identify the member countries that are interested to develop sukuk and Islamic capital market and provide them with advisory services while Al Rajhi Bank will lend technical support to develop and structure the instruments.
The MoU, Azrulnizam said, would represent a framework of collaboration and coorporation between the two institutions for sukuk solution and platform of exchange to discuss Shariah standard and issues.
Meanwhile, Prof Datuk Dr Mohamed Azmi Omar, Director General of IRTI, said their focus was on the government sector namely the regulators.
"Being a development bank, our clients are the government and not private sector...We provide advice to the government in the implementation of Islamic finance," he added.
Mohamed Azmi said African countries were now seen as the new emerging markets and new growth areas for Islamic financing and sukuk, looking at the birth of significant interests.
He said the growth of sukuk globally would continue to increase as we saw continuous demand for sukuk moving to this part of the world.
"These countries needed a lot of infrastructure development and sukuk is very much suitable to finance the development as it is project-based," he added. (National News Agency Of Malaysia / 23 Oct 2013)
LONDON: Prime Minister David Cameron says he wants to turn Britain into the world centre of Islamic finance and is proud that UK is helping Pakistan with its taxpayers’ money to send hundreds of thousands of children to school.
Speaking to guests at his annual Eidul-Azha reception in Downing Street, the prime minister said that Britain was helping Islamic countries, including Pakistan and Afghanistan, to stand on their feet and had increased the development aid budget to show solidarity with these struggling countries. Over a hundred leading members of the British Pakistani and Muslim community were present at the reception.
They were joined by senior government ministers, including Baroness Sayeeda Warsi, Imams, community and business leaders, charities and public servants from across the diverse range of Muslim communities in the UK.
PM Cameron announced plans to make government finance schemes available to Islamic students and entrepreneurs. He said student loans, start-up loans and the enterprise allowance would be made compatible with the religion’s strict rules on finance.
The prime minister said he wanted the UK to be a world centre for Islamic finance and it was in this spirit that a historic conference on Islamic global finance will be held in London in few days. Prime Minister Nawaz Sharif, besides several other government dignitaries from Islamic countries, will speak at the conference.
Cameron said: “I want Britain to be one of the world’s centres of Islamic finance - from the highest and mightiest financial institutions all the way to start-ups. The prime minister said: “I’m proud of the that fact that even in difficult economic times this country is one of the few countries in the world that has kept its promise on aid and development - meeting that 0.7% target of our gross national income. A lot of that money goes to some of the most challenged Islamic countries in the world. It is something that we can all be proud that every two seconds a child is vaccinated somewhere in the world because of aid that British tax payers have provided.”
“We’ve got tens of thousands of young people starting their own businesses and tonight I can announce that we will make sure that there is a type of start-up loan that is totally consistent with all the principles of Islamic finance. We must do that for start-up loans, we must do that for student loans and we must do it for the enterprise allowance. That’s what a welcoming, tolerant, multi-racial country does.”
Praising the Muslim community for their contribution to Britain, the prime minister said: “Tonight is about celebrating the contribution that British Muslims make to our country. It is a huge contribution. But tonight is also an opportunity to talk about the issues of integration, of how we help Muslims around the world and the importance of faith in our country and in our communities and the Muslim faith is so strong in that.”
Prime Minister Cameron spoke about the strength of the faith, especially the Abrahamic faiths who have “so much in common”. He shared his experience of helping to prepare Iftari this year on Eidul Fiter in Manchester. The PM said lightly that he was scared when he was asked to cut onions to prepare pakoras and samosas. That could have become the “worst television moment” because there was a danger of “cutting my finger” or “start crying”. But, he said, opening up to all communities to see how Muslim celebrate Ramazan was a brilliant idea.
Dr Waqar Azmi OBE introduced the prime minister to the guests and called him a “friend of the Muslim community” who led from the front after the Woolwich killing and said that terrorists have nothing to do with Islam.
Addressing PM Cameron, Dr Azmi said: “You showed true leadership when you said on the steps of Downing Street that the Woolwich attack was a ‘betrayal of Islam’. This resonated with everyone in the Muslim community. We value your support for the British Muslim community.
Your statement on the Mosque being built in your constituency in Chipping Norton is a good example. It is moments like this that we know that the British Muslim community has a friend in you. Thank you.”Prior to PM Cameron’s speech, a dua was offered and verses from the Holy Book of Quran were read.
KUALA LUMPUR, Oct 21 (Bernama) -- The local takaful industry is expected to see more active merger and acquisition (M&A) activity in the next few years, driven by the current rapid growth in the sector domestically amid increasing global demand.
Senior Director (Banking & Takaful) of Ernst & Young's Islamic Finance Global Centre of Excellence in Bahrain Adib Shakeel said going forward, there is great potential for the industry to grow further against external factors.
"Some of the obvious factors include developments in the opportunity markets such as Egypt, Libya and Sudan.
"Actually we want to talk more about other markets where political stability is less of an issue," he told reporters after the Islamic Finance News Asia Forum 2013 here on Monday.
He said the Islamic finance industry as a whole is now being seen as a global industry and continuing its global credentials.
"Family takaful has always been something that is being focused by industry players here with a lot to be learned for the rest of the world by looking at how that has happened in Malaysia.
"Obviously, on the general takaful side, there is much more room for growth within Malaysia itself. In most other markets, you will see general takaful is leading the industry, but here in Malaysia, it is family takaful," he said.
Shakeel said Malaysia has a very well developed capital market industry due to the strategic direction support from Bank Negara Malaysia, which in turn has been supporting the growth of the takaful industry as a whole.
"I think you will start to see acceleration of the general takaful line, personal and commercial. Of course, there are lessons by the Malaysian operators here for the rest of the world," he added.
Malaysia has emerged as the world's largest family takaful market, securing close to three quarters of its domestic market share.
Its proven operating models, young Muslim population and regulatory framework such as the Takaful Operating Framework 2012 have enhanced operational efficiency, ensured healthy and sustainable funding and promoted uniformity across business practices for operators.