The price of oil is not the only “greaser” for the expansion of Islamic finance. Lately, a number of countries seem to be pre-empting social-movement-cum-change of regime as today’s “oil price” facilitator for welcoming Islamic finance.
But what happens to Islamic finance when alternative energy, solar, bio-mass, wind, ocean, etc., becomes a viable replacement for oil or oil simply “runs dry” or “Arab street democracy” arrives in the Muslim Opec countries, or even the anti-syariah movements in selected western countries find another “bogeyman?” (source)
It’s a well-known secret that Islamic finance, generally, and sukuk, specifically, rose and became a global phenomenon on the back of the petro-liquidity spike combined with an accommodating government environment in GCC countries ex-Oman.
The majority of the Islamic financial institutions, banks, takaful, leasing, etc., were born during the 2003 to 2008 time period, including part financing of the eighth wonder of world, The Palm Jumeriah.
The Malaysian Islamic finance story can be said to be part of an inward commitment, since 1983, to address the Muslim majority population, and in the last 10 years, to attract the GCC oil surplus investments to the country and the country acts as a springboard into the 10 Asean countries and China.
What is the common-theme running in China, Thailand, Oman, Egypt, and other places where a restive Muslim population may be demanding Islamic finance without articulating it?
The cause and effect may not be air-tight to convince a jury of readers to meet the higher threshold of “beyond a reasonable doubt” but appears to satisfy the lower threshold of “preponderance of the evidence”.
It can be hypothesised that the first Islamic bank to address local popular unrest for Islamic finance in a country was in the Philippines. The Al Amanah Islamic Bank was established in 1973, at a similar time frame as the Dubai Islamic Bank.
The arrival of Islamic finance in “communist capitalism” China may well be linked to the political unrest/uprising with the Uighur Muslims in 2009.
For example, the Bank of Ningxia, China’s first Islamic friendly bank, got global media coverage at the announcement, but now has called a “time out — requiring … breathing period of up to 18 months to allow the project to bed down”.
The lesson for the Islamic finance industry, outside of China, is the follow through with investments, financing, infrastructure or trade finance, to sustain the momentum in large markets like China.
The arrival of Islamic bank in the “Land of a Thousand Smiles”, Thailand, can be said to address the needs of the southern Thai-Muslims, who have been exposed to and influenced by the growing success of Islamic Finance in Malaysia.
Islam is the second largest religion in this multi-religious country, and the devout want to be financially-devout, hence, Islamic Bank of Thailand was formally established in 2003.
The Tunisian fruit vendor, Mohamed Bouazizi, who provided the spark for the Arab Revolution also (not knowingly) provided the spark for a change in the financial systems of Egypt, Oman, and other financially incomplete Muslim countries.
The years of lobbying of the Islamic finance industry for greater governmental recognition in the largest populated country in the Middle-East (Egypt) and the only GCC country without Islamic finance (Oman) proved to be ineffective.
In the “new” Egypt, we are hearing increasing calls for Islamic finance, but not from the expected Muslim Brotherhood. It’s from the opposition parties seeking the “Islamic friendly” vote that appears to be demanding Islamic finance.
In the “reconditioned” Oman, the Central Bank of Oman (CBO) stated that it would allow conventional banks to open Islamic windows and licence for the first full Islamic financial institution, Bank Nizwa.
The irony of the situation is that the Central Bank of Qatar issued a circular earlier in the year for conventional banks to close their Islamic windows, issues of “leakage”, by the end of the year and the CBO is now encouraging Islamic windows.
Additionally, there have been Islamic banks recently established in Bosnia, Gambia, Kenya, Azerbaijan, Kazakhstan, Sri Lanka, Mauritius, and so on.
For Islamic finance to be a legitimate and credible option for all capital market stakeholders in the post oil and revolution period, lets “discount the eventual future back to the present”. Now, we need to tackle, instead of continually raising, the issues associated with inefficiencies, marketing, and branding associated with Islamic finance.
Lets start with the questions on the mind of western/conventional financial institutions and governments.
What is their number one issue for the acceptance and participation of Islamic finance: is it harmonisation, lack of enough scholars and qualified people, risk management, short term liquidity, or Islamic equity capital market?
If one looks at major Islamic finance events where there are presentations from regulators, from securities commission to central bankers, like the recent Mega-Event in Singapore, the common denominator is need for harmonisation in Islamic finance.
Most people involved in Islamic finance have read the Funds-at-Work study, where a handful of syariah scholars serve on multiple boards, from 40 to 80.
The question then becomes, when a small number of established scholars is on so many boards of major Islamic financial institutions, then why don’t we have the “advanced beginning” of standardisations of various contract modalities, starting with Ijara Sukuk?
The marketplace is looking for “off-the-shelf” efficiency, but that pre-supposes a level regulatory field, hence, back to the harmonisation issue.
Harmonisation implies close levels of coordination of Islamic finance stakeholders between and among countries and regions, and it establishes the path to the much sought after standardisation.
But, this will only happen over time as structures, contracts, screening, and so on become commonly used.
Finally, one country cannot be expected to carry the mantle of Islamic finance forward, there must be coordinated and cooperative efforts.
So, let’s leave the “ego” at the door and work together for the foundational Islamic finance based on merits as Fortune 500 companies are constantly looking for financing options and investors are looking alpha strategies (Islamic screening).
The writer is Thomson Reuters’ Global Head of Islamic Finance and OIC countries.
The cause and effect may not be air-tight to convince a jury of readers to meet the higher threshold of “beyond a reasonable doubt” but appears to satisfy the lower threshold of “preponderance of the evidence”.
It can be hypothesised that the first Islamic bank to address local popular unrest for Islamic finance in a country was in the Philippines. The Al Amanah Islamic Bank was established in 1973, at a similar time frame as the Dubai Islamic Bank.
The arrival of Islamic finance in “communist capitalism” China may well be linked to the political unrest/uprising with the Uighur Muslims in 2009.
For example, the Bank of Ningxia, China’s first Islamic friendly bank, got global media coverage at the announcement, but now has called a “time out — requiring … breathing period of up to 18 months to allow the project to bed down”.
The lesson for the Islamic finance industry, outside of China, is the follow through with investments, financing, infrastructure or trade finance, to sustain the momentum in large markets like China.
The arrival of Islamic bank in the “Land of a Thousand Smiles”, Thailand, can be said to address the needs of the southern Thai-Muslims, who have been exposed to and influenced by the growing success of Islamic Finance in Malaysia.
Islam is the second largest religion in this multi-religious country, and the devout want to be financially-devout, hence, Islamic Bank of Thailand was formally established in 2003.
The Tunisian fruit vendor, Mohamed Bouazizi, who provided the spark for the Arab Revolution also (not knowingly) provided the spark for a change in the financial systems of Egypt, Oman, and other financially incomplete Muslim countries.
The years of lobbying of the Islamic finance industry for greater governmental recognition in the largest populated country in the Middle-East (Egypt) and the only GCC country without Islamic finance (Oman) proved to be ineffective.
In the “new” Egypt, we are hearing increasing calls for Islamic finance, but not from the expected Muslim Brotherhood. It’s from the opposition parties seeking the “Islamic friendly” vote that appears to be demanding Islamic finance.
In the “reconditioned” Oman, the Central Bank of Oman (CBO) stated that it would allow conventional banks to open Islamic windows and licence for the first full Islamic financial institution, Bank Nizwa.
The irony of the situation is that the Central Bank of Qatar issued a circular earlier in the year for conventional banks to close their Islamic windows, issues of “leakage”, by the end of the year and the CBO is now encouraging Islamic windows.
Additionally, there have been Islamic banks recently established in Bosnia, Gambia, Kenya, Azerbaijan, Kazakhstan, Sri Lanka, Mauritius, and so on.
For Islamic finance to be a legitimate and credible option for all capital market stakeholders in the post oil and revolution period, lets “discount the eventual future back to the present”. Now, we need to tackle, instead of continually raising, the issues associated with inefficiencies, marketing, and branding associated with Islamic finance.
Lets start with the questions on the mind of western/conventional financial institutions and governments.
What is their number one issue for the acceptance and participation of Islamic finance: is it harmonisation, lack of enough scholars and qualified people, risk management, short term liquidity, or Islamic equity capital market?
If one looks at major Islamic finance events where there are presentations from regulators, from securities commission to central bankers, like the recent Mega-Event in Singapore, the common denominator is need for harmonisation in Islamic finance.
Most people involved in Islamic finance have read the Funds-at-Work study, where a handful of syariah scholars serve on multiple boards, from 40 to 80.
The question then becomes, when a small number of established scholars is on so many boards of major Islamic financial institutions, then why don’t we have the “advanced beginning” of standardisations of various contract modalities, starting with Ijara Sukuk?
The marketplace is looking for “off-the-shelf” efficiency, but that pre-supposes a level regulatory field, hence, back to the harmonisation issue.
Harmonisation implies close levels of coordination of Islamic finance stakeholders between and among countries and regions, and it establishes the path to the much sought after standardisation.
But, this will only happen over time as structures, contracts, screening, and so on become commonly used.
Finally, one country cannot be expected to carry the mantle of Islamic finance forward, there must be coordinated and cooperative efforts.
So, let’s leave the “ego” at the door and work together for the foundational Islamic finance based on merits as Fortune 500 companies are constantly looking for financing options and investors are looking alpha strategies (Islamic screening).
The writer is Thomson Reuters’ Global Head of Islamic Finance and OIC countries.
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