IN a “hyper-connected world, the age of ‘average’ is officially over”. Is Islamic finance hearing and, more importantly, listening?
The baby-cum-toddler is eventually taken off the bottle and consumes “people food”. Islamic finance, unfortunately, is still suckling on the bottle called “real estate” and the natural growth-cum-diversification is a bottleneck risk that needs to be addressed. (source)
Query: Is it “fair” to say the build-out of the iECM will result in reduced deposit funding by banks, hence, some natural resistance by banks?
The question then becomes:
q Who will lead Islamic finance in building-out the iECM, as it has a direct correlation in the diversification and expansion into and of the real economy?
q Will it be the Islamic development bank providing seed money?
q Will it be a sovereign wealth fund that has experience and exposure to Islamic finance, like Khazanah?
q Will it be a leading Islamic finance hub, like Malaysia?
q Will it be mixture of private investors who understand the (negative) consequences of the status quo?
q Will it be a combination of the above?
q Or none of the above, as the philosophy of “it (Islamic finance model) ain’t broke, what’re you gonna fix”.
Today, most Muslim countries are net capital exporters, for a number of reasons, and the focus needs to be on less “return on capital” investing, and more on “return of capital” home. How to bring some of it back, as it would send a positive signal for the country?
Financial Bridge
Islamic micro-finance is not the only path for financial inclusion or transforming philanthropy for the non-bankable. Actually, Islamic microfinance gets more air-play in the contained environment of conference speeches and in lofty articles than in the real world where the bulk of Muslims/humanity reside.
We talk about building bridges, like between GCC and SE Asia, but what about building a financial bridge to the “have-nots” in another way?
A Malaysian licensed Islamic mega bank may soon be a reality, and there may be some “inclusion” lessons from the official recent launch of Warba Bank in Kuwait by the Emir of Kuwait, HH Sheikh Sabah Al Ahmed Al Jaber Al Sabah.
According to the press release, “…the government, represented by the Kuwait Investment Authority (KIA), owns 24 per cent of the bank’s total capital. The remaining 76 per cent has been granted to the entire Kuwaiti population, with 684 shares per individual, subscribed and paid by the government.”
In “granting” the shares to the entire Kuwaiti population, the Kuwaiti government has taken a novel chapter from the 1990s privatisation programmes from parts of Eastern Europe and elsewhere. In general terms, the programme entailed distributing shares (via vouchers) to the citizens during the sale of the state owned enterprises, hence, a populace “buy in” to the economic reforms.
(There were some challenges with the programme, but there were also takeaways on how to fix them, hence, stipulations would be in place to prevent, say, share accumulation.)
Now, for the proposed Islamic mega bank, why not offer a similar grant, as percentage of the total authorised shares, to the “interested” Malaysian populace and FoM (Friends of Malaysia) as part of the financial inclusion (for all) policy objectives.
Yes, there is trade-off between raising capital and financial inclusion, but the thinking has to be about the long term growth objectives of Islamic finance.
Why not take it one step further and link an Islamic mega bank to microfinance. The shares of the bank can be set up in “trust”, and dividends, zakat, and purification can be allotted to the microfinance (prefer micro-funding).
Thus, if “citizen financial democracy experiment” is successful in Malaysia, it has application (buy-in) for existing Islamic finance hubs and those wanting to be hubs.
Real Estate Twist
An Islamic finance club facility, led by an Islamic bank, Al Hilal Bank, and conventional bank, Mashreq, was closed in Dubai to establish a theme park, City of Arabia. The promoters of the project, Ilyas and Mustafa Galadari Group (IMG), have made the link between family value based entertainment and faith-based finance.
The press release quoted Mohamed Jamil Berro, CEO of Al Hilal Bank (AHB) said, “… our involvement in this theme park development reflects our vision as a progressive Islamic bank to extend the reach of our syariah-compliant financial services to various growth areas, such as financing the Middle East’s first fully integrated entertainment destination. This transaction also exhibits AHB’s experience in structuring Islamic Finance facilities through its dedicated and experienced team.”
There are two high-profile of takeaways worth highlighting: Financing is linked to the real economy (family tourism), and not just another mixed-use commercial tower for the bankable.
(Query: When a tower is financed Islamically, does it matter to those espousing the principals of Islam that workers toil in 40-49 degrees centigrade? Does it matter that they do not get anything beyond a salary, which may be higher (minus all the “withholding” taxes) than home country, when it’s “sold?”.
For the Islamic finance institution, Al Hilal Bank, there is a high profile connection to the family and the greater community. That should generate goodwill translating into (additional) customers, who may also be depositors and shareholders, being proud of the bank. This is the type of financing that deserves an Islamic finance award for a category, say, most admired Islamic bank or a polling survey shows the bank is “great place to work for”.
Education
Connection
One of the most sought after areas of Islamic financing is not for mortgages, vehicles, white goods, vacation, cards, etc., but for education, be it private, university or post graduate. The irony of the situation is there are many universities (and on-line entities) offering Islamic finance courses, diplomas, degrees, certificates, etc, yet one does not come across (with same level of promotion on) the compliant financing of this expensive education.
One hears of situations whereby the graduating student is conventionally indebted for a degree in Islamic finance and cannot find a job (career is another issue) in this niche market. It’s equivalent to having a factory that produces halal foods, but was financed conventionally, hence, a missing “end to end” compliant solution.
Thus, there needs to be some intelligent thinking by the industry on linking Islamic finance education to compliant financing to appropriate job openings in the field. The present alternative may (inadvertently) producing “bad-will”, and turning away tomorrow’s Islamic bankers to do “God’s work” at Goldman Sachs today.
Social Connection
Today, we have Islamic Facebook, Halaltube, Mecca Cola, Muslim dolls (Dara and Sara), The99 (Muslim superheroes), etc. Hopefully I am wrong, but I do not believe these initiatives were financed Islamically.
The niche market needs to not only connect with the “have nots”, but also the younger generation in the Muslim world (and non-Muslim countries) who are building companies and industries and would prefer compliant financing.
Imitation may be the best form of flattery, but, now, the Muslim world needs to be flattered, and “create like an artisan” and Islamically finance it or continue to stay average.
Rushdi Siddiqui is Thomson Reuters’ Global Head of Islamic Finance based in New York.
No comments:
Post a Comment