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.
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