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Sunday, 1 December 2013

Global Islamic finance torn between competition and consolidation

Global Islamic finance torn between competition and consolidation --> A €˜compare and contrast' exercise was possible last week for those who had attended Dubai's Global Islamic Economy Summit and previously London's counterpart event a few weeks ago. An even greater number of delegates was apparently present, over three thousand, in the rather more salubrious setting of Madinat Jumeirah, which, it's probably fair to say, beats a reclaimed industrial dockland anytime, but especially in late autumn. Dubai was seeking to lend weight to its claim as the putative centre of the Islamic economy, extending its reach beyond the familiar field of Sharia-compliant finance, although this correspondent's focus remained on this key element, which attracts such attention, given the business potential still to be had. One statistic delivered in a side session illustrated that point even more starkly than before. It's often noted that Islamic financial assets make up only 1 per cent of the global total, just to keep a degree of perspective amid the hype. In respect of assets under management, though, that ratio, so we were told, is $60 billion versus some $60 trillion overall, making it a miniscule percentage and a sitting target for rapid evolution if this segment of activity can be cultivated. There were so many so-called takeaways from the event -- informational sustenance rather than alimentary -- that it would not do the subject justice to sweep through them. It's a topic to be tracked with due discretion and consideration, and to be filtered through the prism of time. That said, as an exception, the publication of the Thomson Reuters Islamic Financial Development report was of special note in analytical terms, as is the rubric of this space. It carries a multi-category analysis showing Malaysia leading the pack in the rounded advancement of the industry, followed interestingly by Bahrain , then UAE , but not featuring Saudi Arabia in the top ten, despite its size. That prompted thoughts here on the global process of the sector's development, and whether that predominantly will feature on the one hand competition between the various locations that want to secure market share, or collaboration on the other hand, by the various centres and regimes to get the job done. A harmonization of standards, documentation and regulation is believed by so many involved in the industry to be necessary. While we hear a lot about the Gulf and Malaysia in their dominance of Islamic finance, their motivating forces and realization seem distinct, and internationally the sector appears fragmented. Even basic research yields that, whereas Malaysia has embraced the sector in a focused way, as part of developing financial services within a national economic strategy, the Gulf's approach till now, for all its longevity and natural affiliation, has been sporadic. Malaysia has stolen a march, with a concerted agglomeration of support from the government, central bank, securities regulator and participating institutions. That well-coordinated process continues today. With a new financial district in view, Malaysia wants to compete with Singapore and Hong Kong , in keeping with its programmed vision to 2020. Most especially, as an underlying philosophy, Malaysia seems devoted to meeting the requirements of the market, rather than imposing a specifically ethical or religious predestination. In spite of its obvious alignment with Islamic finance historically, in the GCC the sector's growth has been organic rather than systematised, to date. Of course, the region has had enviable energy resources to rely on, often argued to have curtailed other avenues to growth. In a globally competitive sense Malaysia is ahead in the game, practically speaking, particularly in trained staff. Meanwhile, a unified, consolidated outlook is actually not on the agenda in the Gulf, although, clearly and by definition, not every centre in the region can be a hub. Indeed, the recent signing of a Memorandum of Understanding between the central banks of Malaysia and the UAE , aiming to foster closer economic ties, indicates that co-operating externally could actually be easier than bonding internally. In some sense, it is not surprising that the GCC states, as sovereign nations, should have ploughed their own furrows. The absence so far of Gulf monetary union is evidence of this disjuncture. Europe's dysfunctional condition as a template can only have warded off collectivist sentiments. At the same time, the Gulf's deeper association with Sharia-compliance is a profundity that even its rival Malaysia is known to respect. The different schools of thought might prove an enduring schism. That's not fatal for the industry, but might remain a disadvantage for those who want an Islamic market, but need it to be streamlined. Perhaps Dubai has a chance to find a way between the two pillars: of cultural authenticity alongside the pragmatism necessary for significant success in the real, competitive world. As far as comparing and contrasting is concerned, while the UK may have a €˜can-do' attitude, it's as if Dubai goes the critical step further, with a €˜will-do' resolution.

(Hispanic Business.Com / 30 Nov 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Islamic finance to grow more

Led by Malaysia and the GCC — the two regional heavyweights and pioneers of the industry — the $1.4 billion global Islamic finance industry is set for a double-digit growth.

“Undeterred by the uncertain recovery elsewhere in the world’s financial markets, global growth of the Islamic finance market has continued unabated this year,” Standard & Poor’s said.

In its report “Islamic Finance 2014: We Expect Continued Double-Digit Growth, And A Push For Regulation And Standards”, S&P said worldwide, Shariah-compliant assets are estimated at upward of $1.4 trillion are likely to sustain double-digit growth in the coming two to three years.

Despite more than a decade of heady growth, the industry is still in a formative stage. “But we believe it’s only a matter of time before it achieves critical mass, as the pool of assets broadens and deepens, and enhances liquidity,” said Zeynep Holmes, regional head of Eastern Europe of Middle East and Africa at Standard & Poor’s.

“Nevertheless, the speed at which the industry matures and joins the mainstream comes down to how market participants address a classic imbalance between supply and demand.”
S&P pointed out that Islamic finance remained a demand-driven market, with scarce supply, still hampered by a limited range of Islamic financial centres and their various regulatory frameworks.

“In our view, expansion and enhancement of existing centers, and a more transparent regulatory environment could build the momentum for the growth needed to break into the mainstream.”

The ratings agency said it believed that regulatory efforts to accommodate Islamic finance and the establishment of additional industry bodies at national levels will take centre-stage starting in 2014. Interestingly, newcomers in the industry — such as Oman, Turkey, and Nigeria, for instance — have started to trace the footsteps of fast-growing pioneers, such as Malaysia.

“Right behind the newcomers, a long line of countries is aspiring to enter the market, with the continent of Africa in the forefront.”

“The gradual building out of local and regional regulatory frameworks and establishment of standards ought, in our opinion, to minimize the barriers that are preventing the industry from achieving its full potential. Globally accepted standards, we believe, are necessary for growth of the industry,” Holmes said.

According to Ernst & Young, Islamic banking assets are to grow to $1.8 trillion in 2013 and beyond $2 trillion by 2014. The industry in the GCC constitutes about 28.7 per cent of assets at $445 billion as of 2012 and registered a growth of 14 per cent over 2011.

Global sukuk issuances reached about $140 billion in 2012. Worldwide year-to-date issuance dipped 25 per cent from last year to $77.4 billion, as of September 22, 2013.

The global Takaful market is estimated at $12 billion as of 2011, and it is expected to touch about $25 billion by the end of 2015. Takaful insurance premiums in the GCC is expected to reach about $15.38 billion by the end of 2016.

TheCityUK’s UK Islamic Finance Secretariat has launched a report which indicates that Islamic finance assets worldwide continued a long run of growth to reach an estimated $1.46 trillion in 2012. The findings demonstrate that Islamic finance has shown resilience despite the slowdown in the global economy and the pressure on conventional banking in Western countries. By contrast, global assets of Islamic finance have doubled since the start of the economic downturn.

(Khaleej Times / 30 Nov 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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