The UAE is one of around a dozen countries around the world where the share of Islamic banking of the whole banking sector is above 10%. Only Saudi Arabia and Kuwait have more than 30%. But even so, it is immediately apparent to visitors and new residents here that Islamic banks play a substantial and direct part in the lives of those who call the UAE home. This tends to contradict the reports one reads from time to time that Islamic banking has not managed to secure more than 1% of global finance. Such a proposition does a disservice to the Islamic finance industry, and is in any case misleading.
It is of course the industry itself that should collectively be seeking to address this misconception. The reality is of course that Islamic finance is now a business worth in excess of $1 trillion, and it is this and the parts of the world where it is focused that attention should really be drawn. It is still admittedly a small slice of the global cake, but it is nonetheless a significant one in some places.
This is the first article in a series to be published over the new few weeks and months and written by industry experts to highlight progress being made to develop Islamic finance, and to discuss the areas in which Islamic finance has identified more work has to be done to achieve its objectives.
These are primarily the skills gap, the need for standardisation across the industry, the current position on governance in the industry, the case for universality in the Islamic finance industry, and where innovation can make the most impact.
The seven Islamic Banks in the country, who are all members of UAE Banks Federation, have contributed by 21.4% of the UAE banking market (and a 14.6% share of the six core global Islamic markets), according to EY’s World Islamic Banking Competitiveness (WIBC) report released in March. One of our 10 specialised committees in the Federation focuses on Islamic banking whose job it is to identify how the banks can co-operate among themselves and with the UAE Central Bank to ensure that the right conditions are in place to allow them to grow.
Chief among the committee’s current topics of interest isgovernance in the Islamic banking sector, and specifically proposals for a higher Shari’a authority which we are discussing with the UAE Central Bank. Such a body would help to strengthen standardisation and consistency across the industry which would support its future growth.
Another key challenge here as well as elsewhere for Islamic finance is the skills gap. A stronger focus on the Islamic economy and Islamic law relating to financial transactions in the mainstream education of future bankers would in our view pay dividends in attracting more of them specifically to Islamic finance as a career.The FAA-IFN Human Capital Development Survey 2014 shows that 80% of the participants surveyed believed that the number of people currently working in the IFI is insufficient to meet the growing needs of the industry. While the number of Islamic Finance education and knowledge service providers is growing significantly, there remain a number of challenges that still exist.
Last year Gulf News reported that companies in the UAE needed more than 8,000 new employees trained in Islamic finance as Dubai positioned itself as the capital of the $8 trillion Islamic economy. These would be to supplement the 39,000 or so already in the UAE’s banking sector, or in other areas of business or finance. Dubai is not alone. The bulk of the additional manpower is required by banks offering Sharia-compliant products and services. Recruiters in the UAE are seeing a 50 per cent growth in demand for candidates with Islamic finance experience. The same picture can be painted for many of the world’s centres of Islamic finance. Though the GCC hosts around 80% of the Islamic finance industry, global centres for its regulation include Malaysia and the UK, and because of their large Muslim populations Turkey, Indonesia and Pakistan.
But the industry’s growth will not only come from within its “natural” markets. Some non-Muslim countries aim to become the hub for Islamic finance either because of their large Muslim populations, like the UK (again) or France, or because they are the gateway to large Muslim populations as Hong Kong is to China. Singapore is also aspiring to be the main centre for Islamic finance for Asia. This raises the issue of whether such centres can also help make the industry more universal – ie also attractive to non-Muslims – or whether they actually further complicate an already complicated scenario with different rules and interpretations being applied in different jurisdictions.
Another area that the Federation’s Islamic Finance Committee is looking at is innovation, appropriately so given the UAE’s current year of innovation. Much of what has been achieved thus far by the Islamic finance industry has been done to satisfy the demand for Shari’a compliant solutions for individuals and for corporates. To a greater or less extent this has been the result of conversion of conventional solutions and instruments so as to comply with Shari’a law. Now a critical mass has been reached in terms of the retail and wholesale services available for Muslim customers, there is a growing appetite for Islamic finance to start creating its own solutions, ones which can only be found in this part of the industry and ones which will create new income and new customers. This is where the need for more skills comes in, and that will be focus of the next piece in this series.
HE AbdulAziz Al Ghurair, Chairman of the UAE Banks Federation