The figures related to this sector have become commonly known over the last few years:
• The value of global transactions is estimated to be somewhere between $500bn to $1 trillion.
• Islamic finance grows at 15% to 20% annually, doubling at least every five years.
• The market for Islamic insurances, Takaful, grows at 25% annually, but from a relatively low basis of around $4bn currently.
• There are 470 Islamic financial institutions worldwide.
Less well-known are the obstacles faced by the infant industry. These hurdles have been discussed by the speakers of the forum at the first Middle East International Banking, Financial Technology & Services Exhibition (MEFX) in Dubai.
Sanjay Vig, Managing Director at DIFC-based Alpen-Capital, says that Western regulators such as the Swiss Banking Commission failed to develop clear rules for Islamic Banking: ‘The lack of initiative kept the ‘the world’s safe’ from entering Islamic finance as intensively as banks in the UK did.’
Naveed Ahmad, Head of Investments – Wealth Management for Dubai Islamic Bank identified Shariah-compliant wealth management services as the ‘missing link’ in the industry.
‘Islamic banks have so far focused mainly on retail banking and investment banking, they ignored banking for high net worth individuals, eg, Islamic private equity or Islamic art funds.’ Ahmad acknowledged that the skill sets are yet to be developed by Islamic financial institutions.
Majid Dawood, founder and CEO of Shariah-consultancy Yasaar disagreed with the common perception that there are not enough Shariah scholars familiar with the principles of the Holy Quran and capital markets. ‘The banks created the shortage themselves by asking for leading scholars with well-known names instead of giving new scholars a chance”, says Dawood.
Islamic banking products must be labelled as permissible by a Shariah board and also monitored after being launched on the market.
The process to issue ‘a religious statement by the board is time-consuming and burdens the bank with additional costs compared to launching conventional products’. According to Failaka, there are currently 206 Islamic equity funds registered globally. Over 65% of global Islamic Funds are based in the MENA-region.
Despite these obstacles, record oil prices and the demand for Shariah-compliant solutions still form a win-win partnership.
While Western banks are faced with downsizing after writing off $380bn dollars as a result of the sub-prime crisis, their counterparts in the Arabian Gulf region are still on the growth path.
‘The region will grow 6.8% in 2008, the IMF estimates,’ says Nasser al-Shaali, CEO of the DIFC authority. However, the discussion at the MEFX-forum demonstrates as well, that some of the pieces in the global jigsaw of Islamic finance are yet to be set.