Survey: Revival & Reach of Islamic Finance

By Rushdi Siddiqui, Global Head, Islamic Finance & OIC Countries Thomson Reuters

It’s polling time once again in Islamic finance, but, today, we survey two major developments: Arab revolution and death of Osama Bin Laden (OBL), and examine the consequences, if any, on Islamic finance on the Maghreb and anti-Shariah countries.

Interestingly, the million-dollar mansion living OBL and his executive team camped in ‘cave gate-aways’ witnessed in real time the Al Qaeda ideology of hate, mayhem and murder discredited by a highly educated, but very poor Tunisian fruit-seller seeking dignity of work in providing for his family.

The fruit-seller, Mr Mohamed Bouazizi, sparked a peaceful digital revolution that ‘removed or is presently removing’ the wife-groomed Ben Ali (Tunisia). The western-polished Mubarak (Egypt), the Al Qaeda scare- mongering Saleh (Yemen), and the genocide-of-my-citizens-is-OK Moumar (Libya).

The questions and answers below should spark more thoughts about Islamic finance and its positioning, promoting, and responsibilities in the new world order. One of the takeaways from these external shocks is slowly removing reasons, one at a time, of ‘why not to have Islamic finance.’

1. What will have a ‘growth and reach’ impact on Islamic Finance:
a. Arab Revolution
b. Better understanding of Muslim brotherhood’s agenda
c. Death of Osama Bin Laden
d. All of above
e. None of above, as challenges on shortage of scholars, qualified people, standards, regulations, liquidity/risk management, innovation, etc., have yet to be addressed.

2. What were the cause(s) that gave rise to Bin Laden-ism and extremism?
a. Enduring and endemic corruption, poverty, injustice, dictatorship, indignity, Palestine, etc. in the Muslim world
b. ‘Leadership’ of OBL
c. President Bush’s invasion/liberation of Iraq, Abu-Gharib, Guantanamo, ‘Mission Accomplished,’ etc.
d. All of the Above
e. None of the Above, it was the ‘not-welcomed’ Muslim world’s Black Swan

3. Why has Islamic finance industry been relatively quiet in the post-revolution and OBL demise?
a. Islamic finance has traditionally shied away from politics, movements and parties as accountability is to the Almighty
b. It is too early to comment on how these developments impact Islamic finance, but it’s consistent with present Islamic finance’s reactive, and not proactive, approach to new markets and challenges
c. Bahrain will be a good case study on how the government handles its financial sector crisis, as the country is recognized as an Islamic finance hub
d. Question not applicable, as people saw it as ‘war of ideas’ between Bush-Obama and their quest to squash terrorism.

4. Two of the discredited North African leaders often used the ‘Shariah scare’ of Muslim Brotherhood as pretext to prevent Islamic finance from gaining traction or gathering momentum in their countries. What is the fate of Islamic finance in Tunisia and Egypt now?

a. People of these countries have gone through brutal secular repression, and it’s too early to have meaningful discussions on Islamic finance
b. Some of the secular political parties may be using Islamic finance to get the Muslim Brotherhood vote
c. Now is the perfect time to raise the profile of Islamic finance for the devout in those countries as the association between Islamic Finance and terrorism funding/financing is now broken

5. The social media, from Facebook to Twitter, received much credit for the downfall of these leaders, will Islamic finance look into or be receptive to funding Maghreb and GCC social media ventures?

a. No, it does not understand the business model as it is too far removed from real-estate financing and Murabaha stock margin lending
b. No, local leaders will prevent funding such ventures unless they can control it
c. Conventional entities, either in private equity or venture capital, will fund such ventures

6. What does the Arab Revolution mean for Islamic finance in Algeria, Morocco and Libya (post Moumar)?
a. We will see more interest from GCC and Malaysian Islamic banks
b. Local country investors, institutions and individuals, will need to take an active effort to establish an infrastructure for Islamic finance by reaching out to legislators and regulators for levelling the playing field
c. Short-term interest in Islamic finance will not result in any meaningful infrastructure for Islamic finance as no top down commitment from the respective governments
d. Everyone is adopting a “wait-and-see what happens next or till dust settles” attitude, cause still too risky to enter these countries

7. As a result of revolution and death of OBL, we are beginning to hear about a peace dividend, reduced political risk and increased stability, and it may result in, say, more Sukuk at better pricing:
a. Yes, it reduces uncertainty, hence, reduces some of the premium
b. No, it’s still about credit risk of the underlying asset
c. Move to the next question, as peace and many of the Muslim countries do not go hand in hand.

8. Will OBL’s death reduce/eliminate the anti-Shariah sentiments in countries such as South Korea, France, US and India, where Islamic finance has potential at retail and wholesale levels?
a. Yes, as main argument of funnelling money (Zakat, purification, etc.) to terrorist is addressed
b. No, because Islamic finance still needs to educate and convince the stakeholders of finance (and the lobbyists) and policymakers in these countries. It has to clearly embark on awareness and education campaign, that it’s not about money transfer (Hawala), discloses names of the charities money goes to, including non-Muslim charities.
c. No, as Islamic finance missed the opportunity to promote itself in the post credit crisis, it will probably miss this opportunity also.
d. Some see it as just a “conventional makeover”

9. Will the death of OBL result in increased demand for Islamic finance and halal industry in Afghanistan:
a. Yes, there will be a short term interest spike
b. No, the regulatory infrastructure doesn’t exist, branch distribution channels are limited, scholars are limited, and the populace is not knowledgeable.
c. The halal industry, extremists have to continue to consume, should be the lower hanging fruit to naturally promote and Islamic banking can ride its coattail

10. What does the revolution and OBL’s death mean for promoting Malaysia’s Islamic finance and halal industry in the Maghreb?
a. Not affected, Malaysia will continue to bank on the wealthy/ wealth from GCC countries for Islamic finance
b. Malaysia, led by Governor Tan Sri Zeti and SC Chairman Tan Sri Zarinah Anwar, will expand reaching out to the Maghreb countries as the Islamic finance there is more promising than CIS countries, including Kazakhstan, and sub-Saharan African countries, like Kenya.
c. Banking delegations from the Maghreb countries will visit Malaysia for better understanding the holistic approach to Islamic finance and see how they can adopt the same model in their own land.
d. The halal industry, led by World Halal Forum, will take a lead to bring more clarity for the halal industry to prosper/flourish in the Maghreb.

My own answers are: 1. b, 2. a, 3. b, 4. c, 5. a, 6. b, 7. b, 8. a/b, 9. c, 10. b

Submit your answers in the comments section below.