The New Year Islamic Finance Landscape Survey

January 2, 2012

By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters 2011

“An optimist stays up until midnight to see the new year in. A pessimist stays up to make sure the old year leaves.”Bill Vaughn.

Islamic finance is staying up for new year for …….

The survey format is straight forward, 16 questions with multiple answers.

1. What are the objective of Islamic finance (IF) and have they been met since its birth in early 1970s?
   a. Financial inclusion, but today’s IF seems to be about the bankable
   b. Public good, deriving profits from doing good, distribution of wealth, social justice, and eradication of poverty, etc., but lowest per capita income is in least developed Muslim countries
   c. Occupy Wall Street (OWS) type of movement is needed in IF to raise awareness of the industry’s ‘report card’
   
2. What is/are major risks to Islamic finance (IF)?
   a. Short term liquidity management risk
   b. Prudential regulatory framework risk
   c. Shariah scholar with their own Shariah consulting firms
   d. External shocks like subprime mortgage, sovereign debt crisis, price of oil, Arab Spring, etc.
   e. Lack of standardization, qualified people, regulations, etc.
3. Where does the hostility come from for Islamic finance (IF)?
   a. Anti-Shariah movement in west, IF seen as fifth column
   b. Purest in IF, who believe innovation is selling out of IF, but will not provide alternative suggestions
   c. Many Muslim countries as seen catering to ‘extremists,’ but the Arab spring has planted seeds for Islamic finance
   d. Some academics and scholars, is it because they are not published and not on boards?
4. What has been the most under-utilized concept in Islamic finance to economically and financially benefit countries and man-kind, respectively?
   a. Qard-ul-Hasan (benevolent loan)
   b. Zakat (almsgiving)
   c. Waqf (endowment)
   d. Islamic venture capital, microfinance, and SME financing
   e. Takaful (Islamic insurance, ‘shared responsibility’)

5. Has the Islamic finance (IF) industry addressed the question, ‘whats the difference,’ against conventional finance?
a. No, as innovation and authenticity lacking, where offerings are seen as conventional products Islamically wrapped
b. Yes, in 40 years of official existence, the IF industry has taken the ‘go-slow-domestic centric’ approach, as it cannot be fast tracked because the law of unintended consequences may kick in; more harm than good may prevail, but …..
c. The question cannot be answered, because if Islamic finance becomes conventionally efficient , then it will be criticized for being ‘me-too’ oriented

6. The $640 billion Halal industry has greater reach, breadth and depth globally than $1 trillion Islamic Finance (IF), why?
a. ‘Food’ is demand based, Muslims need to consume/eat, whereas IF is not only complicated, but also optional, many Muslims do not have bank accounts and are content
b. Halal is easier and explain to understand than the many moving parts associated with IF
c. Halal does not evoke the ‘negative’ connotation as ‘Shariah’ finance in west and selected Muslim countries likeTurkey.
d. All of above

7. How to begin process of convergence between Halal industry and Islamic finance:
a. Conferences, like World Halal Forum (WHF) or Kuala Lumpur Islamic Finance Forum (KLIFF), which include sessions on Islamic finance and halal, respectively
b. Launch of the SAMI Halal Food Index, and funds off of it, hence, halal positioned as an asset class
c. Sukuk issuance from a Halal food manufacturing for balance sheet recapitalization or building/expanding factories
d. Halal Industry establishing a global industry body much likeIFSBor AAOIFI as a data warehouse of information, news, R&D, etc.
e. All of above

8. Where would Islamic financing/funding have biggest public relations impact globally:
a. Issuance of benchmark size Olympic Sukuk (Brazil 2016), Green Sukuk (Kuala Lumpur International Financial District (KLIFD)) or FIFA Sukuk (Qatar 2022)
b. Sukuk issued by Facebook, Google, Microsoft, Apple or follow-up offering from GE
c. Acquisition of an internationally recognized sports team (issue of sale of, say, alcohol (and pork sausage) at stadium and advertising)
d. Award from Noble Peace Prize for leadership financing for, say, healthcare (public good-Maslaha- deriving profits from doing good) in sub-SaharanAfrica.
e. Plenary session at the World Economic Forum (Davos) or Clinton Global initiative (NY) on Islamic finance as an alternative financial system linked to real economy

9. Islamic finance (IF) has greatest potential to have an impact regional and/or globally in:
a. Nigeria, as the concept and conversation has been led by Governor Sanusi
b. India, as the rights of 150-200 million Muslims cannot continued to be denied combined withNRI(Muslim) remittances and the need to finance domestic infrastructure, and possibly led by Kerala State Industrial development Corporation (KSIDC)
c. Indonesia, as the largest populated Muslim country that is slowly waking up to Islamic finance
d. US, if the world’s economic and military super-power is able to address the fear mongering against IF
e. Russia, as surrounded by CIS Muslim countries and wanting to expand bridges to the wealthier Muslim world
f. China, as has a restive Muslim population of 40 million and wanting to increase trade and investment with wealthier Muslim countries

10. Which country will be the first to issue a benchmark size sovereign Sukuk:
a. South Africa
b. France
c. North African country (Egypt,Tunisia,Libya or Morocco)
d. Russia
e. U.K.

11. What country will lead Islamic finance for next decade?
a. Malaysia, as it has the built infrastructure to scale up IF
b. Saudi Arabia, as it oil financed infrastructure projects will have a ‘calming’ trickledown effect on youth’s ‘Arab spring’ mindset
c. Egypt, as the post-Mubarak era will be about financial inclusion of the non-bankable and under-banked combined with Muslim Brotherhood pronouncements about a more ‘middle of road’ approach to politics.
d. France, as UK has lost the political will to lead Londonto become a true global financial hub

12. A western company that has recently ‘stood out’ concerning Muslims/Islamic finance?
a. Lowe’s, home retailer, the company pulled out advertisement from a reality show in US about Muslims, All-American Muslim, because of pressure from a group called Florida Family Association.
b. Goldman Sach’s $2B Sukuk that has generated much chatter on the structure, use of proceeds, and trading value.
c. BASF, chemical company, issued a press release that it is in the Dow Jones Islamic Market Index (DJIM), company official stated, ‘…The DJIM listing is a welcome recognition of not just the strength of our brand in the region and the interest of Shari’ah-compliant investors, but of our philosophy to abide by the highest ethical standards in all our dealings, and respect the cultural mores of our customers in every geography that we enter.’

13. To build out the Islamic equity capital market, we need:
a. Dedicated Islamic equity capital markets (iECM) industry body, as existing bodies are more aligned to development and build-out of Islamic debt capital markets
b. Separate Shariah screening parameters for companies from Muslim countries as bias toward debt culture
c. Shariah based indicies
d. Establishment of Islamic sovereign wealth fund
e. All of the above

14. Proposed new award categories in Islamic finance (IF):
a. Most trusted Islamic financial bank, takaful, iREIT, and leasing company
b. Best Islamic financial institution compliance to corporate social responsibility (CSR), including environment, sustainability and governance (ESG)
c. Best Islamic financial institution to work for school graduates
d. Most accessible Shariah scholar
e. All of the above

15. Expansion of Funds-at-Work study should look into:
a. Law firms and clients
b. Management/Accounting firms and clients
c. Link between sponsorship of conferences and ‘winning’ Islamic finance awards
d. Scholars who do not seek advisory fees

16. The high-lights for 2011 included:
a. Thomson Reuter’s (TR) Launch of the Islamic Interbank Benchmark (IIBR)- full disclosure; writer works for TR.
b. Kazanah’s Dim-Sum Sukuk (offshore three year 500 million Renminbi Sukuk)
c. Kuveyt Turk’s five year $350M asset backed Sukuk
d. IdealRatings launch of the world’s first Halal food equity index (SAMI)
e. Investment Dar’s Shariah Board pushing back the company in using the Shariah non-compliant defense against a Wakala profit rate payment to depositor Blom bank.

My answers: 1. C, 2. A/C, 3. B/C, 4. C, 5. B, 6. D, 7. E, 8. A/D, 9. B/D, 10. A, 11. A/C, 12. C, 13. E. 14. E. 15. C/D, 16. Recuse

The views are the writer’s personal opinion.