Budget breakeven oil prices in most Gulf Arab producers are creeping upwards, as governments continue to push through investment stimulus programs despite flatter production. CONTINUE READING

More than USD 1 trillion worth of real estate projects are under way in the Middle East and North Africa, as regional authorities move swiftly to address chronic housing shortages across the Arab World. CONTINUE READING

Water availability in the Gulf is expected to decline further as a result of climate change and human-induced quality problems, the United Nations warns in a stark report on the world’s water resources. CONTINUE READING

.scribe / Foter / CC BY-NC-SA

Abu Dhabi, Dubai and Riyadh are the Middle East’s three richest cities, according to a new survey. CONTINUE READING

Bakar_88 / Foter / CC BY-NC-SA

While Gulf markets may have withstood the collapse of other emerging markets, some clouds are brewing on the horizon, and a sustained battering in emerging markets could see regional investors lose their nerve. CONTINUE READING

Daniel Incandela / Foter / CC BY-NC

Gulf markets had a stellar year in 2013, and valuations suggest the markets have headroom to go even higher in 2014. CONTINUE READING

More than 56 healthcare projects with a value of more than USD 33 billion are under way in the Gulf states, according to Zawya Projects data gleaned by alifarabia.com. CONTINUE READING

Galt Museum & Archives on The Commons / Foter.com

Oil and gas exporters such as the UAE, Saudi Arabia, Qatar and Oman are succeeding in reversing the so-called “resource curse”, but they still have a long way to go before realizing their full potential. CONTINUE READING

Foter.com / CC BY-SA

Gulf banks’ operating expenses are rising, leading to a moderation in profit levels, but their long-term outlook is robust. CONTINUE READING

U.S. Army Korea (Historical Image Archive) / Foter.com / CC BY-NC-ND

Gulf markets may be surging, but new listings remain a distant dream for regional stock exchanges. CONTINUE READING

raghavvidya / Foter.com / CC BY-NC-ND

At a time when Egypt needs friends that persevere in its hour of crisis, the United States has chosen to spurn the country and continues to pursue an inconsistent foreign policy. CONTINUE READING

freestylee / Foter / CC BY

By Rushdi Siddiqui

Dubai actually has most of the attributes of an Islamic economy. For example, an activity log for a person in Dubai may entail:

He lives in a residence that is Islamically mortgaged by, say, Tamweel, and it is ‘insured’ by Takaful Re Limited. The profit rate payment is off Thomson Reuter’s six-month Islamic Interbank Benchmark Rate (IIBR). He has peace of mind as his biggest ‘asset’ is Shariah-compliant.
Read More

The Gulf’s retail market is set to become a USD 221 billion industry by 2015, growing remarkable at 7.9% each year for the next three years, according to Markaz, Kuwait Finance Centre. CONTINUE READING

yowalid / Foter / CC BY-NC

By Rushdi Siddiqui,

The Islamic Development Bank, held their 24th Annual Symposium in beautiful Dushanbe, Tajikistan, invited me to chair a session on ‘Innovating for Economic Development in IDB Member Countries’.

At first glance, the words ‘invention’ and ‘innovation’ are not typically associated with the Muslim world.

The word ‘imitation’ (or reverse engineering) often is linked to the third world, Muslim majority countries. Yes, there is some element of innovation involved in reverse engineering, from pharmaceuticals to electronics, but it’s not something to be proud about to entice, say, foreign direct investment. The bigger question is, how much longer should the Muslim world continue to flatter via imitation, i.e., a ‘Xerox’ society.

Innovation and invention have been traditionally linked to Islam/Arab/Muslims since the birth of the religion, but something happened along the way. We have become a society of buyers over builders, consumers over savers, exporters of capital and importers returns, hence, an unsustainable situation.

The first revelation to the Prophet Muhammad (peace be upon him) was about reading:

Translation: In the name of Allah, the Most Beneficent, the Most Merciful.

Read: In the name of your Lord Who created.

Quran: 96:1

Created man from a clot of blood

Quran: 96:2

Read: And your Lord is the Most generous

Quran: 96:3

Who taught [man the use of] the pen

Quran: 96:4

and taught man that which he did not know

Quran: 96:5

Reading implies searching and seeking information to the far corners of the world, from Arabia to China and beyond, that yields knowledge, which eventually becomes wisdom. A wisdom that gets applied for betterment of man (individually), society (collectively) and the stewardship for future generations.

Thus, our predecessors have contributed to sciences, humanities, culture, arts, mathematics (algebra, logarithm, system of numbers), etc., and acknowledged by the likes of Prof Carole Hillenbrand’s book, ‘What the East taught the West.’

Furthermore, there is a ‘mobile’ museum, 1001 Inventions: The Enduring Legacy of Muslim Civilisation, .. ‘…1001 Inventions uncovers a thousand years of scientific and cultural achievements from Muslim Civilisation from the 7th century onwards, and how those contributions helped create the foundations of our modern world.’ It has been showcased in the GCC: Abu Dhabi, Doha, and Dhahran.

There are number of theories, from conspiracy to self destruction, on what happened along the way for the Muslim world, as a whole, to become a ‘knowledge deficient society.’ We only have to look at the small number of patents filed form the Muslim world to the US Patent/Trademark Office, countries aspiring to become knowledge based economies in their 2020/2030 vision planning, countries establishing entities, like Malaysia’s Talent Corporation, to bring back the emigrated human capital, and so on.

Innovation formula?

There is neither an exact formula for innovation nor a firm timetable with milestones. Instead, innovation is about establishing a fluid enabling infrastructure, with accountable benchmarks, customised to the local situation. Some of the elements of enabling include:

Initially government leads but removes itself from being a market participant to avoid crowding out affect, hence, a sunset privatisation of innovation

Availability and accessibility of risk capital PLUS mentoring, Muslim majority countries are about collateral based finance, including Islamic banking. Therefore, funds alone will not result in success, but MUST include mentoring to include, say, opening doors to suppliers/customers, legal documentation, etc.

Culture and cluster that is focused addressing national/regional needs, hence, one size fits all becomes a ‘white elephant’ project.

Education both university oriented (reverse linkage) and harnesses power of street smarts via inclusion to offer market demand, not just based, solutions.

First step

The IDB has the credibility and financial muscle to possibly fast track innovation in selected Muslim countries like the UAE, Malaysia, Turkey, Saudi Arabia, etc., however, it must take a stakeholder approach.

It must understand that the constraints of a country and work within those challenges to offer a market based solution as innovation is not only about economic development, but, as important, economic diversification.

The benchmarks must be reasonable and measurable with two important milestones: employment generation and raising the gross national income (GNI).

Thus, as a first step, IDB should create an Innovation Council (IC) for several selected member country as pilot programmes. The members of the IC may include financiers, regulators, businessmen, academics, etc., to give 360 degree review of the landscape and a pathway forward towards leading instead of following.

The writer is co-founder and MD of Azka Capital, private equity advisory firm focused on halal industry initiatives, and he is an advisor to Thomson Reuters on Islamic finance and Halal industry. Views expressed by the author are his own

The Gulf region’s fingerprints are all over the economic fortunes of a small African country. CONTINUE READING

Ian XYZ / Foter / CC BY

By Rushdi Siddiqui, co-founder and managing director of Azka Capital

Social marketing eliminates the middlemen, providing brands the unique opportunity to have a direct relationship with their customers. — Bryan Weiner.

Today, it seems Islamic finance is still stuck at a hard-copy of stage communication (faxes) when the financial world has moved on to Facebook, Twitter, blogging, etc.

Many Islamic financial institutions have Web sites, but how often is it updated beyond awards won? How many Islamic banks, takaful operators, Shariah consulting firms, industry bodies, etc, are on Facebook? Yet, the youth — its future clients — in many Muslim countries with Islamic finance are on Facebook.

What about the cross-sell of Islamic finance to non-Muslims as an ethical alternative? These potential customers are an important cluster of social media and they are continuously looking for offerings aligned with their values.

Several Islamic financial institutions have Twitter accounts, unsure how many of their (retail) clients are on Twitter. Do these institutions believe SMS, Internet and mobile banking is the “social media” connection to their clients?

Maybe the culture of social media is lacking in, say, the GCC. But we saw how effectively social media was utilised during the Arab Spring.

Fear

Is there a fear of technology among Islamic financial institutions? The fear of hackers stealing from customer accounts and identity theft? They have heard about horror stories on hacking from US- and EU-based banks with allegedly better (read, more expensive) firewalls.

Is there fear that social media connectivity will raise the level of transparency to conventional benchmarks standards and with accountability to follow? Put differently, will social media result in enhanced governance? It is not a bad thing in this post-credit crisis environment where companies are rewarded via a stable stock price and rave reviews for transparency and governance.

Is there fear that “bad news” concerning Islamic financial institutions will spread like wildfire if (deeply) connected to social media? It will spread anyway as news organisation coverage is supplemented by bloggers and tweeters in real time.

Resources

Is it a lack of resource issue in having, say, a “chief social media officer”? It would appear that Islamic financial institutions have not looked at public relations and outreach as an investment in their brand, but, rather, a cost of doing business.

Brand-building goes towards commitment to not only clients and staff, but long-term growth of the institution, including eventual cross-border expansion and future clients. Furthermore, during challenging market cycles, the message to the community, whose attention has become shorter, is the confidence inspiring “business as usual”.

Guidance

The Thomson Reuters Islamic Finance Gateway, or IFG, may just provide a guidance for Islamic financial institutions on understanding about the benefits of social media connectivity. It comes down to market intelligence, and the market place is the best source of “knowledge that powers” market movements. The community connectivity function of the IFG comes down to insights by industry experts making sense of the information overload, communicating about important sign posts on the road ahead and allowing community to interface with experts on a secure platform.

LinkedIn, Twitter

At the behest of colleagues, I joined LinkedIn about a year ago to connect with like-minded colleagues globally to share ideas and articles. Outside of unsolicited endorsement of people I have connected with, but, not worked with, it has been a pleasant experience, especially reading leadership articles.

Furthermore, I started tweeting a few months ago, initially on Islamic finance and the halal industry, but have expanded to issues related to Muslims, Islam, Muslim countries, etc. It has been a fulfilling experience and I should have joined much earlier. Why?

1. Tweeting forces one to convey their message in 140 characters, becomes very important in today’s world of short-attention span and information overload. Islamic financial institutions should be able to convey thought leadership within these constraints.

2. Twitter brings news in real time from multiple eyes, hence, it’s a multiple “op-ed” of the market place on the subject matter. The raw news provides more colour than polished sound-bites.

3. Twitter has allowed me to follow the likes of global leaders like His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, and his comments in real time. He first tweeted about Dubai being a hub for an Islamic economy a few months ago.

Conclusion

Shaikh Mohammed’s tweets, at the time of writing this, on the performance of UAE government standards should encourage Islamic financial institutions to engage and embrace the social media to not only connect, but also to report developments.

Rushdi Siddiqui is co-founder and managing director of Azka Capital, a private equity advisory firm focused on halal industry initiatives, and an advisor to Thomson Reuters on Islamic finance and the halal industry.

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

Halal needs to move from certification and ingredients to an asset class

It is one of the legs of an Islamic economy for Dubai, as recently mentioned by His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai. It is a $640-billion (Dh2.35 trillion) niche market with greater reach and traction than Islamic finance for Muslims. It is also a consumer non-cyclical, linked to the real economy and asset-backed. Furthermore, companies such as Nestlé, Unilever, Cargill, Kraft and other Fortune 500 companies produce goods for this niche market.

We’re talking about the halal industry: from food and pharmaceuticals to cosmetics, logistics and more — $2.1 trillion in total, with the food sector comprising about a third.

According to a consultant study, “Consumer spending on food in the GCC is expected to reach $106 billion in the next five years … [and] Saudi Arabia and the UAE together account for around 75 per cent of the region’s total food retail market”.

Halal was in the Arab Spring countries long before Islamic finance, and they are now just talking about building enabling environment for sukuk. Here, an agriculture sukuk would have a more direct impact than general purpose sukuk.

Halal presence is a better indicator of Muslim purchasing power than the traction of Islamic finance in Western countries. “Halal has gone mainstream,” says Darhim Hashim, CEO of the International Halal Integrity Alliance. “There are now aisles — no longer shelves — in supermarkets such as Asda and Tesco, dedicated to halal products.”

Halal needs to move from the present conversation of certification and ingredients to an asset class. Thomson Reuters and Idealratings launched the world’s first halal food index, the Socially Acceptable Market Investments Halal Food Index, at the World Halal Forum in 2011. At the launch, there were 240 companies from 15 Muslim countries, including seven from the UAE, thus facilitating inward investing and intra-Organisation of Islamic Cooperation (OIC) investing.

Two points need to be addressed. Firstly, Muslims do not control the halal food supply chain (the OIC, overall, are net importers), especially at the important midstream, manufacturing and processing stages. Secondly, the present approach to food security by way of agriculture, food and land bank funds has yet to meet expectations.

There is a third way, beyond domestic growth and importing, that is less about securing food supply and more about controlling it. However, to control it, one has to know the farm to fork to finance supply chain, as well as traceability, leakages and the like.

Shaikh Mohammad’s announcement has reached the far corners of the food and finance world, and Dubai has the vision, will and means to address food security and build a global brand in the food industry, much like Emirates is for air transportation.

— The writer is Global Head, Islamic Finance & OIC Countries, Thomson Reuters

By Rushdi Siddiqui, Global Head of islamic Finance at Thomson Reuters

Is crowd funding the VC for the masses, finally? Crowd funding enables — through a collective cooperation of a network of investors — pooling capital and other resources to seed initiatives, startups, expansions, etc.

It also an opportunity to attain the core ethical values of Shariah and the intended purposes of Islamic Finance “to do good” by contributing to socioeconomic development.
Read More

February 04, 2013

FEB 4 — I never thought I would say that publicly, but the lesson learned is, “Never say never!”

“Never’s a hard call, isn’t it? Never-ish.” — Terry Venables

Tweeting: Reasons and dangers

First, I wanted to understand why people tweeted.

Because they have something of substance or importance to say? On hindsight, probably not, because hyper-connectivity updates make a minute ago seem historical!

Because they want to connect with “like-minded people?” On hindsight, some of those “minds” should be blocked!

Because they want a following? On hindsight, thank God for the ability to block, as this becomes an addiction for some!

Because they want to only follow, say, a famous athlete, movie star, etc?

Or that they just want to be part of a fad and then drop out when it fades?

Second, I wanted to know the “dangers” of tweeting.

That which has been tweeted cannot be deleted. Possibly retreated. But from a public relations 101 angle, that which cannot be deleted is a disaster for reputation management.

The 24/7 information download world we live in reminds us more often than not of our missteps and failures than it does our successes. Hence to say “be careful before touching send button” cannot be overemphasised.

The apology tweet cannot undo the damage done, case in point people like Rupert Murdoch and many athletes, politicians, business leaders and why even some spiritual leaders.

There is also the danger of pranks played on tweet accounts. Ones opened in your name or those hacking into your account to score a point or to make a statement for individual/group benefit. This has happened to political and spiritual leaders of late.

It’s interesting to note that politicians, like US President Barack Obama, have a team that tweets on their behalf. Why you ask? These are what you call an “impersonal tweet” driven by careful public relations management.

The tweet can bring “rain or sunshine” to the subject matter depending on prominence of the tweeter. For example, during a recent college football game, the sportscaster made remarks concerning the beauty of one of audience members, and she suddenly went from less than 10,000 followers to over 200,000 followers (including a superstar basketball player by the name of Lebron James). So tweets can create overnight fame or notoriety depending on which side of an issue one stands and supports, and the reaction one poses to responses.

There are the spam tweets, hence, the nuisance of time consuming blocking comes into the picture.

Third, and probably the most difficult question, what value will I bring into the tweeting wide world? I come from the realms of Islamic finance and halal hence, and, much like TV sitcom actors, we have generally encased ourselves in that narrow arena. But this is what we do, and does not define who we are.

At one level, all of us have secret aspirations of becoming superstar athletes, CEOs of Fortune 500 companies, top journalists, movie stars, doctors, scholars, can-do politicians, inventors and entrepreneurs, better dads/moms, sons/daughters, even bad guys, etc., where what we say moves companies, markets, voters and arguments.

Thus, it seems tweeting is about being the first on headline commenting and/or reporting from the mundane (subjective) to the moving.

Exposure and experience

The nature of my “calling card”, global in title, has made me an international road runner. It has exposed me to so much in the last 15 years, from airline lounges, airlines and journeys of, at times, 17 hours, airports, hotels, taxis, tourist traps, meetings, etc. Thus, at times, I feel like a secret shopper, business development officer (outside my profession), observation tower (of people, marches, events, speeches, natural phenomenon, etc.), roving reporter, etc.

I want to share these moments, in the form of 140-character mini op-eds, but never took the first step for a number of reasons (probably intimidated by such media), and, on hindsight, missed the opportunity to connect and learn from others (much earlier). Initially, I would have probably tweeted to connect with fellow practitioners in Islamic finance and halal (large community?), and then expanded to the more pressing issues in the Muslim world, from sports to athletes to policy to tolerance to hypocrisy, and connectivity and perception influence of the non-Muslim world.

Lincoln quotes for Muslims

Let’s start with a tweet for all Muslims and non-Muslims:

“I don’t like that man. I must get to know him better.” Abraham Lincoln, 16th president of the US. How is this even different to the basic teachings of Islam or any other religion? Muslims, including myself, are you reading, understanding, and executing? The non-Muslim world needs to heed the advice of this statesman towards Islam.

He also said: “… Nearly all men can stand adversity, but if you want to test a man’s character, give him power.’” All of us have examples of people we know or can predict who will fail or have failed this character test! The Muslim world is not only cursed with black gold (oil), but also power without accountability still prevails in many parts of its society. Do we thank the colonial geographic boundaries that seem to have created mental barriers?

What would I ask in the world of Islamic finance and halal

I would tweet the following:

Students: they are spending money on courses, diplomas, etc., and want meaningful jobs upon graduation; yet, we talk about shortage of skilled people, huh? Walk the talk, Islamic finance.

Scholars: they are entitled to a livelihood to support families, but what is reasonable number of board membership?

Man on street: Islamic finance is not Qard Hassan (benevolent loan) or charity, but about profits not profiteering. Where are the imams, as they are the local trusted gatekeepers to the community, and, in Arab Spring countries, it’s about the mass retail.

Disenfranchised (bulk of the 1.6 billion Muslims): we are still waiting for Islamic finance and many of our Muslim-majority countries are non-co-operative, whom do we turn to? Shadow banking system is the only alternative as only collateral is life/blood?

Regulators/public sector: need to establish foundation for market, initially lead market and then regulate market, and cannot be an indefinite market participant as the “crowding out” phenomenon kicks in.

Anti-shariah movement: present your evidence on it financing terrorism, Malaysia and Dubai would host such an event to discuss its veracity.

Conventional institutions in Islamic finance: are you about absorbing liquidity or providing value and commitment? HSBC Amanah downsized operations in a number of countries where margins are not being met, profits versus commitment (beyond short term).

Islamic finance: you have proved you are viable (alternative), credible (non-Islamic institutions involved), durable (better survived the recent external shock, but not by much), but what are your sustainable and scalable growth plans?

Halal industry: what is your story (brand)? Why are you even more fragmented than Islamic finance? Don’t you realise you’re an asset class? Malaysia, you will just lose the halal hub title if you do not focus in building such companies (inorganically) as global brands versus the continued comments of Jakim, HDC, etc.

Modern-day lifetime achievement award for Islamic finance: Sh Mohammad bin Rashid Al Maktoum, Ruler of Dubai, VP and Prime Minister of UAE, two words: continued commitment.

The rest of the world: what is Islamic finance and how has it changed lives, inspired humanity, or rather where is IF in moments of global tragedies and catastrophes?

OIC tweets

I would tweet on following:

Why do we have “His/Your Highness”, “Your Majesty”, “Sultan”, “Emir”, “Prince and crown prince”, “Datuk and Tan Sri”, “King and Queen”, etc. when the Prophet of Islam did not have such references. Yes, we respect our leaders and titles like President, Vice-President, Prime Minister. Why can’t we make them more human, approachable and accessible? Aren’t these titles creating a mental and social class war/barrier? Is this an effective way to rule in the 21st century?

Where is the healthy food in Malaysia? Yet, what little is available tends to be expensive! I have been coming to Malaysia for 15 years, and go to the gym religiously, and rarely see Malaysian men there. Obesity-cum-diabetes is a major issue in the GCC, and Malaysia may not be far behind! (But Malaysian men may be spending time on football pitches and badminton courts — who knows?).

We have 57 Muslim countries in the OIC, but what clustering has captured the investing world’s attention like BRICS? I suggested SAMI + 3 — Saudi Arabia, Ankara (Turkey), Malaysia, Indonesia, Egypt, Pakistan and Nigeria. It could also be MIST + 3, but MIST implies a fog, haze, etc, lack of clarity.

To tweet or not

When Microsoft started making computers in the ‘70s, it wanted to put a PC in every home. In less than 40 years the world has changed and today we have a computer in every pocket/handbag.

The dangers of tweeting remain. Once you start, it is difficult to get out of it. It may rule your life (i.e. one keeps checking the phones at the expense of real-life human contact). But like everything in life, moderation is key in action.

Need to tweet to connect with a society wired on social media, yet to do so with wisdom, caution and more importantly substance. There are always the red herrings of “committed” tweeting communities that feel the need to share their every move — it is this culture that perhaps still stops those who would/could benefit the world of “tweet” from tweeting.

In conclusion, to tweet or not to tweet is no longer the relevant question to being relevant today. Maybe the question should be — do I tweet to share my next appointment or my next meal or my next relationship — or do I tweet to make the world a better place? To do my small part in making that difference?

So, for those about to tweet, we salute you (but be careful and responsible).

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

As I was on DIFC’s Islamic Finance Advisory Council (2007) and presently on Malaysia’s Securities Commission International Islamic Advisory Council, hence, a number of colleagues have asked me about the recent announcement by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

Shaikh Mohammed, stated: “Our cosmopolitan outlook to doing business continues to be our economy’s driving force. Adopting a modern and scientific framework for Islamic economies worldwide, here in Dubai, meets the demand from local, regional and international investors for a central hub to invest, grow and do business.”
Read More

Navin Shetty Brahmavar / Foter / CC BY-SA

Bahrain is looking at its GCC counterparts enviably as it battles its own domestic issues, while its neighbours rake in petrodollars and bask in relative stability. It seems like the Kingdom will have to live with internal political strife for some time to come. CONTINUE READING

By Rushdi Siddiqui

There were three recent major Islamic finance conferences in Malaysia: Global Islamic Finance Forum (GIFF), Islamic Finance News (IFN), and Kuala Lumpur Islamic finance forum (KLIFF), and headline question was neither asked nor answered or raised?

Who represents the financial interests of the super-majority of 1.8 billion Muslims comprised of have nots, students and the youth? Are they ‘bankable in the wait’ for Islamic finance for sizing and seizing.
Read More

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

Let me start off with a loaded question, what one word in Islamic finance is as important as Shari’ah, tax, accounting, regulation, and standardisation (STARS)?

Here are some clues:

Islamic finance has institutions called Liquidity Management Center (LMC) in Bahrain, Liquidity Management House (LMH) in Kuwait, and International Islamic Liquidity Management Corporation (IILM) in Malaysia, plus other similar organisations with different names.

The UAE Central Bank has been encouraging commodity Murabaha certificate of deposits (CDs) and expanded to repurchase (repo) offerings to address short-term UAE Islamic bank needs.

The Central Bank of Bahrain (CBB) has been issuing liquidity, addressing Sukuk Al-Salaam, short term, non-tradable securities.

Index providers have created Shari’ah-compliant liquid blue chips, similar to the Dow Jones Islamic Market International Titans 100 Index.

At many of the Islamic finance conferences, there are speakers and sessions dedicated to liquidity management risk along with credit, operational, market, and Shari’ah non-compliant risk.

Thomson Reuters launched the Islamic Inter-bank Benchmark Rate (IIBR), decoupling from LIBOR, an indigenous innovation for Islamic banks to manage their own short term liquidity.

The Islamic Financial Services Board (IFSB) released documents directed towards enhancing reliability and stability in the industry, through The Development of Islamic Money Markets (technical notes), earlier this year.

The Bursa Suq Al-Sila (in Malaysia) is a commodity trading platform, underlying is, say, palm oil, directed towards facilitating Islamic liquidity management.

Well if you haven’t spotted the common thread, in a word it is liquidity and it goes with asset-liability matching. In Islamic finance, there has been a historical mismatch because of the lack of robust short-term money market instruments; primarily reliance on two party bi-lateral commodity Murabaha and Wakala agreements, to manage the liquidity, surplus and deficit of Islamic banks.

The challenges associated with bi-lateral agreements includes counter-party credit risk, meaning that the lending entity may not be able to get its funds back with profit, if the receiving entity goes out of business. Obviously, the situation becomes more pronounced if subjected to external shocks, like the credit crisis in 2008, where liquidity freezes, hence, presenting fire-priced asset sales as the only alternative with the resulting ‘systemic’ risk to the niche industry.

The short-term liquidity challenge has also produced something called ‘leakage,’ where Shari’ah-compliant funds are placed in ‘conventional’ spaces. For example, the CEO of CIMB Islamic Bank, Badlisyah Abdul Ghani, stated during an interview in 2007 that, “there is nothing wrong with commodity Murabaha as a structure … what is not liked is when proceeds … are used for non-Shari’ah purposes … this leakage of Islamic funds is huge … We estimate it is over $1.2 trillion … mostly invested in US Treasuries and non-compliant investment products …

There is continued chatter in the Islamic finance market place about authentic Shari’ah-based solutions, as today’s offering, to address short term liquidity, is about either removing the Haraam elements or placing Islamic ‘wrappers’ on their conventional counter-part products.

However, it must be understood that Islamic finance is an immensely small sub-set (valued at $1.2 trillion) of conventional finance (valued at over $100 trillion) and of course much younger, four decades versus four centuries. And to be fair yes, Islamic finance needs to stop using its infancy as an excuse and to dissociate from the law of necessity, as Islamic finance solutions are gradually surfacing.

Let’s also manage expectations accordingly on what issues Islamic finance can resolve today within this niche industry, before proposing it as a solution for the ills of conventional finance. Today, Islamic finance is more about incomplete product pushing at the national/country level, than providing holistic financial and financing solutions.

For example, conversations are invariably raised on the inefficiencies, such as the inability to achieve economies of scale/size or the lengthy time frame it takes to bring a Sukuk to the market in the GCC, associated with a lack of standardisation, hence, one possible reason that the conventional financial industry has not yet taken IF seriously. Thus, if we do not have a ‘unified’ and efficient approach to addressing some of our major issues like short term liquidity, then it is going to be a challenge for others to accept our advice regarding their concerns.

To grow Islamic finance to $2 trillion and cross-sell beyond its traditional markets, fundamental, not reactive, and foundational, not bi-lateral, approaches are needed and necessary. The thinking of ‘if, it ain’t broke, what you gonna fix,’ is no longer applicable to addressing short term liquidity in Islamic finance.

To get to the end-goal of so called ‘Islamic’ purity, the industry, with guidance from regulators, has to go through interim tolerance parameters that are time consuming to avoid self-destructive destabilisation. Islamic finance has to, at one level, reflect its age and maturity, and not that of the more established conventional finance. In fast tracking solutions, the law of unintended consequences kicks in, where the solution actually creates more problems.

Thus, the alternative approaches in different geographies to, say, liquidity to asset-liability mismatch is the industry recognising a challenge and transparently offering suggestions to find a solution. This reinforces the fact Islamic finance, today, is fragmented and domestic in nature, i.e., pieces in a jigsaw puzzle.

With the recent ‘conventional banking’ scandals over alleged Libor manipulation and money laundering, this openness needs to be both acknowledged and commended!

By Rusdhi Siddiqui, Global Head of Islamic Finance at Thomson Reuters

Let me start off with a loaded question, what one word in Islamic finance is as important as Shari’ah, tax, accounting, regulation, and standardisation (STARS)?

Read More

Did the U.S. Federal Reserve Chairman Ben Bernanke give Gulf markets yet another boost by signalling his intention to launch QE3 if needed?

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

Will the “truth” set Islamic banking free from the “cheer-leading reins” that may be holding it back from authenticity-cum-innovation?

Mushtak Parker provides his insights on a successful Islamic banker and institution and some of the milestones of the industry.
Read More

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

The Goal: The central issue is about the industry controlling its own destiny

“Behind every success is endeavour… behind endeavour, ability… behind ability, knowledge… behind knowledge, a seeker ….” Unknown.

As the blessed month of Ramadan arrives, here is my “seeking” list for Islamic finance. It’s not about another voice asking when the International Islamic Liquidity Management Corporation (IILM) will issue its first paper or disagreeing with CIMB Group CEO Datuk Seri Nazir Razak’s comment on “rolling back” government’s involvement in business, but more to do with controlling our own Islamic finance manifest destiny.
Read More

As the EU crisis worsens, GCC banks are likely to face a higher demand for corporate loans as capital market liquidity tightens…. CONTINUE READING

Breakeven oil prices for Saudi Arabia and the UAE decline for the first time in years, according to Deutsche Bank, which is great news for the

GCC, especially at a time of falling crude prices and global and regional economic uncertainty. CONTINUE READING

By Fehmy Saddy, PhD, President, FS Partners SA

Food security has emerged as a global concern in the context of world population growth. World population is projected to increase from its current level of 7 billion to 9 billion by 2050. A recent article by Lester R. Brown on the “New Geopolitics of Food” reveals the prospect of future wars over food resources.

Lubna Al Qasimi, UAE’s Minister of Trade reported recently that food imports of the GCC region could more than double over the present decade. They would grow from $25.8 billions in 2010 to $53.1 billions in 2020. Projections were based on the expected population growth of the GCC region, which could reach 50 millions by the end of the decade. The Minister concluded: “for a region such as the Gulf, there is the added urgency to secure food sources that are safe and sustainable”

Brazil is the largest producer and exporter of commodities. However, four Western companies, namely, ADM, Bunge, Cargill and Dreyfus, better known by their acronym ABCD, control 70%-80% of the world food market due to their large-scale farming and financial strength. They are referred to by Brazilians as the “Four Mothers”, a designation reminiscent of the “Seven Sisters,” the infamous oil cartel that controlled oil production and pricing until the creation of OPEC in 1960.

MENA countries depend on these Western multinational companies for their food. In GCC countries, the situation is even more acute as imports amount to over 90% of their needs. Therefore, there is a growing concern that dependence on the food multinationals has far reaching ramifications on their social, political and economic development.

Islamic Finance of Agriculture

The prohibitive interest rates charged by Brazilian banks make Islamic financial instruments ideal financing tools. There are two areas where Islamic financial institutions can use Islamic financial instruments in Brazil: agriculture production and trade. They could finance acquisitions of farms and agro-industries, and support corporate borrowers. Consider the following:

1. Buy and Lease back farmlands

Brazilian farms are typically large with thousands of hectares cultivating diverse crops: corn, soybeans, sugarcane, coffee, sorghum, cotton, etc. These farms fall regularly behind on their payment of high-interest loans, and file for judicial protection from creditors, or bankruptcy. Islamic financial institutions could use the sukuk instrument to replace conventional bank loans, with a mortgage on the farm.

In most cases, it is attractive to purchase the farm and lease it back to the owner or to agricultural funds, with fixed lease payments. The lease contract would provide an exit option to sell back the farm at maturity at market value. Historically, Brazilian farmlands have increased in value by 10-12% per annum. In most cases, an acquirer with ready cash can negotiate a reduction of existing loans by at least 50% of their face values.

2. Acquisition of agricultural industries

Some agro-industries face the same problem of high interest loans and fall back on their payment. Islamic financial institutions could use the above mechanisms to replace conventional loans with a sukuk instrument, or acquire the company under a buy and lease back contract. There are several opportunities to purchase sugar refineries, for example, with their proper agricultural farmlands for a nominal price, and defer payment of loans over a period of 5-8 years, and even more for obligations due to government entities.

3. Contracting Farmers for a percentage of the crops

One of the oldest forms of Islamic finance is Muzara’a, a profit-sharing scheme that is widely used in the MENA region and much of the Muslim world, whereby an investor advances a certain sum to the farmer for a percentage of the crops. The low cost of production and higher productivity of Brazilian farms, provides higher returns. Islamic banks could use this mechanism for the account of clients. In any case, they have no difficulty selling the commodities in their home markets.

4. Contracting Farmers for the production of commodities

Another from of agricultural financing is to advance certain sums to farmers to enable them to pay for seeds, fertilizers and other plantation expenses, in exchange for certain crops at pre-determined prices. The sums advanced would be secured by a mortgage on the farm. Indeed, the food multinationals referred to above, use this ancient Islamic financing method to control production and markets.

5. Islamic Commodities Trading

A controversial issue in Islamic finance today is the synthetic commodity contracts used by Islamic banks to support their Treasuries. In its basic form, an Islamic bank (in fact, a borrower) purchases the commodity contract at certain price, with a delayed payment date, and sells it back immediately to the same seller (or a sister company) at a lower price for cash, without ever taking delivery of the underlying commodity or asset. The difference in price is, of course, the time cost of money, essentially an interest payment. Most Islamic scholars consider this method as a legal “Hyla” (“Trick” in English), which does not qualify as genuine form of Murabaha.

Islamic financial institutions could undertake genuine Murabaha transactions by financing actual commodities sale contracts to actual buyers in the MENA or GCC regions. Islamic financial institutions dealing with such contracts may develop an inter-banking Murabaha platform among themselves to generate liquidity for their own treasuries. Under this platform, Islamic financial institutions would buy and sell commodities contracts at prices that reflect different maturity dates and delivery schedules.

In conclusion, there are numerous opportunities in Brazil suitable for Islamic financing of agriculture, as well as in other sectors. Islamic financial institutions could use Sukuk to support corporate borrowers in other vibrant sectors and benefit from high returns secured by real assets. However, two issues are always on the minds of financial institutions: exit strategy, and currency risk. With respect of the former, the Islamic methods of financing discussed above would include exit options in a highly liquid market. With respect of currency risk, lease payments are adjusted annually to the Brazilian Government deposit rate, currently around 10%, and inflation, estimated at 6.5% for 2012.

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

July 4, 2012

Excerpts from an interview between the columnist and Dr Mohamad Akram Laldin, the executive director of the International Shari’ah Research Academy for Islamic Finance (ISRA):

Rushdi: You were a Shariah scholar and now you are an executive director of ISRA. How did this come about?

Dr Akram: I am an academician at the International Islamic University Malaysia and, at the same time, developed my expertise in syariah advisory. I am member of several syariah boards in and outside Malaysia. In 2008, the central bank of Malaysia wanted to establish a Syariah Research Academy and I was selected to be the executive director, and I am still actively participating in my syariah advisory engagements.

Rushdi: What are the high level objectives of ISRA in contributing to Islamic finance?

Dr Akram: The objectives of ISRA can be summarised as:

* Spearhead and conduct-apply syariah research in Islamic finance. Since the establishment of ISRA in 2008, it has produced a number of academic research publications.

* Enrich resources of knowledge in Islamic finance through publications and collecting materials in Islamic finance. ISRA also has a large collection of fatwas translated into English on its website.
Read More

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters

Islamic finance is usually described as an infant market with domestic focus and supported by the government, hence, much like a baby reliant upon it parents in a home environment of nutrition, nurturing, and natural growth.

“To be competitive in the new world order, one has to think like an immigrant, create like an artisan, work like a start-up and provide service like a waitress, and continuously create a unique value add.” Thomas Friedman, Foreign Affairs Correspondent of the NY Times.

Read More

The timing could not have been more inconvenient.

In the week Gulf leaders met to discuss ways to create a more unified group, similar to an ‘EU model’, European Union leaders were struggling to keep their group united amid an unravelling economic and political crisis. READ MORE HERE

By Rushdi Siddiqui

A Sharia-compliant equivalent of the popular UK and US reality show The Apprentice has recently been announced by a UK-based organisation.

This follows the news of an ‘Islamic Facebook’ and ‘Halal-Tube.’ The Muslim world also has superheroes, like The 99, Muslim dolls (Dara and Sara), Muslim Cola (Mecca Cola), Islamic car, and so on.
Read More

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

Halal industry, as an asset class, is looking for compliant liquidity. Islamic finance, as a movement connected to the real economy, is looking for impactful intra-OIC (compliant) investment and financing opportunities.

The convergence is happening in real time, and one of the “leaders” in the reunification is a strong-willed pioneering woman, Jumaatun (Juju) Azmi, founder and managing director of KasheDia.
Read More

By Rushdi Siddiquim, Global Head of Islamic Finance, Thomson Reuters

The retirement of Tan Sri Zarinah Anwar as chairman of Malaysia’s Securities Commission (SC) was a defining moment on the need to establish a ‘bench’ strength for women in Islamic finance.
Read More

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

Dear Dr. Ahmad Mohamed Ali, President, Islamic Development Bank (IDB) Group:

Asalaam Alaikum:

The Islamic finance world welcomes your comments on the ‘Mega’ Islamic Bank to effectively compete against well capitalized conventional financial institutions.

“…The ‘Mega Islamic Bank’ comes as an initiative of the Islamic Development Bank in its efforts to address the dearth of senior financiers, the absence of the Islamic tools of stock exchange and the absence of market liquidity between Islamic banks.”

However, $1 billion, with $500 million in paid capital by the three founders (IDB, Dallah Albaraka and Qatar Government), is smaller than three existing Islamic banks, which have never addressed themselves as ‘mega.’ The three include Saudi Arabia’s Al Rajhi, Qatar’s Mashraf Al Rayan and Kuwait’s Kuwait Finance House (KFH). Furthermore, it seems the ‘mega’ story may be incomplete without Malaysia’s participation.

Read More

By Rushdi Siddiqui

Daud Vicary Abdullah is an authority on Islamic banking and has contributed to a number of books on the subject.

He has been in the finance and consulting industry for more than 38 years, with significant experience in Asia, Europe, Latin America and the Middle East. Meet Daud Vicary Abdullah, the president and CEO of International Centre of Education in Islamic Finance (Inceif), the global university of Islamic finance.
Read More

“We must remember that one determined person can make a significant difference, and that a small group of determined people can change the course of history.” - Sonia Johnson

The recent BRICS summit in New Delhi, India, should be a wake-up call for the Muslim world’s own proposed BRICS, called SAMI: Saudi, Ankara, Malaysia and Indonesia.

The BRIC story, Brazil Russia, India and China, started in 2001 by a Goldman Sachs’ Jim O’Neill, “Building Better Global Economics BRICs”. In late 2010, an “S” was added for South Africa. These are growth markets with increasing political clout, and combining for nearly 50 per cent of the world’s population, US$14 trillion (RM42 trillion) GDP, and excess of US$4 trillion (RM12 trillion) foreign reserves (source: Wikipedia).

Today, politics is increasingly subordinated to economic capitalism, as ideology can no longer address the concerns associated with the “Misery” Index: unemployment, inflation, etc. The author initially raised the “Muslim BRIC”, SAMI, concept last year, as existing Muslim country clusters like OIC, GCC, MENA, CIS, etc., have not captured the imagination of investors.

However, after meeting with various institutions and individuals, like Dr Nasser Saidi, chief economist of DIFC, from the Muslim countries, one of the most commonly heard feedback was the four country clustering, SAMI, was too small and not representative sample of the 57 Muslim countries (OIC).

Another feedback was there are political sensitivities with OIC sub-clustering, hence, it seems the politics (cart) are placed before economics and finance (horse). Finally, sporadic comments included, “why include Malaysia?” Answer is below.

SAMI + 3

The collective market place is more intelligent than an individual, hence, proposed Muslim majority countries to add to SAMI could include: Nigeria, Pakistan and Egypt. If we look at metrics for present and growth concerning population, GDP, regional influence (politically and economically), Islamic finance, halal industry, nuclear capability (Pakistan), inclusion in other grouping (Egypt as part of CIVETS, and NIGERIA as part of Next-11), etc., these three countries are ahead of their brethren Muslim countries.

If we look at projections from the 2007 Goldman Sachs study, BRIC and N11 Nations, we see that Nigeria (percentage growth from 2006 to 2050 is 1416 per cent), Egypt (1600 per cent) and Pakistan (908 per cent) are mentioned in the top 22 countries for GDP by 2050.

The challenge now becomes what to call the new grouping (not political club)? The world is about sound-bites and catch-phrases, as goes to retention and recall, hence, the appropriate naming will goes to reach/traction, assuming the combined substance of the countries conveys a strong message of growth and opportunity.

Thus, do we call the proposed grouping as SAMI + 3, SAMI and Beyond (sounds more like a cartoon outer-space movie), SAMI-PNE (pronounced as symphony) or something else.

The ideal situation may just be SAMI + 3. Why? As other Muslim countries grow and develop, they can be added easily without having to reconfigure the name. The only issue with plus (+) Muslim country scenario is the additions to not get the branding in the marquee name. Well, there are trade-offs and difficult to satisfy everyone.

(It should be noted that metrics on political freedom, human rights, corruption, illiteracy, healthcare, infrastructure, per capita income, brain drain, capital flight, etc., were not factored into the equation in suggesting Nigeria, Pakistan and Egypt.)

SAMI + 3 Bank

The naming of the Muslim country cluster is only a beginning. The lubricant for any country that wants to become high income economy is finance, Islamic, conventional or combination.

For example, does the Muslim world need a development bank? We already have the Triple A rated Islamic Development Bank, and, it has done a remarkable job since its inception under HE Dr Ahmad Mohamed Ali Al-Madani. However, one cannot have enough capital, especially, when some of the least developed countries with the fastest growing population happen to be Muslim countries.

(Some “experts” have equated the volatile mix of “poverty, population and pulpit pronouncements” as breeding ground for opposition, coups and extremism.)

If the recent BRICS summit can raise the prospect of a development bank, “BRICS Bank”, to fund infrastructure and development projects in the emerging markets, which happen to be all Muslim countries, then SAMI + 3 needs to consider merits of comparable bank.

Thus, as an alternative to the multi-lateral World Bank, Asia development Bank, Africa Development Bank, etc., is being considered for not only infrastructure but also facilitating trade, the Muslim world also needs to have some parallel thinking/development to capture the sloshing liquidity.

However, it should not be another dedicated Islamic financial institution or proposed Islamic Mega bank, as many Muslim and non-Muslim countries (read India) neither have a regulatory infrastructure in place nor have made Islamic finance a priority.

The lack of interest in Islamic finance may be due to the now disproven argument (in North Africa) about catering to Islamists. The more important point is not to wait for the “‘i’ to be dotted and ‘t’ to be crossed” for arrival of Islamic finance in these jurisdictions, as the law necessity can be invoked as interim suggestion for finance to fund growth, development and trade.

Malaysia Leads SAMI + 3

Malaysia has never been equated to be a surplus capital provider vis-à-vis the petro-liquid GCC region, however, increasing number of entities in the Gulf are raising money in Malaysia via sukuk and bond.

Thus, Malaysia may actually be perched in a unique (window closing) position to lead not only the Muslim world, but also the emerging markets to establish what the BRICS summit suggested: lead, house and host a (SAMI + 3) development Bank.

Thus, for once, a Muslim country leads by providing a model for BRICS with a “go to market concept” model development bank.

Malaysia has history of “vision, will and means”, in achieving the imaginable, be it overcoming the Asian financial crisis without IMF medicine, becoming a globally recognised Islamic finance hub from a modest start in 1983 or spear-heading and housing a multi-jurisdictional entity, IILM, to address short term liquidity for the US$1 trillion (RM3 trillion) industry.

Answer: Malaysia should be included in SAMI + 3!

For example, five of the IILM supporting countries, Malaysia, Saudi, Turkey, Indonesia, and Nigeria, overlap with SAMI + 3, and the new Egypt and Pakistan should be amenable to a development bank that could assist in job creating trade and investment.

Reality v Rhetoric

The real work commences after the photo-op sessions are over, and one finds there are real world challenges, from subtle to real and in-between. For example, some of the BRICS challenges that may have application with the proposed SAMI + 3 clustering:

Border challenges: India and China

* Indonesia and Malaysia or yesterday’s news?

Governing Ideology: Communism (China), Democracy (India/Brazil/South Africa), Democratic Authoritarianism (Russia)

* Outside of Saudi Arabia, six of the seven SAMI + 3 are democratically elected governments.

* Military influence (budget as percentage of GDP) can be seen within Turkey, Egypt, Pakistan, Nigeria and possibly Indonesia.

Regional influence (financial, military, etc): Russia and China

* Saudi Arabia and (the new) Egypt?

* Interesting possibility of India (BRICS) and Pakistan (SAMI + 3) for regional influence.

Obviously, there are other areas were “intent concerns” may lie amongst BRICS countries, but it would appear there are fewer areas of mutual suspicion within the SAMI + 3 for, say, a development bank.

First Summit

Malaysia, unlike many Muslim countries, typically puts on good international shows, be it conferences or summits. The time may be right and ripe to put on the First SAMI + 3 Summit in Malaysia, like the first BRIC Summit in 2009, and, like BRIC, led initially by finance ministers to issue a declaration for a just, financially inclusive, impact investing multi-polar world order.

This could possibly be bigger than or complimentary to the Asean story. The political impact, within Malaysia and outside, is a needed “feel good” story today within the Muslim world.

Thus, the alliance, SAMI + 3, may be just counter-balance to BRICS and G-7 on geo-political affairs.

The faces and places of a New World Order: Control our destiny or be defined by others?

Egypt?

Rushdi Siddiqui is the global head of Islamic finance at Thomson Reuters

With Gulf economies poised for growth on the back of strong macroeconomic policies, regional stock markets are also set for growth.

The two most liquid GCC markets - Dubai and Saudi Arabia - are both up well over 20% since the start of the year, with the Egyptian market also rising an astonishing 33%. READ MORE HERE

Barclays Capital expects GCC economies to rise 5.4% this year, but Citibank worries that a sudden drop in oil prices could leave the states with a dilemma: whether to curtail spending or keep pumping funds into the economy. READ MORE HERE

Feb 27, 2012
By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Dr Mohammad Daud Bakr, president and CEO of Amanie Advisors, has the distinction of being both a globally-renowned Sharia scholar as well as an acclaimed entrepreneur.

His decades’ worth of industry experience is both Amanie’s pillar of knowledge as well as the focus of its clients’ attention.

In an exclusive interview with Gulf News, Dr Daud provides insights into Arab Spring countries’ potential for Islamic finance, scholars sitting on multiple Sharia boards and some of the challenges faced by the $1 trillion (Dh3.67 trillion) industry.
Read More

Feb 17, 2012
By Rushdi Siddiqui, Global Head of Islamic Finance, Thomson Reuters

Q: We are hearing more comments from Islamic bankers who are saying Sukuk are bonds with an Islamic wrapper, and the industry needs equity/investment sukuk, what are your comments?

YTD: Let’s consider the question and its source and then boil it down to a statement. Islamic investment bankers say they (when they say “the industry” I have to assume they are speaking of themselves) need equity/investment sukuk. Simple answer? AAOIFI has developed them. I have always maintained that the market will determine the direction of Islamic finance. It may well be at the present time that the market for sukuk is driven by the needs of Islamic bankers in treasury departments. These needs include predictable pricing. Thus, they have their own preferences for certain types of sukuk, maybe not the same types as Islamic investment bankers. And when the saturation point is reached, by which I mean when the treasuries of Islamic banks have sukuk holdings sufficient for their needs, regulatory and otherwise, the secondary market that everyone is hoping for will develop. It’s beginning already in a limited way. And I share the frustration of our bankers. But we need to keep working.

Q: A large number of Sukuk defaulted in last several years, about 30 from Malaysia with 10 BBA and 16 Murabaha structure, are defaults a cause for concern or actually beneficial for the industry?

YTD: At the 2005 IFSB conference in London on the subject of law and sukuk the subject of defaults, then only a possibility, was discussed often and widely. After all, until there are defaults, it is next to impossible to know how judges will view sukuk. The problem is multiplied when different jurisdictions and legal systems are involved. We are now, therefore, in discovery mode. And while it is indeed lamentable that sukuk have failed and investors have suffered losses, it is now the responsibility of all involved to study the cases to see what might be done better in the future.
Read More

Ellie Brewster /Foter

Booz & Company addresses ways in which the GCC’s private sector can address nationalization and unemploymentby hiring the region’s highly educated female population

Private-sectorcompanies in the Gulf CooperationCouncil (GCC) have an opportunity to address several pressing issues, includingnationalization imperatives and local unemployment, by attracting morenational women into their workforce. Booz& Company has developeda framework to help companies in this effort.

Looming Changes in the GCC Workforce

Private and semi-private companies inthe GCC are under enormous pressure to nationalize their workforce, owingto a combination of high regional unemployment and a currently outsizedproportion of expatriate workers in the region.

Thus far the talent pool of women employeesin the region remains largely untapped, due to social, occupational, andlegal challenges. Private and semi-private organizations in the GCC donot rely heavily on GCC nationals to fill their employment needs, and theyrely even less on women as a group.

GCC governments have taken a numberof steps to improve this situation, such as Saudi Arabia’s national policies,including a five-year plan, Human Resources Development Fund (HRDF) programs,and royal decrees, and the women’s leadership center that Qatar is establishing.

However, to achieve the goal of greateremployment among national women in the regional workforce, companies willneed to implement internal programs to recruit, develop, and retain womenemployees. This will require solving a number of social, occupational,and legal challenges, with roots in long-standing and sensitive culturalattitudes in the region.

“There are clear benefits to be claimed.The companies that take the lead in this issue will help address the GCC’sunemployment problem among nationals. They will also assume a key rolein shaping the future of women in the region,” said RamezShehadi, Partner with Booz & Company. “Mostsignificant, they will tap into a base of talented national women thatis well-educated and eager to join the workforce, giving these companies a long-term competitive edge.”

A Three-Part Framework for Change

Booz & Company has undertaken substantialresearch in this area, includinga comprehensive survey and client work. We have also developed a frameworkto address these issues, in order to help GCC companies more successfullyintroduce national women into their workforce in greater numbers.

Our framework consists of three elements:1) defining an overall corporate vision for employing women based on asolid case for change; 2) developing a talent management strategy and operatingmodel to source, train, promote, and retain women; and 3) implementinga change management strategy to engage with and secure the support of internaland external stakeholders.

1. Women’s Employment Vision

One thing is clear from the effortsof companies worldwide to attract and retain talented women: Implementingdiversity for diversity’s sake does not work. To begin successfully integrat­ingwomen into their workforce, GCC companies must have a senior champion whocan make a business case for the need to do so.

“Creatingsuch a business case is not without challenges. There is little in theway of objective, broad-based research that clearly establishes the importanceof integrating women into the workforce, and nonethat is specific to the region,” said Dr. Leila Hoteit, Principal withBooz & Company. “However,anecdotal evidence from a multitude of companies shows the value that astrong female talent base can engender. A business case could be basedon any of three elements: workforce,customers, or suppliers.”

Workforce: A dedicated effortto recruit and retain women does more than just fill talent gaps. A diverseworkforce leads to higher employee engagement across the board. More than100 studies have demonstrated the correlation between employee engagementand business performance: Engaged employees are far more productive andcommitted, and they are more likely to make progress toward company goals,as well as the goals of their own group

Customers: Companies in a wide variety of sectors will need to more effectively target women as this keydemographic’s spending power continues to grow.To do so, companies need to ensure not only that they have women on staffbut that women are in the right positions to enhance the company’s go-to-marketstrategy with their insights, such as R&D, product development, marketing, and sales.

Suppliers: Companies need womenin the right roles to raise awareness about potential new suppliers, usetheir networks to build these relationships, and maintain the relationshipsover the long term. One company found annual cost savings of $2 millionto $4 million when it focused on women-owned businesses by categorizingall third-party orders and enhancing the competitiveness of each category.

2. TalentManagement

The second element of the frameworkrequires developing a comprehensive approach to hire the most promisingwomen candidates, invest in developing their technical and soft skills,evaluate them objectively, and retain them.

Talent acquisition: Companiesshould apply a unified process for attracting qualified talent from allavailable sources. This includes hiring entry-level candidates directlyfrom the ranks of recent graduates of women’s colleges and vocationalinstitutes. Another key channel for young talent is to sponsor students.Still another source, particularly for experienced professionals and managers,is the region’s recruiting firms.

“Companiescan partner with leading technology training institutions to establisha pipeline of women professionals with specializedtechnical experience,” said Dr Kamal Tarazi, Principal with Booz &Company. “For example, the Womenin Technology (WIT) program, a collaboration between Microsoft and localwomen’s organizations, teaches computer skills to women in nine MiddleEast and North Africa countries. Since its launch in 2005, WIT has trainedmore than 3,500 women throughout the MENA region.”

The company should ensure the same clearobjectives and criteria are used in recruiting women as in its usual recruitingprocess, and avoid making subjective judgments about, for example, a femalecandidate’s age or number of children. It should also seek to have strongfemale representation in recruiting to project an image of a company thatfully embraces and values diversity.

Learning and development: Inaddition to recruiting and hiring female candidates, companies must implementa training program to develop women employees in technical areas and softskills. Companiesshould consider a mentorship program that pairs less experienced stafferswith more experienced women. In addition to serving as role models, thementors would offer junior women an opportunity to share their concernsand issues.

Performance management: To supportthe integration of women into the workforce, companies must establish anobjective system for evaluating their performance. This process needs tobe clearly communicated and strictly implemented to ensure fairness. Allscores should be objective and measurable, based on specific outcomes (suchas turnover and employee satisfaction in the HR function, or sales numbersfor the sales department), and the evaluation process should include multiplesources of input—e.g., managers, colleagues, and subordinates. Althoughthis is good practice for all employees, recent experience has shown thatit is difficult to implement when evaluating women employees in a male-dominatedenvironment. For example, in some job appraisals, women receive referencesto personality traits—they are “shy” or “emotional”—rather than specificdescriptions of behaviors or quantitative assessments of their job impact.At other times appraisals may reflect an inherent, though unconscious,bias regarding women employees’ long-term commitment to the company inthe context of family obligations.

Retention: Once the company hastaken these measures to recruit, hire, develop, and evaluate the womenin its workforce, it should devote equal effort to retaining women employeesand ensure that they stay professionally fulfilled and motivated. Thisis critical, given the scarcity of skilled resources in the market andthe investment that would be needed to hire and develop a new employee.We advocate a balance of traditional incentives and “pride builders,”or less quantifiable and concrete benefits.The first category, incentives, consistsof fairly traditional HR levers: rewards such as compensation and benefits,opportunities for career advancement, and a work–life balance that offerssuf­ficient flexibility to attend to personal obligations while also pursuinga career. The introduction of resources such as family-friendly policieswould go a long way in helping retain talent: For example, employees mayseek part-time work, or the opportunity to telecommute certain days orfor a finite period of time, as long as the job’s requirements allow forit.

3. ChangeManagement

“Becauseincreasing women’s par­ticipation is a complex initiative with potentialramifications for the entire organization, companies will require an extensivechange management strategy in order to succeed,”said Shehadi. “Atthe outset, all relevant stakeholders,both internal and external, mustunderstand the program and its objectives. This may require overcomingmisguided but still prevalent perceptions among some about the roles ofwomen in society, or their ability to succeed in the private-sector workplace.”

Because these perceptions can be stub­born,changing them within companies must start from the top. Companies mustline up support and commitment from the board and executive vice presidents(EVPs), who must lead by example. Senior management should actively monitorkey metrics through dashboards or score cards that track turnover, thenumber of women in senior positions, and other relevant indicators.

At lower levels, the company shouldidentify middle management champions for the program. These champions canbegin spreading awareness of the program in advance, along with motivatingtheir staff to embrace the change. They can overcome unforeseen obstaclesat that level—through a performance-driven approach—and identify andcommunicate challenges up the chain of command.

Finally, companies will need to adda diversity-management component to the slate of mandatory training requiredof all employees. It is not sufficient to simply prepare women to jointhe labor force; management must prepare the rest of the employees to makethe integration of women a company-wide success as well.

The entire company should build on smallsuccesses, potentially through recognition via in-house communicationssuch as internal magazines or newsletters, or through awards given to thedepartment that has the greatest proportion of women employees, or thelargest number of women in leadership roles.

“Introducing women into the GCC private-sectorworkforce will not be easy, and there is a risk of moving too fast. Eventhose companies that are most aggressively pursuing nationalization cannotsimply replace one skilled and experienced expat worker with one nationalwoman,” said Dr Hoteit. “In the longer term, this change is inevitable.Attitudes in the region are changing, and many companies are now activelyworking to define their strategic vision for how women will fit into theirworkforce. Women have the education and—more important—the desire toplay a more central role in the region’s labor market.”

Reaping the Rewards

The entrance of more women into theregional economy will serve as an economic multiplier, creating benefitsfor each nation as a whole.

“Booz & Company’s research onthe “Third Billion” — the billion women worldwide who are poised tohave an impact on the global economy as workers and consumers — showsthat these new engines of economic activity create vast markets and increasethe size and quality of the talent pool,” concluded Tarazi. “In periodsof relative prosperity, their aspirations and persistence are engines forgrowth. In slower periods, they represent pockets of economic activitythat ameliorate the impact of decline.”

For private and semi-private organizationsin the region, nationalization and regional unemployment provide an opportunityto tap an underused talent pool. Defining a strategic vision to betterintegrate women, developing a comprehensive talent strategy to do so, andcarefully managing the transition will be critical for companies that wantto capitalize on this opportunity. Companies that adopt an intelligentstrategy to manage this transition will gain a competitive edge, througha workforce that is more engaged and better reflects the GCC populationat large.

The Middle East North Africa markets lost more than USD100-billion in 2011, according to Zawya’s market analysis tool.

Gulf markets alone lost USD52-billion, despite significant revenues generated by high crude prices during 2011, which kept the economies in great shape.

The Gulf states also benefited from economic packages unveiled by virtually all the six GCC states, but investors were more concerned about Arab Spring, geopolitical tensions, slow growth in the U.S. and a sovereign debt crisis in Europe to pay to much attention to domestic stimulus. READ MORE HERE

Kuwait-based KAMCO sheds light on the future economic outlook of the GCC based on 2011 and 2012 GDP growth expectations. In addition, the report incorporates growth analysis of consumer loans in Saudi Arabia, Qatar and Kuwait for 9M-11. GDP in Saudi Arabia, Qatar and Kuwait is expected to post growth rates for 2011 and 2012, by 29% and 7% in Saudi Arabia, 35% and 7% in Qatar, while Kuwait is expected post growth of 25% and 12%, respectively, supported by the growth in oil GDP.
Read More

Will 2012 be the year of “come together” consolidation for Islamic banks?

Size is often the justification for achieving economies of scale, used to access deals for league table prominence, used as a buffer in a challenging environment, used as defensive measure to ward off unwanted suitors, and so on.

Islamic banks are very much like Islamic (equity) funds. There are hundreds of Islamic banks and funds, but the paid-up capital and assets under management, respectively, is too small to be meaningful. Yet, both, more so Islamic banks, present a unique situation (of an industry risk) of “too small to fail”.

Read More

Deleveraging in EU banks is one of the many issues impacting the ME economies in the 2012. Tourism, trade, investment and oil exports could also suffer as the EU crisis unravels.

All eyes are fixed on the European Union these days, as the region remains mired in a sovereign debt crisis that threatens the very future of the economic bloc. READ MORE HERE

In the first part of the 2012 regional economic prospects, a look at oil-rich countries’ efforts to manage their citizens’ expectations, economic slowdown and regional and domestic political upheavals in the New Year.

The year 2011 was probably the most unexpected for the Middle East in decades with not just the magnitude of changes unravelling in the region, but also the sheer number of those cataclysmic changes. READ MORE HERE

Excerpt from Citibank report:

In October this year, $16.9bn of projects were awarded across MENA. On a cumulative basis, just over $82bn of projects have been awarded across the region in the year to end October. This compares favourably with FY10 when almost $80bn of projects were awarded. Saudi Arabia is the main driving force accounting for a third of the 2011 total. Iraq accounts for 20%.The UAE has awarded almost $14bn in the year to end October, almost $20bn below FY10.
Read More

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

‘Don’t cheat the world of your contribution. Give it what you’ve got.’ - Steven Pressfield

On November 22, 2011, the world’s first Islamic interbank benchmark rate (IIBR) was launched. It is the result of a collaborative approach taken by many Islamic financial institution, industry associations, and Shariah scholars, over the course of 24 months, to a decades-old industry challenge: how to decouple Islamic finance from a conventional Western pricing benchmark (LIBOR) and the law of necessity when an ‘Islamic’ alternative was not available. The objective was to support and preserve Islamic finance authenticity.
Read More

• 25 Rapid Growth Markets (RGMs) to grow by an average of 6.2% this year and by 5.9% in 2012, compared with 1.6% growth for the Eurozone this year falling to 0.6% next year.

• Qatar had the highest nominal GDP (US$) per capita at PPP in 2010 among the 25 RGMs and has also been the fastest growing economy over the last decade, with an average growth of 13%.

The dynamics of the global economy have changed with a new set of fast-growing markets challenging the position of the established advanced economies. The rapid growth markets (RGMs) are expected to grow collectively by 6.2% this year, almost four times more than the anemic growth expected in the Eurozone according to Ernst & Young’s new quarterly Rapid Growth Markets Forecast (RGMF).
Read More

Standard & Poor’s Ratings Services said today that issuers in the Gulf Cooperation Council (GCC) countries face rising refinancing risks over the next three years because the amount of debt maturing in the region will increase significantly between 2012-2014.

Industry experts estimate bonds and sukuk of about $25 billion will mature in 2012, rising to about $35 billion in 2014. Standard & Poor’s believes the region is therefore entering a challenging loan and bond refinancing cycle, especially given the ongoing volatility in capital markets and fears that slowing global economic growth is already curbing corporate debt issuance and heightening refinancing risk in the region.
Read More

By Rushdi Siddiqui, Global Head Of Islamic Finance, Thomson Reuters

On the long plane ride back from Malaysia to New York, I was thinking about ‘out-side-the box’ areas that would interest me to develop in Islamic finance. There were two areas that would not exit my thoughts.

Is Islamic finance capturing the imagination of the Generation Y and Z (the youth) as employees and customers? What has Islamic finance financed to build?
Read More

Jordan and Morocco’s possible inclusion in the Gulf is a political move rather than an economic one, but there might be other - unlikely - candidates in the region far suitable for the purpose.

The potential inclusion of Morocco and Jordan in the GCC fold should be taken for what it is - a political move by the Gulf states to widen their sphere of influence in the region. Read More Here

As safe haven-seeking investors cast their eyes over the political storm in the region, Abu Dhabi appears to be a safe harbour. Read More Here

Qatar’s investment over the next five years will be a staggering $225 billion, but the country is still worried about low energy prices during the period.

As a roadmap for its social and economic aspirations, you can’t really fault Qatar’s National Development Strategy 2011-2016 report. It is inspirational, comprehensive and packed with good intentions, as all such reports should.

For an economy that is growing at a rate that would put China to shame, it’s national development strategy (NDS) is also lacking in a fair bit of pride and glory - if anything, there are parts of the report that are a bit hesitant and self-doubting. The missing vainglory is a contrast from some of the other national development strategies that one has seen over the years - and that is not a bad thing. It’s almost endearing. Read More

As events in Egypt change faster than you can update them on Twitter or Facebook, regional authorities are looking at the short-term and long-term impact of the crisis on their own economies. Read More