Islamic finance industry is fastest growing sector
Islamic finance industry will continue to grow much faster than conventional banking in the Middle East and also increase its market share despite issues of Shariah standards across markets, regulations, tax issues, and documentation standardisation.
This was agreed by industry specialists at a technical seminar titled: ‘Emerging trends in Islamic banking.’ It was organised by the Institute of Chartered Accountants of India (ICAI), Dubai Chapter in association with Khaleej Times on Wednesday evening.
“The Islamic banking industry is considered to be one of the fastest growing sectors in the financial industry,” Nimish Makvana, secretary, ICAI — Dubai Chapter, said in his opening remarks.
Due to the increasing demand for Shariah-compliant investments globally by both Muslims and non-Muslims, the industry has grown by an estimated 20 per cent annually in the last five years to reach $1.3 trillion in total assets in 2011 and is projected to touch $1.14 trillion by 2012.
Over the last decade from 2000-2010 Islamic finance has grown significantly faster in the region compared to conventional financial sector, according to Afaq Khan, chief executive officer, Standard Chartered Saadiq, the Islamic banking business of Standard Chartered Group.
“Whether we look at the UAE where Islamic market has grown from six per cent of banking system to 22 per cent in 2010, or Qatar where it has grown from 12 per cent to 27 per cent in the last decade. Other countries Kuwait, Saudi Arabia, Bangladesh, Indonesia, and Malaysia show Islamic banking growing faster than the conventional system,” Khan told the seminar in his key-note address.
“If the Islamic market continues to grow at historical growth rates, it will become a significant part of the financial system in this region,” he added.
Khan, in his address, touched upon the size and growth dynamics of the Islamic industry in the region. He also talked about the basic difference between lending and conventional banking and Islamic finance and how it can be conducted. He discussed the challenges around regulations, tax issues, differences in Shariah standards and standardisation of documentation.
Islamic finance operates in the real economy and is broadly structured around the concept of trade therefore Islamic banks buy and sell goods, Islamic banks can buy and rent or lease assets and charge rentals income, Islamic banks can make investments both at the equity level but also at the business level called Musharaka and they can charge for services, he said, adding: “Therefore Islamic finance experts with the guidance of the Shariah scholars try and come up with solutions for society living in the 21st century to meet there needs from buying a house, having a credit card while travelling, to raising working capital finance for their business, treasury risk management solutions to manage currency and rate risk movements all the way to M&A and acquisition and project finance.”
He mentioned that two things greatly complicate matters at the global level. The first one is current regulations and the second is tax treatment including stamp duty, capital gains, withholding tax and in many countries in the West income tax issues and depreciation treatment etc.
“At the higher level, we as industry players are lobbying and educating the various stakeholders including regulators on the need to amend the current statutes to accommodate Islamic finance in their jurisdictions and suggesting changes, which will address their legitimate concerns around ownership of assets by banks and tax issues while at the same time staying true to the basic principles of Islamic finance and Shariah,” he said.
Later, Khan moderated a panel discussion that highlighted important topics in Islamic finance such as sukuk, regulatory issues, Shariah standards, and documentation. The panellists included: Ashar Nazim, head of Global Islamic Banking Excellence Centre, Ernst and Young, Bahrain; Neil D Miller, global head of Islamic Finance — KPMG Dubai; Mohammed Dawood, director, Global Capital Financing, HSBC Amanah, Dubai; And Anzal Mohammed, Partner Allen & Overy, Dubai.
They all agreed that the industry has made tremendous amount of development in the last many years and still has massive potential. In the end, the moderator and panellists answered all the questions raised by the seminar attendees. The seminar was also addressed by James Mathew, vice-chairman of the Dubai Chapter of ICAI.