‘Mainstreaming’ of Islamic finance
Whentalking about the mainstreaming of Islamic finance, my initial thought about it is words like ‘murabaha’, ‘shariah’, ‘takaful’ and ‘zakat’ would no longer need translation because they have become familiar features of many financial transactions and agreements run by the majority of financial institutions in Malaysia these days.
On a larger view, it is highly common to see ‘sukuk’ being mentioned in any economic publication, or even on any TV business programme.
However, it was during my research to revisit this subject — I featured Islamic finance on BizHive Weekly way back in 2011 under the headline ‘It’s All About Shariah’ (Sept 11–17) — that I realised the ‘mainstreaming’ aspect of this sector was beyond the nonnecessity to translate several of the terminologies.
The numbers
I would like to begin with the basics — the figures.
The Islamic finance industry grew 11 per cent year-on-year in 2017 and is set to sustain doubledigit growth – buoyed by capital market products and the adoption of financial technology, according to a study by Thomson Reuters released in November.
This industry is now represented in 56 countries through 1,389 shariah- compliant financial bodies, and the combined global worth is US$2.4 trillion in assets.
Islamic banks still retain the lion’s share of this industry, accounting for 71 per cent of total assets, but their growth remained muted at five percent, with consolidation pressures mounting in its core markets of the Gulf and Southeast Asia.
In contrast, capital market products such as Islamic bonds and investment funds fared better, posting nine per cent and 16 percent growth, respectively, said the study.
The market for Islamic bonds, or ‘sukuk’, accounted for US$426 billion in deals outstanding in 2017, with 19 countries issuing sovereign sukuk worth a combined US$85 billion.
Malaysia remains the world’s largest market for sukuk and it is now opening to retail investors, while Saudi Arabia has added US$ 26 billion in new sukuk issuance in both domestic and international markets.
Islamic investment funds posted a 16-per cent gain to reach US$110 billion in assets, concentrated mostly in Iran, Malaysia and Saudi Arabia.
The mainstreaming
With Wi th such growth characters, it should not be surprising to see Islamic finance making presence in non-traditional areas – say, green economy. In this respect, Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus explained it quite comprehensively during the Global Islamic Finance Forum (GIFF) 2018 in Kuala Lumpur in October.
She observed that it had become increasingly clear that economic prosperity, in the long run, could not exist without social equity and environmental responsibility.
“While the governments of 150 countries are committed to realising the United Nation (UN)’s 17 Sustainable Development Goals (SDGs) by 2030, this must be a shared responsibility.
The private sector has a key role to play – a role, with finance at its centre, that has yet to live up to its full potential,” she said in her keynote address before more than 1,000 delegates.
Nor Shamsiah also argued that with much at stake, the call to action for sustainable finance should be one that the financial sector – perhaps more particularly Islamic finance – could not afford to ignore.
She said encouragingly, more – though not nearly enough – Islamic financial institutions had been moving beyond shariahcompliance to performance and risk management practices that reflectedsocialandenvironmental impacts. In this regard, she posed this question – how the value propositions of Islamic finance could be further developed, towards the reality of ‘finance beyond profit’.
Interestingly, she indicated the answers in three imperatives – a rethinking of value, a rethinking of risk, and a rethinking of human capital.
On the first imperative, Nor Shamsiah said the industry must elevate the fundamentals of shariah to realise its full promise,addingthatthebusiness models of Islamic financial institutions should be guided by the overarching objectives of the ‘Maqasid Al-Shariah’ – aimed at preserving and advancing the common interest of society at large, by preventing harm and maximising benefits.
The ‘ Maqasid al Sharia’ highlights the higher purposes of sharia law, said to be built upon three objectives – purification of the soul, upholding justice and protecting interests of all sides.
In Malaysia, said Nor Shamsiah, the industry with the support of the central bank, had been taking concrete steps to drive strategies aimed at increasing the positive impact of finance on society – through a strategy paper on Value-based Intermediation (VBI), which was released in July 2017.
“The commitment to adopt VBI is a significant step by the industry to clearly identify Islamic finance with sustainable practices, as it should.
It has also set in motion initiatives that will raise the bar for processes, practices, offerings and conduct that promote sustainable businesses and communities,” she said.
While the governments of 150 countries are committed to realising the United Nation (UN)’s 17 Sustainable Development Goals (SDGs) by 2030, this must be a shared responsibility. Datuk Nor Shamsiah Mohd Yunus, BNM governor