The alignment of many stars

As I indicated last week, this week sees the World Halal Forum coming to Malaysia and an opportunity to debate and discuss the further alignment between the worlds of Islamic Finance and the Halal industry. My view remains the same, in that in order to increase volume and quality, global standards are required.

One of the areas where standards need to be made clearer is in the definition of halal itself. For many, both Muslim and non-Muslim, their only understanding is with regard to the slaughtering of meat, when, in fact, there is much more--in particular, cleanliness, health, and ethical values. So much more could and should be done to promote these values and to build a globally recognizable standard around a halal brand. Imagine if those values were clearly understood how large and strong the market would be.

Such growth could be a driver for the development of Islamic Finance still further, but we still do need to ensure that we maintain our eye on the ball with regards to the development of products that meet consumer needs and concentrate on ensuring that our customer service exceeds all expectations. We also need to keep pushing to ensure that as much of financing business as possible is done in a Sharia’a compliant way. There is still significant room for growth in the GCC, where, even though, Islamic Finance is starting to have a growth spurt; there is still opportunity to develop further. Also with the Sovereign Wealth Funds who need to be encouraged to invest more in Sharia’a compliant assets on a regular basis.

If a true balance between values and returns can be achieved in both the Islamic Finance and Halal spheres can be achieved, then I have no doubt that both industries will be fighting their weight pretty soon.

As always, there is still much to do and not a moment to lose.

---

Daud Vicary Abdullah is the Global Leader of Islamic Finance at Deloitte and has more than 35 years experience within the finance and consulting industry, working in Asia, Europe, Latin America, and the Middle East. He is a regular commentator in the media on matters relating to Islamic Finance and has written and contributed to a number of books on the subject, including co-authoring the book Islamic Finance: Why It Makes Sense.

Islamic Finance in Luxembourg and global interest from pension funds

I returned to Malaysia over the weekend following a few days in Luxembourg meeting with clients, regulators and educational establishments. For a small country with a great deal of focus on financial services, there is an increasing level of awareness regarding the benefits of Islamic Finance and certainly a good deal of support from the Central  Bank.  Indeed, the regulator is a full member of the Islamic Financial Services Board (IFSB), and will be the first European host of the IFSB Summit meeting in May 2011.  Elsewhere in the country educational establishments are running courses in Islamic Finance and many financial institutions are looking at ways to develop their business in IF.

On a more global note it is interesting to see the increasing interest in Sharia’a compliant investments from pension funds around the world.  Already some of these institutions have made investments and are few are looking at making acquisitions into Islamic Financial Institutions. Their interest certainly is a bolster for the development of Islamic Finance and gives further credibility to the term that “Islamic Finance is good for business!"

---

Daud Vicary Abdullah is the Global Leader of Islamic Finance at Deloitte and has more than 35 years experience within the finance and consulting industry, working in Asia, Europe, Latin America, and the Middle East. He is a regular commentator in the media on matters relating to Islamic Finance and has written and contributed to a number of books on the subject, including co-authoring the book Islamic Finance: Why It Makes Sense.

Islamic Finance - Opportunities for global growth

This week finds me in London with another opportunity to present on Basel 3 and Liquidity Management for Islamic Financial Institutions. The fact that there is continuing debate and discussion on this important topic is encouraging. Besides making my usual points regarding the importance of cross-border liquidity for the growth of Islamic Finance on a global scale, I will also be highlighting the fact that the provision of Sharia’a compliant liquidity is not only for the benefit of IFI’s but also for any institution requiring short term liquidity. The IILMCo is not just a reaction to the needs of the Islamic Financial community, but a response to the general requirements for global financial stability. See this as one of the many contributions that Islamic Finance can make in the “post-financial crisis” world.

The needs for continuing work in the fields of  education and perception, with regard to Islamic Finance, have never been more urgent or important. Helping people and businesses to understand the value of Islamic Finance can be a major contributor to growth. However, helping Sovereign Wealth Funds to recognize the availability and acceptableness of Sharia’a compliant investments still remains a challenge. Many of these funds are based in the Middle East and we need to do more to ensure that they play their part in contributing to the global growth of Islamic Finance by ensuring that they divert some of their investments and acquisitions to being Sharia’a compliant ones. If they were to do this consistently over the coming five years, it would not be unreasonable to expect the current level of 1 percent of global assets that are Sharia’a compliant to grow to at least 5 percent very quickly. Then Islamic Finance could claim to be punching its weight.

As always, there is still much to do and not a moment to lose.

---

Daud Vicary Abdullah is the Global Leader of Islamic Finance at Deloitte and has more than 35 years experience within the finance and consulting industry, working in Asia, Europe, Latin America, and the Middle East. He is a regular commentator in the media on matters relating to Islamic Finance and has written and contributed to a number of books on the subject, including co-authoring the book Islamic Finance: Why It Makes Sense.

No interest but plenty of attention

May I take this opportunity to wish all readers a very peaceful and productive 2011!

"No interest but plenty of attention" is the tagline used by Deloitte’s Global Islamic Finance team. Since the establishment of the first Centre of Excellence in Kuala Lumpur, Malaysia in 2002, I have witnessed extraordinary growth in Islamic Finance. With compound growth of 15 percent per annum, over $1 trillion in assets and significant engagement from the non-Muslim world, Islamic Finance has arrived on the world stage.

However, let’s get this in some perspective. Over 26 percent of the world’s population is Muslim, yet $1 trillion only represents about 1 percent of global assets. Room for growth I would say.  Also if you take into account that more than 50 percent of Islamic financing taken and investments made are actually held by non-Muslims, you can see that there is considerable scope for Islamic Finance to punch its weight still further amongst all people.

Why the sudden surge?  From my perspective, the Global Financial crisis has helped to emphasize the value proposition of Islamic Finance considerably.  Basically Islamic Finance does not permit speculation and each transaction must have an underlying asset which adds value to the real economy. It would be true to define Islamic Finance as "Providing for the effective and economic use of capital for the benefit of the community."

Where does Deloitte fit in the world of Islamic Finance? Well, for some years now, I have been promoting that Islamic Finance is good for business and to that end, Deloitte has set up Centre’s of Excellence in Kuala Lumpur, Bahrain, Dubai, and the United Kingdom to help support all of our practitioners in developing skills around Islamic Finance and to provide services to all of our clients and potential clients. Islamic Financial Institutions need auditing as well as accounting advice. Islamic Finance-based business transactions require tax advisory. Organisations need consulting advice on how to set up an Islamic Financial business, and all businesses need support when seeking liquidity and raising capital for business expansion. Here our Corporate Finance Advisory can support in identifying Islamic Finance structures and availability of funds to support development. In addition, we are the only Big 4 firm that has a full-time Sharia’a Scholar on the team to advise on the compliance of financing structures.

In the early part of 2010 I was proud to be associated with the establishment of an Islamic Finance Knowledge Centre, based in Bahrain. The IFKC is responsible for driving thought leadership and supporting Deloitte practitioners in the field with relevant and compelling research material. At the same time, I am also proud to say that we established a Deloitte Islamic Finance website dedicated to further the understanding of Islamic Finance amongst our clients and practitioners and provide details on the type of services that Deloitte provides. I also write a weekly blog there which provides updates on current issues in the world of Islamic Finance.

I anticipate that Islamic Finance will continue to grow at some considerable pace over the coming years as the need for a financial system that is based on the real economy grows and the misperceptions regarding Islam are eroded. Islamic Finance is indeed for everyone and is good for business. Many companies and countries have figured this out in recent years and the list continues to grow apace. No interest but plenty of attention.

---

Daud Vicary Abdullah is the Global Leader of Islamic Finance at Deloitte and has more than 35 years experience within the finance and consulting industry, working in Asia, Europe, Latin America, and the Middle East. He is a regular commentator in the media on matters relating to Islamic Finance and has written and contributed to a number of books on the subject, including co-authoring the book Islamic Finance: Why It Makes Sense.