The application of Maqaasid As-Shariah in achieving the UN SDGs
In simplistic terms, Maqaasid As-Sharia is defined as the “Goals of Shariah”. These encompass the 5 necessities of human existence. The preservation of: faith, life, intellect, lineage and wealth. These objectives have a great resemblance to the UN SDGs (United Nations Sustainable Development Goals). The SDGs are defined as “the world we want. They apply to all nations and mean, quite simply, to ensure that no one is left behind.”
Maqaasid As-Shariah involves realising the human well-being by enhancing welfare or benefit (maslaha) of the people on one hand, and preventing harm (mafsadah) on the other. The satisfaction of these needs is a basic human right and has been addressed under the generic term “Maqaasid As-Shariah”.
Although the SDGs have not been developed on a religious basis, most goals are nonetheless aligned with the spirit of Islamic law! Muslims are duty-bound by their religion to ensure the sustenance of the 5 necessities of Maqaasid As-Shariah. This means that the Islamic development is endogenously sustainable since preservation of life is an explicit objective of the Islamic law.
The dimensions of SDGs (the 5Ps) can also be found in Maqaasid As-Sharia as follows: People (Intellect), Planet (lineage), Prosperity (wealth), Partnership (faith) and Peace (life). When we talk about Maqaasid As-Shariah we are really talking about a guiding framework, a value system, the objectives of which are explained from the holy Qur’an. Some of these are referenced below:
- No Poverty, Zero Hunger, Decent work and economic growth (SDG1, 2 & 8)
[Chapter 16 v 97: “Whoever works righteousness, whether male or female, while he (or she) is a true believer verily, to him We will give a good life (in this world with respect, contentment and lawful provision)…”]
- Good health and well-being (SDG 3), Quality Education (SDG 4), Clean water and Sanitation (SDG 6)
[Chapter 7 V 160: “…Eat of the good things with which we have provided you…”]
- Gender equality (SDG 5)
[Chapter 49 v 13: “We have created you from a male and a female….Verily the most honourable of you with Allah is that (believer) who has at taqwa (piety)…”]
- Affordable & Clean Energy (SDG 7), Climate Action (SDG 13)
[Chapter 7; V85: ““…and do not mischief the earth after it has been set in order…”]
- Industry, Innovation & Infrastructure (SDG 9)
[Chapter 13 v 11: “…Verily, Allah will not change the good condition of a people as long as they do not change their state of goodness themselves …”]
- Reducing inequality & Peace, Justice & Strong Institutions (SDG 10, 16)
[Chapter 4 v 135: “Stand out firmly for justice…”]
- Responsible consumption & Production (SDG 12)
[Chapter 7 v 31: “…eat and drink but waste not in extravagance…”]
[Prophetic advice: “The food of one person is sufficient for two, the food of two people suffices for four people and the food of four people suffices for eight”]
- Sustainable cities & Communities (SDG 11)
[Chapter 8 v 46: “…do not dispute (with one another)…”]
- Life below Water (SDG 14), Life on Land (SDG 15)
[Chapter 30 v 41: “…Evil has appeared on land and sea because of what the hands of men have earned (by oppression and evil deeds)…”]
- Partnerships for the goals (SDG 17)
[Chapter 5 v2: “…help you one another in virtue, righteousness and piety (common good) but do not help one another in sin and transgression…”]
The UN SDGs are primarily intended for the well-being of human beings. As sustainable development strives for a balanced economy, society and environment, Islam too drives a balance between the 3 to maintain efficient and effective resource usage. If spirituality becomes a way of life upholding timeless moral, ethical and human values, sustainability is certainly assured and Maqaasid As-Shariah to serve as governance framework, guidelines and values.
The adaptability of Islamic Finance (IF) post Covid-19 - AAOIFI
During the recent AAOIFI webinar that took place on the 14th December 2020, much of the discussion was around the adaptability of Islamic Finance (IF) post Covid-19. The COVID-19 pandemic is an event which has provoked unprecedented reflections and shifts within the sector.
Many countries fell into economic depression despite government and central bank support, with supply chains, currencies and SMEs all affected. However, the pandemic also accelerated the set-up of the digitalisation trend - from the creation of blockchain technology platforms where users could mobilise funds in a transparent manner, to online banking, online schools, virtual meetings and more.
A study conducted by some of the participating banks in Turkey revealed that the pandemic presented some strengths where clients were giving priority to Murabaha debt to continue financing their business operations and there were no dealings in any derivatives instruments. It was also an opportunity for widening the distribution channels and increasing the number of customers. On the more challenging side, the contraction in economic activities caused a cash shortage in companies and where participating banks were not able to lend a helping hand. Participating banks had limited number of instruments for consumer credits.
In an Islamic Economic system, the gap between the real and financial sectors is non-existent. While the financial sector can move independently from the real sector (which is what happened during the financial meltdown of 2008, when profits were being made while the real economy shrank). It is evident that reform in IF is needed, and there is a huge opportunity for the industry to re-inject returns into the real economy towards the creation of employment and promoting real businesses. On the other hand, financial innovation relating to the environment such as green financing and sustainable financing is encouraged by the Maqasid Al-Shariah.
In this current climate the role of regulators is more imminent than ever in providing guidance & the necessary educational tools to Islamic Banks (IB) and the industry, especially where many Central Banks have failed to abide by Standards that are pillars to the economy. IFSB for example are working in line with Regulators in an attempt to bring together uniformity and good guidelines in the IB sector. The pandemic is placing enormous strains on corporate cash flows as business operations have temporarily ceased.
Banerjee et al (2020) estimate that 50% of firms in 26 advanced countries do not have enough cash to cover total debt servicing costs over the coming years. Some guidance for governance during the pandemic included:
- Board & executive directors are recommended to implement crisis management plans. Such crisis management plans should cover reporting practices and governance issues.
- Boards are recommended to emphasise stakeholders’ needs and ensure transparent reporting of transactions arising due to the pandemic (moratorium payments).
- Boards are recommended to emphasise ethical considerations while developing strategies to handle the pandemic.
- Sharia boards are advised to develop pro-active measures to ensure sharia compliance.
Some opportunities for IFIs included:
- Social safety net – IFIs need to develop fiscal plans for a sustainable future.
- Islamic Social Finance tools – e.g. Qard Hassan, Sukuk, Waqf, Zakaat are available for IFIs
- Fintech (Mobile banking, Sharia compliant crowdfunding, Islamic micro finance & smart contracts).
Omar Shaikh delivers virtual lecture to World Muslim Communities Council
UKIFC Managing Director Omar Shaikh delivered a virtual lecture with the World Muslim Communities Council, on Saturday 5th December 2020. Entitled "Moral Economy and Green Recovery After Covid-19: Islamic Awqaf and Finance", the lecture affirmed that Islamic finance is moral financing and a means to carry out community activities and achieve human happiness.
He added: “Islamic finance is a financing product that has a clear structure and focuses on alignment and avoids usury, because it is a green economy that achieves recovery with returns, social benefits and blessings in money, as well as it provides solutions to global challenges.”
He explained that in the face of the outbreak of the epidemic, we must seize opportunities for Islamic finance and endowments, as there are several challenges facing financing operations and traditional bank shares such as supply chains. He is stressing that the demand for products for the benefit of societies has led to an increase in profits and reduced costs for banks.
He called for a focus on ethical economics and sustainable banking through investment in markets and Sharia governance, as well as on sustainability goals by contributing to the eradication of poverty and achieving gender equality, by harmonizing Islamic finance. He is calling for rebuilding a new system of Islamic finance based on human welfare and serving the society.
During the lecture, Omar pointed out the experience of the countries of Scotland and the United Arab Emirates in being among the first countries that cared about the happiness of the individual to achieve emotional intelligence.
The World Muslim Communities Council is an international non-governmental organization, headquartered in the UAE capital Abu Dhabi.
Second Islamic Finance & SDG Taskforce meeting takes place
The second Islamic Finance and the UN Sustainable Development Goals (SDGs) Taskforce meeting has taken place virtually bringing together over 50 global Islamic finance leaders. At the meeting, convened by the State Bank of Pakistan (SBP) in partnership with the UK Islamic Finance Council (UKIFC), the SBP announced the launch of a country level working group bringing the leading banks across Pakistan to focus on green finance and the SDGs. Two further working groups, to be driven by Taskforce members, focused on Disclosure and Reporting and Education and Awareness were also announced.
The Taskforce is playing a leading role to encourage the adoption of the SDGs, highlight the green finance opportunity and promote the UN Principles of Responsible Banking within the global Islamic finance sector. This represents a $2.5 trillion global investment opportunity as part of the post-Covid-19 economic recovery. The Islamic Development Bank suggest that between $700m and $1trillion of this is within its member countries presenting an immediate opportunity for Islamic finance institutions.
State Bank of Pakistan Governor, His Excellency Dr. Reza Baqir, announced the launch of a Pakistan country working group that will:
“Explore the inherent strength of Islamic finance to develop a responsible business framework by engaging academia, policy makers and practitioners towards achieving SDGs.”
Leading the Awareness group UKIFC Advisory Board Member and meeting chair, Richard de Belder commented:
“Having identified a knowledge gap this working group will focus on activities that increase awareness, promote understanding and encourage adoption of the SDGs amongst the global Islamic financial and their related primary stakeholders.”
Leading the Disclosure and Reporting working group Gatehouse Bank CEO Charles Haresnape added:
“This working group is a unique opportunity to bring the Islamic banks signed up to the UN Principles of Responsible Banking together to share experiences with a view to developing a more consistent approach to disclosure and report.”
Despite a natural alignment few Islamic financial institutions are engaged with the SDGs. As we enter the decade of delivery the Taskforce has become an important platform to raise awareness of the Global Goals and catalyse practical action amongst Islamic financial institutions.
The meeting, also heard from Dr Hayat Sindi, Senior Advisor to the President, Islamic Development Bank, who spoke about how Islamic financial institutions are demonstrating resilience as world events continue to reshape the landscape of global financial services; how IFI’s can prepare themselves for the opportunities and challenges posed by such a changing economy; and especially with regards to investing in science and innovation so poorer countries can provide an adequate response to the Fourth Industrial Revolution.
NOTES FOR EDITORS
About The Taskforce:
With assets expected to reach US $3.8 trillion in 2022, Islamic finance is one of the fastest growing sectors in the global financial industry. Achieving the 17 Sustainable Development Goals (SDGs) agreed in the UN’s 2030 Agenda for Sustainable Development will take over US$5 trillion per year investment with the current financing gap standing at around $2.5 trillion per year.
The purpose of the taskforce is to explore the role the Islamic finance industry can play in addressing this funding gap and to better understand the commercial opportunities the SDGs present for the sector.
The UN’s SDGs are the blueprint to achieving a better and more sustainable future for all, addressing issues such as climate change, education and equality. Achieving the SDGs requires a coordinated global effort with Governments and private sector, including the financial services sector as a whole. Analysis indicates there is limited engagement by the global Islamic finance sector and this focused taskforce has been established by the UKIFC.
Why Islamic finance in the UK is not realising its $3trn potential (Arabian Business)
Britain has failed to deliver on a government commitment to boost the sector, says UKIFC founder & managing director Omar Shaikh in an interview for Arabian Business.
The British Islamic finance market is facing a slew of challenges and is being held back by weak consumer awareness, according to one of the country’s top experts.
The $19 billion market is also suffering from a lapsed government commitment and a lack of regulation, said Omar Shaikh, an advisory board member for the Islamic Finance Council UK (UKIFC) in London.
“There is a need for the government to realise its previous legislative commitments – former UK prime minister David Cameron said every government needs to consider Islamic finance loans,” Shaikh told Arabian Business.
“The Bank of England still needs to deliver on its pledge to create a liquidity tool for Islamic finance so it can operate on a level playing field.”
In October 2013, the then UK PM Cameron announced that London would assume a position of significance in the Islamic finance market. The leader said he wanted “London to stand alongside Dubai as one of the great capitals of Islamic finance anywhere in the world”.
The UK capital now has more than 20 international banks operating in Islamic finance – five of which are fully Sharia-compliant. London is also home to more than 20 law firms that are supplying legal services relating to Islamic finance for global and domestic markets.
Islamic finance mechanisms have been used to finance a range of iconic London projects, like The Shard, the Olympic Village, and the redevelopment of the Chelsea Barracks and the Battersea Power Station sites.Today the number of institutions in the UK offering Islamic finance is double that of similar institutions located in the US, but there is still much more to be done, according to Shaikh (pictured below).
“The UK government has previously mooted an Islamic finance start-up loans facility – a SME working capital fund – but this hasn’t been executed yet,” he said.
The UKIFC expert added that Brexit could offer opportunities for unlocking Islamic finance regulation.
“We were previously locked in around EU laws,” he said. “Islamic finance couldn’t issue unsecured lending – this is a consumer credit issue that can now be resolved. The government’s commitment to Islamic finance liquidity tools needs to be realised.”
Second sukuk
However, Shaikh welcomed the news that the UK is inviting banks to join a syndicate for the country’s second sale of sovereign sukuk or Islamic bond later this year.
Britain became the first Western country to issue an Islamic bond in 2014, raising £200 million ($260 million) from a five-year deal that was 10 times oversubscribed.
“There is a potential massive $3 trillion UK market to be realised for the Islamic finance industry but UK sovereign sukuk is not yet in sufficient supply,” Shaikh said. “With a deeper sukuk market, we can be a key developer and enabler for ISAs, pensions and so on. If you don’t have enough sovereign debt, how can you create a balanced pension scheme? We need to get on with the commitments already made and the next steps.”
Growing Muslim population
The UK’s large Muslim population has played a role in helping to establish London as the focal point of Islamic financial services in the West. About 4.5 percent of the British population is Muslim, according to the 2011 census. More than a million of the UK’s 2.8 million Muslims live in London.
According to Mohammed Khan, UK Islamic Finance leader at management consultants PwC, there is a demand for ethical Islamic finance products where people can "save, invest, buy a house, and have some kind of protection".
“The Sharia structure itself doesn’t prevent the creation of these products, nor does it make them necessarily more expensive,” Khan told Arabian Business. “Generally Islamic retail products have yet to be created on a mass-market scale with equivalent competitiveness and accessibility [to mainstream finance].
Shaikh said the national Islamic finance product portfolio could be expanded to act as a fillip for the market.
“We are still at a very nascent stage, we need to develop these products – it’s a supply-driven market,” said Shaikh. “There’s no car finance, no travel insurance, no asset finance for businesses, no personal loans and no home insurance,” he said.
“Islamic finance has been a great source of FDI for the Shard and the Chelsea Barracks, for example, but there remains an opportunity to up the game beyond iconic buildings as we come out of Brexit.”
Although a host of Islamic lending or savings accounts have been launched in the UK market, only 54 percent of Muslim consumers have tried any of them, according to the 2019 Islamic Finance Consumer Report from Britain’s Gatehouse Bank.
Shaikh said the best way to raise awarenss of Islamic finance in the UK is for the industry to bring out more products.
“The awareness has to be coupled with new products. We need to catalyse the convergence of Islamic finance with ethical finance, there is an opportunity to align with the strong momentum in that space,” he said.
“You have to have good service, availability and value for money – just being Muslim-friendly finance is not good enough.”
5 Things We Learned:
- The $19 billion market UK Islamic finance market is being held back by lapsed government commitment, as well as a lack of regulation and weak consumer awareness.
- London has more than 20 international banks operating in Islamic finance – five of which are fully Sharia-compliant.
- Islamic finance mechanisms have been used to finance a range of iconic London projects, like The Shard, the Olympic Village, and the redevelopment of the Chelsea Barracks and the Battersea Power Station sites.
- The UK government is inviting banks to join a syndicate for the country’s second sale of sovereign sukuk or Islamic bond later this year.
- The national Islamic finance product portfolio needs to be expanded to act as a fillip for the market.
UKIFC supports Ethical Finance 2020
UKIFC was proud to be s upporter of Ethical Finance 2020. The annual summit, organised by the Global Ethical Finance Initiative, was held virtually for the first time in 2020 on the new EFx platform. The 4 days of the summit saw leaders from across finance participating in discussion on ethics, responsibility and sustainability in banking, investment, insurance, regulation and more.
Figures at the summit included H.E. Dr Bandar Hajjar, President of the IsDB, Eric Usher, Head of UNEP FI, economist & author John Kay, Rafe Haneef of CIMB, Richard Curtis, filmmaker & campaigner, Alison Rose, CEO of NatWest Group, Hasan Aljabri, CEO of SEDCO Holding Grouo, Samer Abu Aker, CEO of SEDCO Capital, Nigel Topping, the COP26 High-level Climate Action Champion, and Maunel Pulgar-Vidal, President of COP20.
Videos from all of the sessions are available now on YouTube.
Brexit brings risks and opportunities for UK Islamic finance but unlikely to revolutionise domestic industry, say experts
Article published by author: Hassan Jivraj
Publication name: Salaam Gateway
Date of publication: 16 JAN 2020
Article link: Click here
The United Kingdom is set to leave the European Union (EU) on January 31. Uncertainty looms as to whether the government will secure a trade deal with the EU or leave in December 2020 without one.
Nonetheless, Brexit presents various risks and opportunities, such as Islamic finance playing a role in bilateral trade negotiations and the UK’s second sovereign sukuk. Beyond these, it is unlikely it will significantly transform the industry in the UK, according to stakeholders polled by Salaam Gateway.
DEAL OR NO DEAL
The biggest uncertainty surrounding Brexit is whether the UK government will be able to secure a Free Trade Agreement (FTA) with the EU, or if it will leave the bloc without a deal.
The risk of a no-deal would have a negative impact on the UK’s conventional and Islamic banking sector.
“Impacts and shocks in the UK economy will obviously also impact the Islamic economy,” Nick Green, Partner and Head of Cross-border Investment at law firm Trowers & Hamlins in Dubai, told Salaam Gateway.
“If we have a No-Deal exit from the EU, the short-to-medium term impact on the economy will not be positive, although I think it will be flat rather than a deep recession,” he added.
Among some of the risks of leaving the EU without a deal is losing the passporting scheme, which allows financial institutions in the bloc to operate, and sell financial products and services in member states without having to apply directly to specific regulators.
“If the EU passporting scheme falls away it will be more difficult to set up banking operations in other EU countries but there is no evidence to suggest UK Islamic banks are looking to set up in the EU outside the UK,” said Chris Tait, Project Manager, Islamic Finance Council UK (UKIFC).
But Mohamed Damak, Senior Director, Global Head of Islamic Finance at S&P Global Ratings downplayed the risks of Brexit’s impact on UK Islamic banks.
“There is no significant linkage between Brexit and the competitive position of domestic Islamic banks in the UK,” he said.
“Islamic finance remains small in the UK with total assets of the Islamic banks at £4.5 billion at Year-End 2018.”
FDI DRIVER
In a post-Brexit environment, it is likely the UK government will seek new trading partners and relationships. Islamic banking and finance can play a role in attracting foreign direct investment (FDI), particularly with Muslim-majority nations.
From his vantage point in the UAE, Nick Green said that to date, most Gulf investors have generally viewed Brexit as a negative.
Middle Eastern investment into the UK is not unsubstantial, from £1.8 billion in 2016 it rose to £2.43 billion in 2017 and £2.6 billion in 2018, according to real estate services provider Savills.
With regards to the government’s position, a UK Treasury spokesperson told Salaam Gateway: “The government remains committed to developing Islamic Finance in the UK to support financial inclusion, encourage investment and enhance its competitiveness as a global financial centre.”
The UK’s five licensed Shariah-compliant banks all have significant shareholders from overseas, notes Stella Cox, Director of DDCAP Group and Chair of TheCityUK’s Islamic Finance Market Advisory Group.
All of the UK’s Islamic banks are majority-owned by Gulf-based financial institutions or investors. For example, Al Rayan is owned by Qatar’s Masraf Al Rayan. Similarly, Kuwait’s Boubyan Bank, previously the majority shareholder of Bank of London Middle East (BLME), acquired the lender in an all-cash takeover in December 2019.
“We have Islamic fund managers and insurance companies. Emerging technology businesses focused on Islamic financial sector opportunities, and also those within the wider halal economy are attracting foreign investors,” said Cox.
BANKING
While Brexit will present challenges for conventional and Islamic banks in the UK, it will also depend on the bank’s business line and how exposed financial institutions are to the EU.
Charles Haresnape, CEO of Gatehouse Bank said the bank does not trade across borders and that the impact of Brexit is much less than for UK banks which trade internationally.
“Any impact for us would be if customer demand for home finance reduced when customer appetite to purchase UK property contracted. We see this as a low risk given the historical resilience of the UK housing market,” he said.
“All things considered we believe the potential for an adverse impact on Gatehouse Bank from Brexit is low.”
From a growth and profitability perspective Mohamed Damak of S&P said asset quality and earnings of UK Islamic banks could be hit due to the significant concentration of their lending portfolio on real estate activities in case of a disruptive Brexit.
He noted around two thirds of total financing comprised real estate exposures at year-end 2018. But he said these banks enjoy a good level of capitalisation and asset quality indicators.
“At the end of 2018, the average Tier 1 ratio for UK Islamic banks stood at 17.9% and their NPLs ratio at 1.3% according to the Islamic Financial Services Board,” he added.
At present, Al Rayan is the only fully-fledged retail bank out of the five Islamic banks in the country.
Despite the small number of players and with the UK seeking to attract more Islamic investors, it is unlikely a new Islamic bank will be set up anytime soon.
“I don’t see appetite for a new Islamic lender to enter the UK at the moment,” said Nick Green.
“It is also unlikely that GCC financial institutions will set up a large presence in the UK. Instead, GCC investors looking to enter the market are more likely to acquire companies or existing financial institutions.”
However, he said there is potential space for the challenger banks to offer Islamic financial products, if they wish to expand their product line.
CAPITAL MARKETS
This year the UK is set to issue its second sovereign sukuk, which will help London maintain its position as a centre for Islamic finance.
“The UK’s second sovereign sukuk issuance is a key part of this strategy: supporting UK-based Islamic banks through the provision of high-quality, Shariah-compliant, liquid assets; encouraging the growth of the domestic Islamic finance industry and helping ensure the UK maintains its position as the leading Western hub for Islamic finance,” the UK Treasury spokesperson told Salaam Gateway.
The deal will follow the maiden sukuk issued by the government in 2014 when the sovereign became the first outside of the Islamic world to issue such an instrument.
In the following year, UK Export Finance (UKEF), the government’s credit export agency (ECA), guaranteed Emirates Airline’s sukuk to buy aircrafts.
However, there has been little activity in sukuk since then. The most recent Sterling-denominated sukuk came in February 2018 from Al Rayan Bank that issued a debut £250 mln sukuk, which followed a Shariah-compliant equivalent to a residential mortgage-backed security (RMBS).
Beyond the upcoming sovereign issuance, the pipeline of sovereign or UK corporate sukuk is likely to be limited due to cheap domestic funding.
“I don’t envisage UK companies will look at sukuk because domestic finance is plentiful, unless there is a Middle East element such as in the corporate ownership,” said Nick Green.
“It’s still cheaper to do conventional or direct lending. It tends to cost on average around 50bps to 100bps more for the UK’s Islamic banks to offer lending compared to conventional lenders, depending of course on size and purpose of facility.”
On a more positive note Bank of England is currently working on a facility for Islamic banks to help with their liquidity requirements, according to Wayne Evans, Adviser International Strategy for TheCityUK.
“This is a welcome development, as was the Bank’s decision to become an Associate member of the Islamic Financial Services Board,” he said.
INSURANCE
Another area that UK will likely seek to develop is the domestic takaful sector.
Stella Cox believes Lloyds of London is interested in promoting takaful and other Islamic insurance products and services.
In 2018, the Islamic Insurance Association of London released guidelines to address capacity constraints and challenges for takaful and re-takaful with the aim of supporting the sector. The guidelines followed the initial set released in 2016.
“The Islamic Insurance Association of London works under the auspices of the Lloyds platform and is seeking to ensure that the market operating environment is sufficiently enabled for Shariah-compliant business to grow further,” she said.
“Overseas investors have shown interest in establishing Shariah-compliant syndicates and we have a Shariah-compliant insurance underwriting agency within Lloyds. Lloyds members offer a range of Islamic products and services across a range of assets and requirements.”
But others say the scope for development in the UK is limited.
“The takaful industry remains small globally and even if we start to see some growth in the UK, we are of the view that it will remain rather small in absolute terms and relative to the insurance industry in the UK,” said Mohamed Damak.
He points to a lack of appetite from clients, lack of standards and also perhaps a lack of offering by the main insurance players.
“As in other markets, takaful companies will need to develop competitive products and do a better job in promoting their offerings/differentiate themselves from conventional insurers in order to grow,” he said.
WINNING OVER MUSLIMS
Irrespective of Brexit, there are still long-standing challenges that will continue to face Islamic banking in the UK, particularly the retail sector.
Shakeel Adli, Partner, Head of Islamic Finance at CMS Law, said the take-up of Muslim consumers has been relatively low. He said this in large part has been down to two factors; firstly a distrust as to whether the underlying products are in fact Shariah-compliant and secondly the pricing arbitrage with conventional products.
“More generally there needs to be greater financial literacy both amongst Muslims and non-Muslims for consumers to be able to make informed decisions,” he said.
He argues that where Islamic products have been particularly successful is when they have outcompeted the conventional market and as such have been able to attract both Muslim and non-Muslim customers.
He cites the examples with savings products in the UK where a number of the UK Islamic banks have offered higher rates than their conventional competitors whilst still allowing customers to benefit from the Financial Services Compensation Scheme.
MOVING FORWARD WITH SDGs ALIGNMENT
As Brexit Day approaches, the picture for UK Islamic finance remains mixed.
However, there are other initiatives taking place.
Chris Tait said the UKIFC recently launched a high-level Islamic Finance and Sustainable Development Goals (SDGs) task force that is supported by the UK Government and includes international stakeholders.
“The taskforce will enhance the engagement of the global Islamic finance industry with the SDGs through capacity building, awareness campaigns and promotional activities,” he said.
“Whilst not driven by Brexit it is a good example of the UK leading a global initiative aimed at leveraging Islamic finance to deliver the Global Goals.”
London Islamic Finance Summit 2019 hears a wide range of views from across the globe
The UKIFC and International Shari’ah Research Academy for Islamic Finance (ISRA) 2019 London Summit, Reimagining Islamic Finance was hosted on 2nd October in association with Clifford Chance.
The event heard a wide range of views from across the globe. Speakers from early pioneers, to current leaders and a groundbreaking all-woman panel shared their views on the role Islamic finance could and should play in relation to delivering social impact.
Our Islamic Finance London Summit has become the premier London conference in Islamic Finance, convening a multi-stakeholder global audience interested in open, frank and challenging discussions on core issues framing the industry’s purpose and informing future direction.
Omar Shaikh Talks to Sputnik About Islamic Finance at the 2018 Russian-British Business Forum
As published by Sputnik / Alexey Filippov on 28th Nov 2018 (Full Article)
The 2018 Russian-British Business Forum highlighted innovative businesses across a range of sectors, prompting a demand for cross-cultural collaboration between government, banking and intellectual property rights institutions.
Sputnik spoke to Omar Shaikh, advisory board member for the Islamic Finance Council UK in London.
Mr. Shaikh told Sputnik the unique angle of Islamic banking, which is steadily gaining international traction as nations invest in infrastructure projects throughout the developing world.
"Islamic banking is different through two distinct lenses," Mr. Shaikh said. "One is ethical, where you cannot engage in anything harmful to society, and a lot of different faiths or those of no faith would agree with those shared values."
"We launched something called the Edinburgh Finance Declaration, which looks specifically at shared values between faith traditions towards finance, which is the simpler and socially-conscious side of it."
"The other aspect of Islamic finance is the scriptural restriction on receiving or charging interest, and at that point, most people fall off their chairs, asking ‘how can you have a banking system that does not receive or charge interest,' — something both fascinating and unheard of."
Mr. Shaikh also said that Islamic banking forces economists "look at the banking system to see how it is constructed whilst seeing the dangers or challenges of interest-based versus equity-based financing".
Traditional macro-economists refer to the "divide between the rich and poor expanding, as those who already own capital ie, the rich, tend to win as they lend money and receive a return, regardless if the borrower's business performs well, bad or ugly," he stated. "As an equity investor, you lose if the business loses and you do well if the business does well."
Mr. Shaikh also mentioned that bans on interest is shared in the Abrahamic religions and that Greek philosophers' "views on interest were also intriguing, describing it as giving money, a non-organic and sterile matter, the peculiar ability to breed and multiply."
"It forces you to re-evaluate the nature of banking and Islamic banking is a system about financing based on the real economy," Mr. Shaikh continued.
"There is a portion based on venture capital and private equity, and another on asset-backed financing, where one can invest or rent on an asset to make a return."
He also discussed the role of institutions such as the Asia Infrastructure Investment Bank (AIIB) and Islamic Development Bank (IsDB) in international development, who partnered in June to develop infrastructure financing along the Belt and Road Initiative.
"Infrastructure is fundamental and you can never underestimate it," Mr. Shaikh said. "Just look at the New Silk Road going through China into Pakistan. That is fundamental to uplifting economies, people, and businesses."
He stated that as a real asset, infrastructure "aligns itself very well with Islamic financing because you have to invest in something tangible and real" and that "it is an interesting class of investments for Islamic finance."
"In Nigeria, Osun-state issued an Islamic bond for use on infrastructure projects and the development of Queen Alia Airport in Anman, Jordan, had been partly-funded by Islamic finance," he explained.
"It is very important for the Islamic financing world to get more comfortable with taking positions on infrastructure projects through longer-term Islamic bonds (sukuk), as most sukuk appetites are currently around the 5-year period with fewer long-term ones. Availability of products will help to drive this change and collaboration between the IsDB and AIIB will help facilitate that."
Ethical Finance Round Table Explores the Role of Blended Finance for the SDGs
The 17th Edinburgh Ethical Finance Round Table took place at the Scottish Parliament on Wednesday 24th October 2018 during a week of ethical finance events that were anchored by the 2-day Ethical Finance 2018 conference held at the RBS Conference Centre.
The round table began with Scottish Government host Ivan McKee the Minister for Trade, Investment and Innovation, welcoming those attending and expressing the Scottish Government's support for the round table series and the Global Ethical Finance Initiative in general.
The topic for the meeting was the implementation of the United Nations Sustainable Development Goals (SDGs) and the role of "Blended Finance" in achieving this. The first speaker was Gail Hurley, a Senior Advisor on Development Finance with the United Nations Development Programme (UNDP), which provides analysis of development needs and funding gaps as well as supplying support to individual countries.
While it is commonly stated that in order to implement the SDGs by the target date of 2030 an annual spend of $2.5 trillion will be required this may in fact be understated. In any event it is clear that development aid and domestic facilities alone will be far from sufficient to achieve this, so private capital will be essential and hence the development of the concept of "Blended Finance", i.e. mobilising development and philanthropic capital alongside private investment resources.
Currently the principal areas where this is being taken up are among the "middle income" economies, notably in sub-Saharan Africa, the Caribbean and the Middle East, with the principal focus of investment being in infrastructure, renewable energy and agriculture. While Blended Finance is expected to continue to expand it does face significant problems – limited capacity in individual governments, limited take-up within poor countries, the complexity of the financial structures involved and the affordability of alternative and more straightforward sources of funding (notably from China).
Gail concluded her presentation with an example of a recent successful project – the world's first Tobacco Control Bond, helping farmers in Sri Lanka and Zambia to transition to other crops.
The second presentation was given by Maria Teresa Zappia, the Chief Investment Officer of BlueOrchard, a leading global impact investment manager based in Geneva, which had itself been established as a result of a UN initiative. She explained that while BlueOrchard had initially specialised in microfinance projects this had expanded more recently into Blended Finance vehicles. Nine funds in all had been established in this area with five in current operation. In all it was estimated that up to 2017 $100 billion of Blended Finance had been mobilised. In their experience Blended Finance investment vehicles require to be carefully structured with the "waterfall" of preferences reflecting the needs of different investors and with the public investment always taking the "first risk" slice. In practice however, structuring the vehicles to meet the exact needs of varying investors presented many challenges.
A wide-ranging discussion then followed, the first question arising being the extent to which capital can be leveraged by these techniques. Gail Hurley indicated that, in broad terms, public funding currently generates a private capital multiple of around 2.5. In response to a further question, Maria Teresa Zappia advised that while their Blended Finance vehicles were effectively regulated via BlueOrchard's registration in Switzerland and Luxembourg they were not listed or rated. The difficulty of incorporating assets from the poorest countries in "frontier markets" with very little financial infrastructure were also discussed.
The meeting concluded with a brief outline from Jamison Ervin, also of the UNDP, of the new two year partnership programme between the UNDP, the Ethical Finance Hub, FaithInvest and Heriot-Watt University seeking to develop a pipeline of investable nature-based projects in developing economies, and in particular seeking to find ways of bridging the financial gap between the size of the individual projects involved and the requirements of the professional investment market. She was heartened by the announcement earlier in the week of the Scottish Government's funding and support for the project.
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