UKIFC launch 'Islamic Finance and the SDGs' report
The Islamic Finance Council UK (UKIFC), in partnership with Malaysia based International Shari’ah Research Academy for Islamic Finance (ISRA) and the Global Ethical Finance Initiative (GEFI), has today launched the third report in its 4-part thought leadership series that aims to assist and encourage active engagement in support of the UN Sustainable Development Goals (SDGs) by the global Islamic finance sector.
UKIFC Senior Adviser Sultan Choudhury will formally announce the report, to an audience of over 3,000 financial practitioners, at GEFI’s flagship annual Ethical Finance Summit.
The report provides an analysis of responsible banking in the Islamic finance sector, assessing the level of engagement with the Principles for Responsible Banking (PRB) amongst banks in Organisation of Islamic Cooperation (OIC) member states and analysing the approaches used by 9 Islamic finance signatories. It also features notes from interviews with Al Baraka Banking Group, Bank Pembangunan Malaysia Berhad, CIMB Group, Gatehouse Bank, Gulf International Bank (UK) and Jaiz Bank who have all shown notable leadership in responsible banking.
The PRB, which launched in 2019, is the world’s leading framework for responsible banking and is underpinned by six Principles that help signatory banks to align with the SDGs and the Paris Climate Agreement.
With its underlying Shariah principles, Islamic finance is naturally aligned to responsible banking and is well positioned to lead the financial services sector’s efforts towards achieving the SDGs. However, whilst a small number of organisations are making significant progress the report has highlighted the pressing need to raise awareness, in OIC member states and beyond, of responsible banking and the benefits to be achieved by integrating Shariah compliance with sustainable finance strategies and becoming PRB signatories.
TAKEAWAYS FROM THE REPORT INCLUDE:
- 49 of the 57 OIC member states do not contain any PRB signatory organisations.
- When the PRB was launched in 2019, 14.3% of the founding signatories were based in OIC member states. Now only 10.0% of the 221 PRB worldwide signatories are based within OIC member states despite the OIC member states having a collective population of over 1.82 billion (24% of the total world population).
- Of the 61 countries containing PRB signatory organisations, 13.1% are OIC member states.
- Within the 8 OIC members states that contain PRB signatories there are 22 signatory organisations, located in Africa (50.0%), Europe (27.3%) and Asia (22.7%).
- 38 PRB signatories offer Islamic finance products and services, which equates to 17.2% of all PRB signatories.
- The majority of Islamic finance institutions that are PRB signatories, 27 of the 38 organisations, are based outside OIC member states, across Europe, Asia, Africa, Oceania and the Americas.
- Only 3 of the 38 institutions offering Islamic finance products or services are fully Shariah-compliant, namely Al Baraka Banking Group (Bahrain), Gatehouse Bank (UK) and Jaiz Bank (Nigeria).
- The most popular Islamic product / service offered by non-OIC member states signatories is corporate finance, with 40.7% of signatories offering this. Amongst OIC member states the most popular product / services are personal banking and personal, business and corporate banking, at 27.3%.
PRB signatories are currently underrepresented in OIC member states, suggesting the PRB should increase its activities within OIC member states. Awareness of the PRB in OIC member states could be increased through working groups, targeted awareness and outreach activities. Given the mutual benefits of becoming PRB signatories to both Islamic finance institutions and the responsible banking industry, increasing engagement should be treated as a priority.
UKIFC experts quoted in Chartered Banker Magazine article 'Progressive Pakistan'
The Islamic Republic of Pakistan is by most standards a young country – its founding in 1947 was not without both complication and conflict, and historical political divisions have frequently laid obstacles in its mission to forge a path as an influential and modern Islamic republic. Today, however, the impact of decades of globalisation – along with economic growth across South Asia – puts the country in a strong position, most significantly demonstrated by its increasingly dynamic banking and finance sector.
This article originally featured in the Spring 2021 edition of the Chartered Banker Magazine - click here to download
As the world’s fifth most populous state, Pakistan is nothing if not a significant player in the South Asia region. Its current economic indicators do, however, tell a story of a country that up to now has been relatively slow to develop in its infrastructure, health and education, and business environment.
The hesitant pace of growth and development can be viewed through the lens of a challenging domestic political scene that saw the country struggle until recently to establish a more stable democracy. However, Pakistan has benefited from structural reforms in recent years that have injected new impetus into its continuing transformation as a modernising republic.
A $6.3bn cash facility from the International Monetary Fund (IMF) in 2013, for one, was designed to help Pakistan stabilise its public finances and address energy supply shortages, and measures to attract much-needed foreign investment brought inflows of $3.1bn in 2019-20 – of which the financial sector was the second-highest beneficiary.
Despite some bumps in the road, the positive consequences for banking and financial services in the country are now being felt across the board in Pakistan. The country’s central bank, State Bank of Pakistan (SBP), notes the progress made in financial inclusion across such a vast population, saying: “In June 2018, we had 64 million unique accounts in operation, which reflects a penetration of more than 50% of Pakistan’s adult population. As of June 2020, we now have 73 million unique accounts, of which 61% are active.”
These accounts are a mix of traditional branch accounts and digital/mobile platforms – the very territory that is ripe for further expansion. And, given that the Pakistan Telecommunication Authority (PTA) reports some 93 million citizens as having broadband access, the potential for further penetration looks promising.
It could be cited that there are three ways in which the country’s financial sector has managed to blossom under such a transformative environment for banking worldwide. A key piece in the jigsaw is the autonomy that SBP now enjoys in making vital monetary policy decisions. The reforms go back to 1994, with further powers being subsequently granted in 1997.
“The changes in the State Bank Act gave full and exclusive authority to the State Bank to regulate the banking sector, to conduct an independent monetary policy, and to set limits on government borrowing from SBP”, which had been enacted in the SBP Act 1956. “SBP formulates and monitors monetary and credit policy, and in determining the expansion of liquidity, it takes into account the Federal Governmentʼs targets for growth and inflation that the Bank [operates] in a manner consistent with these targets.”
Secondly, the momentum for digitisation in Pakistan means increasing the share of online banking, whether that includes retail point-of-sale payments or opening and using e-wallets issued by FinTechs. SBP has capitalised on the digital shift by collaborating with the Pakistani government to allow its citizens living abroad easy access to retail investment opportunities back home by launching the Roshan Digital Account (RDA).
“During the past four quarters, the number of registered mobile phone banking users increased by three million to reach8.9 million.”
Institute of Bankers Pakistan
But perhaps a most prominent characteristic of the financial sector here is the growth and development of a highly developed alternate – or Islamic – banking system.
The Islamic banking impact
As an Islamic republic, Pakistan is strategically and culturally well placed to develop Islamic finance products. It is one of the very few jurisdictions to enjoy explicit constitutional support for it, and this in turn has increased incentive and backing for its development from the state.
According to SBP, the government has used a number of legal and regulatory initiatives to help nurture Islamic banking. As part of the National Financial Inclusion Strategy, it is determined to increase the share of Islamic banking to 25% of the banking industry, and its branch network to 30% by 2023. SBP has enjoyed a pivotal role in promotion and development of the Islamic banking industry and, as a result, is recognised today as a stable and resilient segment of the overall sector.
Although often seen as niche banking instruments, Pakistan has been cannily nurturing a sub-sector of Sharia-compliant* products and services since the early 1980s, with the result that it has grown substantially in both appeal and reach.
SBP reports 22 Islamic banking institutions operating in the country, including “five fully fledged Islamic banks, one specialised bank and 16 conventional banks with Islamic banking branches”. In the financial year ending 2020, a further 361 branches were added to a network already spanning 3,274 branches in 122 districts. Lower-income citizens are also are part of the commitment to growth, with banks such as NRSP and MCB-Islamic offering a range of Islamic microfinance solutions.
S. Fahim Ahmad, a Karachi-based Senior Adviser to the UK Islamic Finance Council (UKIFC), has more interest than most in the positive impact of Islamic finance. A former senior banker with Citibank and passionate supporter of sustainable charities, he was asked to set up Pakistan’s representation to the Global Islamic Finance UN SDGs Taskforce, which aims to ensure that it can actively engage with the 17 UN Sustainable Development Goals (SDGs) and make Islamic finance part of this global initiative.
“The team at State Bank of Pakistan were easily convinced of the benefits of such a cause,” he explains. “They had never done this before, as their role is more that of a regulator. But they are ina position to manage the banks much better than I could.”
In November 2020, the Pakistan chapterof the Taskforce was launched, enrolling the support and participation of seven Islamic and conventional banks which it was felt could best drive forward the mission. Its four key objectives include enhancing engagement with the UN SDGs – but also to promote Principles of Responsible Banking (PRB); facilitate alignment tools that deliver on additional areas such as green financing and the Global Ethical Finance Initiative (GEFI); and share international experiences.
“This collaboration between SBP and UKIFC is a novel concept,” continues Ahmad. “The idea is to replicate this in other markets. We have had to catch up in many respects with developed Islamic finance markets, and this is a good chance to make up for that.”This level of engagement is a far cry from the early days when legal issues tended to slow the growth of Islamic banking in Pakistan.
Finally, after 2000, the founding of the country’s largest Islamic bank, Meezan, was made possible when the SBP agreed to scope out proper guidelines and a regulatory framework. Today, Islamic banks in Pakistan are so successful, they have a surplus of liquidity, which inevitably needs to find a home in investment instruments that are considered halal (permissible or lawful).
“There’s no doubt in my mind that there’s a huge demand for Islamic finance products,” adds Ahmad. “The impact of wider regional change in 1979-1980 had fundamentally changed the relationship we have since had with Islam, and the younger generation is, by extension, now more into Islamic banking.
”However, there is still no global uniformity among Sharia scholars about the acceptability of different products – and there is extensive room for growth yet. What will make Islamic banking take off in Pakistan? Ahmad argues that this will happen if the government uses it on a large scale, for example through sovereign or corporate bonds in sovereign sukuk.
“Social good is a key part of Islamic finance,” he adds. “Islamic banks hold a lot of liquidity as we know, and if they can deploy that into productive, socially impactful use, the whole economy will benefit.”
Pakistan banks on faith
A recent joint survey held by SBP and the UK Department for International Development identified an “overwhelming demand” for Islamic banking, regardless of whether or not the respondents were urban or rural. A huge majority (94.51%) came out in favour of the prohibition on interest, with 88.4% regarding contemporary bank interest as a similarly prohibited practice.Even non-banked respondents echoed the sentiment, at 98% and 93% respectively, and 62% of those who are banked would willingly pay more for Islamic banking products due to religious preferences.
As with other jurisdictions worldwide, however, the shift towards contactless and e-wallet transactions is strengthening the hand of the non-bank sector too. This has not been lost on SBP which, in 2019, responded by enabling “electronic money institutions” access to Pakistan’s payments ecosystem. It is only a matter of time before the pace of innovation injected into the sector will transform people’s payment habits across the country.
Facing the future with confidence
As the world starts to deal with the economic fallout from the coronavirus pandemic – which, in many countries, is still in full flow – Pakistan’s financial sector seems to have shown a healthy degree of resilience in the face of the shock of 2020. SBP puts this down to capital buffers put in place over the long term to strengthen the banks’ position. The higher capital adequacy ratio (CAR) of 19.5% at the end of September 2020 put Pakistan beyond the minimum local and global requirements for its banking system. Liquidity has also been uninterrupted following state interventions to support key parts of the economy during this period.
From this position of strength, therefore, Pakistan is able to focus on at least three priorities among many that will shape its financial sector into a growing force for the economy: continued digital transformation, affordable lending instruments for housing, and programmes to reduce the gender gap in access to finance.
On the digital front, the Digital Pakistan Policy and the National Financial Inclusion Strategy are two initiatives that hold promise in the battle to reduce the informal economy and make FinTechs a productive addition to the domestic market. In particular, the launch of Raast, an instant digital payment system, will be an innovative step forward in reducing citizens’ reliance on cash while making transactions cheaper.
This collaboration between State Bank of Pakistan and the UK Islamic Finance Councilis a novel concept... We have had to catch up in many respects with developed Islamic Finance markets, and this isa good chance to makeup for that.
Islamic Finance Council, UK
Long-term property lending policies – where SBP has given mandatory lending targets to banks on their housing portfolios and developers are being offered incentives – should help boost a sector badly in need of modernisation to benefit future homeowners.Third is the launch of SBP’s Banking on Equality Strategy, where a “gender lens” will be applied to the industry to ensure increased financial access for women based on a set of approved measures.
When viewed in the context of an often-turbulent history, there’s little doubting the progress made to date in Pakistan’s journey of banking and finance. The policies, commitment, and liquidity – three factors crucial to any developing economy – should herald a more prosperous and dynamic economy well into this century.
No one left behind
According to State Bank of Pakistan (SBP), women are disproportionately underserved by the country’s financial system. With only around 25% of bank accounts held in the name of women (even fewer are actually active), it has been widely accepted by government that economic development cannot be achieved without a healthier approach to reducing the gender gap. The bank has therefore created a policy entitled Banking on Equality: Reducing the Gender Gap in Financial Inclusion to ensurea manageable but proactive shift towards women-friendly business practices. The draft policy was presented in December 2020 for consultation.
UKIFC experts explain why UK and UAE fintechs could be taking on the world together - Arabian Business
This article originally appeared at https://www.arabianbusiness.com/banking-finance/457790-why-uk-uae-fintechs-could-be-taking-on-the-world-together.
The UK and the UAE fintech markets will see major regional cross-collaboration in the coming years, according to experts.
Fintech – including Islamic fintech - is a growing industry globally. Britain is now home to 27 Islamic fintechs, followed by Malaysia with 19, the UAE with 15, Indonesia with 13, and Saudi Arabia and the US with nine, according to IFN FinTech.
Global investments in Islamic economy-relevant companies totalled $11.8 billion in 2019/20, according to the State of Islamic Economy 2019/2020 report by Dinar Standard.
Islamic fintech attracted 41.8 percent of the investments. This figure reflects corporate-led mergers and acquisitions, venture capital investments in tech start-ups, and private equity investments, the report said.
British fintech boom
The UK’s fintech start-up scene has seen an injection of Islamic-focused firms in recent months, which abide by interest-free Sharia laws and avoid ‘unethical’ investments, such as alcohol and gambling.
My Ahmed, a sharia-compliant e-money platform, was accepted into the Financial Conduct Authority’s regulatory sandbox in July. In the same month, Islamic peer-to-peer lending platform Qardus launched UK services, along with trading platform Minted and sharia-compliant ethical banking alternative, Kestrl.
This year, Islamic banking app Niyah and sharia-complaint digital bank Rizq also launched in the UK.
My Ahmed is a sharia-compliant e-money platform
The UK’s large Muslim population has played a major 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.
What’s more, Britain’s Muslim population is growing - and getting wealthier. The average monthly income of those born locally, with at least one parent born in Britain, is £1,219, compared with £815 for those who arrived aged six or older, according to the Economist Intelligence Unit.
UK-UAE crossover
Former Lord Mayor Peter Estlin, the global ambassador for the UK’s financial and professional services industry, visited the Gulf in January 2020 to help strengthen fintech trade and investment ties.
Discussing emerging opportunities for collaboration between the region and the UK, he said: “British business and innovation across financial and professional services has much to offer partners in the region, whether it be in currency trading and asset management, or growing areas like fintech and green finance."
Former Lord Mayor Peter Estlin, the global ambassador for the UK’s financial and professional services industry
According to Umer Suleman, board member, UK Islamic Finance Council (IFC), the UK finance market is mature with a strong regulatory landscape and a legacy of innovation. These British strengths offer partnership benefits for the UAE, Suleman said.
“The UK has launched many products and we know how to utilise financial technology,” the UK IFC board member told Arabian Business. “We know finance can go wrong - however, we’ve seen the resolution and evolution of products and services over time.”
“The Gulf has a great appetite for new innovative ideas. UK experts can offer their experience in terms of implementation and help build the region’s products and ecosystems,” said Suleman, adding that the Middle East’s high mobile phone penetration, legacy-free systems and flowing capital are boons for fintech growth.
“The Middle East is very open to using Islamic fintech but the [domestic] innovation isn’t fully there yet as it takes a while for research facilities to grow,” he added.
Gaurav Dhar, a global fintech investor and founder of Dubai-based digital payments firm Marshal, said London has a “huge history” of creating financial products and exporting them globally.
“This experience has flowed through into the digital age,” Dhar told Arabian Business.
Stella Cox CBE, Islamic finance government lobbyist and managing director at financial market intermediary DDCAP Group
Strong fintech dialogue
The Marshal founder said that a strong fintech dialogue has already begun between the UK and Gulf governments.
“It’s important that this conversation continues. There is a lot of opportunity for the exchange of technology, ideas and learning.
"While the UK has more to offer at this stage in terms of technology, the cross-regional fintech relationship is still in the early stages and will continue to grow organically.”
Stella Cox CBE, Islamic finance government lobbyist and managing director at financial market intermediary DDCAP Group, said there is major scope for cross-collaboration in the fintech space as the Gulf states continue to develop their cryptocurrency and digital payments ecosystems.
“The UK Islamic fintech community are creating its own ecosystem at the moment which is quite exciting. There is a lot of opportunities to share intellectual capital [between the UK and the Gulf] and I’m sure we’re eagerly looking at each other’s regulatory sandboxes at the moment,” she told Arabian Business earlier this month.
The potential for crossover and authorisation in one market attracts the attention of other proximate markets, Cox added.
“I see this dynamic extending beyond the Middle East into South East Asia as the Islamic fintechs create their own dynamic.
Muslim students still waiting for government funding plan - BBC News
UKIFC co-founder Omar Shaikh appeared on a BBC News video explaining some of the challenges that Muslim students are facing in accessing Shariah-compliant student finance - watch now.
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.
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.
UKIFC announces support of 'Faith In SDGs' and the Path to COP26 campaign
UKIFC is a signatory of the Global Ethical Finance Initiative's Path to COP26 campaign, and is collaborating on the #FaithInSDGs workstream, which forms a part of the campaign. Ahead of the crucial 2021 Glasgow climate summit, the two organisations are seeking to coordinate faith groups, who have the power to invest in transformative change through their holdings.
Inaugural Islamic Finance and the SDGs taskforce meeting takes place
The inaugural Islamic Finance and the UN Sustainable Development Goals (SDGs) Taskforce meeting took place virtually, in light of the Covid-19 pandemic, bringing together over 40 global Islamic finance leaders. The pioneering meeting, convened by the Islamic Finance Council UK (UKIFC) in partnership with the UK Government, explored the role Islamic finance can play in addressing the $2.5 trillion SDGs funding gap as part of the post-Covid-19 economic recovery.
Islamic Development Bank President Bandar Hajjar welcomed the initiative calling for greater cooperation between the public and private sectors and to use the SDGs to inspire financial innovation.
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."
UKIFC launches Ethical Finance 2018 Conference
UKIFC is pleased to announce that we are working in partnership with Responsible Investor, RBS Scottish Government and United Nations Development Programme on Ethical Finance 2018 which will take place in Edinburgh on October 22-23rd 2018.
The conference will bring together an expected 300 delegates from the ethical, faith and mission based investment community as part of the Global Ethical Finance Initiative.
The event will explore how trust in a sustainable economy can be revitalised, and how banks, fund managers, faith and endowment investors are confronting today’s biggest societal and economic challenges, notably as part of the United Nations SDGs.
To find out more and to register please CLICK HERE.