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Opinion: Right track, wrong train?

| 23/12/2010 | Reply

THE year 2010 was a year of “headwinds” for Islamic finance, and the last article of the year is a survey on issues that merit more airplay and public comment. There were so many interesting stories in Islamic finance; some good (announcement of IILM Corp), some bad (Investment Dar using syariah defence), and some ugly (anti-syariah movement).

This is not meant to be a scientific survey, but more of dialogue to answer the bigger question: Are we getting closer to where we should be in Islamic finance?

Some of the questions are straight forward, some tongue in cheek, and some requiring a deeper dive for future articles. I’ve included my answers at the end.

Question 1. Best source for insights into Islamic finance?

A. Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz’s speeches on Islamic finance over the years on the central bank’s website.

B. Islamic finance blogs.

C. Surveys and reports from the management consulting firms.

D. News coverage from major Western media.

Question 2. For Islamic finance, 2010 may be best described as year of:

A. Regrouping and reflection.

B. Excellence and expansion.

C. Sukuk, scholars and shortcomings.

D. More cheerleading about Islamic finance.

Question 3. The Islamic finance highlight for 2010 was:

A. IILM Corp announcement to address short-term liquidity issues.

B. Investment Dar’s Syariah Board pushing back management on the “syariah defence” to void a contract obligation.

C. Sukuk defaulting, as will result in better documentation and (possibly) pricing.

D. Comments from AAOIFI’s secretary-general Mohd Nedal Al Chaar concerning restricting scholars serving on multiple boards and equity interest in consulting firm.

E. Combination of sukuk from Turkey and London, Islamic banks in Senegal and Maldives.

F. Restructuring and review of business model of Gulf Finance House, ArCapita, and other real estate oriented Islamic banks.

G. No developments of significance, but continued IB (Insha’allah Banking).

Question 4. Should there be an Islamic finance award for a category with different winners from different conference organisers?

A. Yes, a grand winner (see where this going?).

B. No, awards have lost their impact because of too many awards and transparency issues.

C. Move to the next question and give everyone an Islamic finance award.

Question 5. Should there be an award for the most accessible syariah scholar?

A. Yes, as it shows the ideal number of boards to sit on.

B. No, as he/she will become in demand and then inaccessible.

Question 6. Today, marketing of Islamic banking is only about reaching out to Muslims?

A. No, Islamic finance is for everyone.

B. Yes, because:

* Marketing materials conspicuously emphasise compliance with syariah;

* Marketing materials conspicuously emphasise compliance with syariah;* Names of syariah scholars prominently displayed;

* Names of syariah scholars prominently displayed; * Advertising on Muslim/Islamic magazines, websites, blogs, etc; and

* Advertising on Muslim/Islamic magazines, websites, blogs, etc; and * Sponsoring Islamic finance events.

* Sponsoring Islamic finance events.
Question 7. Islamic finance needs to reach out new channels, like social media, to reach their bankable customers?

A. No, existing channels have not been properly and completely utilised.

B. Yes, as there is a buzz about Islamic finance globally, we need to focus on reach over breadth.

C. Unsure, is the potential target market wired for accessibility?

Question 8. Islamic finance needs to pay immediate attention to:

A. Retail penetration of takaful.

B. More resources towards micro-finance and SME financing.

C. Building out Islamic asset classes.

D. Trading platform for Islamic treasury instruments and sukuk.

E. Delinking from the London Interbank Offered Rate.

F. Islamic Alternative Dispute Resolution Centre.

G. Building bridges to the US$640 billion halal industry.

Question 9. What is the biggest threat/risk to future of Islamic finance?

A. Anti-syariah movement in the West/G20 countries.

B. Syariah-compliant risk, too few scholars sitting on too many boards and not enough time for document due diligence, which is now measured in pounds and not pages.

C. Regulatory arbitrage

D. Too many small-capitalised Islamic banks.

E. Top management of Islamic banks doesn’t have vision and strategy, as merely replicating conventional products with Islamic wrappers for fees.

Question 10. Today, what are the systemic risks to Islamic finance?

A. Exposure to continued one/two sectors, like real estate as part of the real economy, without ability to securitise.

B. A depositor run on Islamic bank(s) due to confidence/liquidity crisis, scandal, etc.

C. There are too many small-capitalised retail focused Islamic banks/subs in, say, places like Malaysia or the United Arab Emirates, resulting in destructive competition.

Question 11. Research is needed immediately on:

A. Stress testing deposit taking Islamic banks.

B. Economic/financial indicators for measuring pulse of Islamic finance.

C. Syariah-based Islamic finance

Question 12. In 2011, stock exchange contribution to development of Islamic finance will be from:

A. Dubai Financial Market, world’s first Islamic stock exchange.

B. Bursa Malaysia.

C. Istanbul Stock Exchange.

D. London Stock Exchange.

E. Luxembourg Stock Exchange.

F. Tadawul (Saudi Arabia).

Question 13. In 2010, the world recognised Malaysia as a standard bearer for Islamic finance, for 2011:

A. More Gulf-based entities will raise money in Malaysia, via sukuk and bonds

B. Malaysian Islamic subsidiaries will be spun off into public-listed companies, resulting in increased portfolio investment from global Islamic investors.

C. Domestically, Islamic bank consolidation will start to take place, either through mergers and acquisitions or central bank raising paid-up capital requirement.

D. IILM Corp will issue first Islamic paper.

E. Nothing meaningful in Islamic finance will take place in 2011 in Malaysia.

Question 14. Qatar’s victory in hosting the 2022 Fifa World Cup finals will mean:

A. Malaysian IFIs, contractors, and halal industry will make aggressive bids.

B. The PM, as part of his vision for Malaysia, as eventually a Group of 20 country, leader for Organisation of Islamic Conference countries, and responsible/integrated global citizen, will convene a committee about a future Fifa hosting bid for Malaysia.

C. Malaysia will take a wait and see approach to do something.

Answers: 1. A, 2. C, 3. B, 4. C. 5. A, 6. B, 7. B, 8. A/B, 9. B/D, 10. B, 11. A, 12. B/E, 13. A/D, 14. C.

The writer is global head of Islamic finance for ThomsonReuters based in New York


Category: Asia, Finance & Investment, Opinion

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