Opinion: When ‘separated twins’ reunite

Islamic finance and halal industry are twins separated at birth and now are reuniting (converging) after 1,400 years.

Halal industry, as an asset class, is looking for compliant liquidity. Islamic finance, as a movement connected to the real economy, is looking for impactful intra-OIC (compliant) investment and financing opportunities.

The convergence is happening in real time, and one of the “leaders” in the reunification is a strong-willed pioneering woman, Jumaatun (Juju) Azmi, founder and managing director of KasheDia.

Question: Please explain the link between KasheDia, International Halal Alliance (IHI) and World Halal Forum (WHF).

Jumaatun: KasehDia is a private company formed by myself back in 1999 to offer contemporary communication solutions for Islamic concepts. One of our products is the World Halal Forum (WHF) whose inaugural event was in 2006. It was in that same year that the IHI was formed following a resolution passed by the delegates. As of 2011, the ownership of WHF has been transferred to IHI, so that it maintains a non-profit non-governmental organisation status.

Question: Prime Minister Datuk Seri Najib Razak has spoken about a halal economy, how is your group leading the efforts?

Jumaatun: KasehDia, in leveraging our in-depth knowledge of the global halal industry, was able to assist the government of Malaysia in formulating the chapter on halal industry in the Third Industrial Master Plan. In addition to promoting the halal products sector, the WHF has always sought to widen the realm of halal to include services and the ancillary industries, such as training, laboratory testing and logistics. A key component in a halal economy is Islamic finance and we started the convergence conversation and integration actions of halal products and services sector few years ago.

Question: In Islamic finance, there are international industry bodies, like AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions), IFSB (Islamic Financial Services Board), etc, halal industry does yet have one, what is your organisation doing?

Jumaatun: The WHF gave birth to the IHI Alliance, which is envisioned to be the global authority to fill the gap. Through its strategic partnership, IHI Alliance has already obtained a mandate from the OIC to develop a global comprehensive programme for the halal sector, which includes harmonising standards and certification practices. It is working closely with all stakeholders, especially the relevant importing authorities and industry players.

Question: What are the hot button issues in halal industry today?

Jumaatun: The recurring theme is need for standardisation in a fragmented market, much like in Islamic finance. Some of the issues include stunning, mechanical slaughter and use of animal-based gelatin. There are also the debates between activist groups, acting in the name of animal welfare, pitted against halal (and kosher) over the notion of what is known as “religious slaughter.” This essentially means slaughter without the prior use of a device or method to render the animal unconscious. This has become a hot issue in Europe and spilled over into the political area in Holland, France, etc.

Question: How has the WHF evolved since its inception event in 2006?

Jumaatun: During the early days of WHF, we managed to bring the concept of halal from the purely religious realm to the talk of industry, multinational corporations and seemingly unrelated sector players. We framed it in a different context and introduced new ideas and service sectors that are very much part of the whole halal ecosystem. We moved towards addressing the immediate issue of standardisation!

However, we soon became less idealistic and more realistic as the Ummah is a globally diverse community. We realised that a single standard cannot be imposed on 1.6 billion Muslims everywhere. Hence, we refined our approach to be more practical. Simply put, to establish a robust system where the halal certification industry adheres to internationally accepted standards of professionalism and transparency. This has been the task of IHI Alliance.

Question: The WHF 2012 just ended, what were the highlights of the event?

Jumaatun: In line with evolving themes, from perception of a business forum, WHF 2012 was focused more on the important stakeholder: the consumer. This year, we introduced creativity in the form of literary arts, visual arts, entertainment and media. We wanted to show a softer side of Islam that is inspiring, innovative and beautiful with universal appeal to both Muslims and non-Muslims. The topic of social justice was discussed in the light of the current financial impacting the “have nots”. It was encouraging to see solutions lie with Islamic instruments, such as zakat, waqf, gold dinar and so on.

Question: Why is there more emphasis on halal in Malaysia than in Gulf Cooperation Council (GCC) countries?

Jumaatun: Malaysia is very much a pluralistic society with a 60 per cent Muslim population and the Muslim community is conscious of the non-halal products in the food supply chain.

The era of industrialisation in Malaysia, 1980s and 1990s, had the effect of creating a Malay middle class with increased purchasing power. Therefore, businesses in the food and hospitality services sectors were compelled by market forces to provide a halal offering. The momentum of this development has been continuing from the tabling of a trade description act on halal in 1972 to the introduction of halal certification in 1994 to the first integrated halal conference and expo in 2006.

In the GCC and other Muslim countries, where more than 90 per cent of the population is Muslims, halal is taken for granted. The seeds of awareness have barely been planted in these countries. Today, 54 out of the 57 member states of the OIC have no form of legislation to regulate halal. Hence, they need to catch up with Malaysia and we are doing our part in assisting.

Question: Why do you think there is minimal Islamic financing in the halal industry?

Jumaatun: The halal industry was previously not identified as an asset class. Islamic finance providers would more likely view the firms’ underlying industry sector, e.g. food, agriculture, personal care, logistics etc as the determining profile. Conversely, those companies already involved in the halal sector are not compelled to adopt Islamic finance. Around 80 per cent of companies producing halal products are controlled by non-Muslims. There is no religious impetus. Even in Malaysia, which has one of the most mature Islamic finance industries, the penetration rate is less than 40 per cent. Conventional financing is well established and halal producing firms tend to be averse to switching unless there are substantial economic or monetary benefits.

Question: At the WHF 2011, the world’s first halal food index, SAMI Halal Food Index, was launched and witnessed by the former prime minister, Tun Abdullah Ahmad Badawi. Is it a beginning of convergence between halal industry and Islamic finance?

Jumaatun: The launch had an impact for both the halal industry and Islamic finance. We had always been talking about the convergence theory, but this was the first time that it materialised into something tangible – an index. WHF and others had been promoting the halal sector as a growth sector, even catching the attention of mainstream media including Forbes, Time and the Economist magazines. The tracking of the SAMI index’s stellar performance quantified and empirically proved what we had been saying all along.

Question: The SAMI index is about inward and intra-OIC investments as the companies are only from Muslim countries. How can Malaysia Inc lead halal as an asset class, like it has in Islamic finance?

Jumaatun: For starters, Malaysia can claim a fair amount of credibility as leader because Malaysian-listed companies constitute almost half the total market capitalisation of the SAMI index. Malaysia offers probably the most comprehensive range of Islamic financial products. When coupled with the slew of incentives that are further reinforced in the Second Capital Markets Masterplan, the “conversion” of the balance sheets, visa sukuk, of halal industry players to become syariah-compliant is facilitated. Malaysia already leads in Islamic finance as well as thought leadership in the halal sector, so naturally it can lead in propagating halal as an investment asset class.

Question: Finally, what have been your major accomplishments and what are the remaining major challenges for you?

Jumaatun: There is still so much to be done, but we have made some impact through our efforts. Through our various communication channels including guidebooks, magazines, TV shows, awards and events, we have managed to draw the world’s attention to halal as an industry.

The figure of US$580 billion (estimated annual value of the halal food sector in 2005) was first introduced at WHF 2006, and quoted in articles in mainstream media was a solid beginning. My favourite was seeing halal on the cover of Time magazine. It would be rather presumptuous for us to claim credit for all worldwide milestones, but the WHF was the catalyst for a series of events and achievements. For example, halal themed conferences and exhibitions have become global, from Brussels to Bangkok. Halal meat exporters from Australia and New Zealand have enacted new regulations to improve the integrity of their halal production. Greenfield countries fast-tracked to set up halal certification bodies to address demand from importing Muslim majority countries.

At the same time, IHI Alliance has worked tirelessly trying to bring some orders to the global industry. Eight modules of the ICCI-IHI Alliance halal standard have been published – each one providing sector specific requirements for every part of the halal supply chain. IHI’s membership now includes over 50 halal certification bodies in 36 countries covering six continents. The halal lead auditors training course, which has been rolled out over the last two years, seeks to harmonise halal certification practices.

Yet, there is so much more that needs to be achieved. We already talked about 45 out of the 57 OIC countries are still without a halal standards. In Europe, more than 20 million Muslim consumers have no legal recourse to ensure the integrity of their dietary requirements in the absence of even a basic labelling law. The general level of auditing and certification processes have yet to conform to internationally accepted norms.

We did not expect to be able to solve all the key issues in seven years and we cannot do it alone. For our efforts to be effective, we need the cooperation of all stakeholders, including the relevant importing authorities.

Rushdi Siddiqui is Thomson Reuters’ Global Head of Islamic Finance based in New York.

Read more: When ‘separated twins’ reunite http://www.btimes.com.my/Current_News/BTIMES/articles/KASEH/Article/#ixzz1vbQrSc1q