Global Islamic Finance Leaders decide Future Raodmap at WIFF 2016
5-6 September: World Islamic Finance Forum kicked off in Karachi, Pakistan with a big bang on September 5. The high powered conference was organized by Centre for Excellence in Islamic Finance (CEIF) established at Institute of Business Administration, Karachi in collaboration with International Centre for Education in Islamic Finance (INCEIF) (Malaysia). Finance Minister of Pakistan Senator Mohammad Ishaq Dar inaugurated WIFF 2016, with a visionary address by Honorable Shaikh Muhammad Taqi Usmani. Governor and Deputy Governor Central Bank were also present at the occasion, which witnessed the launch of the First Islamic Finance Country Report developed by CEIF in collaboration with IRTI and Thomson Reuters.
The one of its kind event, as referred to by Shaikh Taqi, brought together best in-class practitioners including CEOs of all Islamic banks, regulators, Shariah scholars and academicians to carve out the way forward for the industry. Key personalities from global Islamic finance arena including Dr. Ishrat Husain, Chairman, CEIF-IBA; Prof. Dr. Abbas Mirakhor, First Holder, Chair of Islamic Finance INCEIF; Dr. Azmi Omar, Director General, Islamic Research and Training Institute (IRTI); Prof. Datuk Dr. Syed Othman Alhabshi, Deputy President Academic, INCEIF; Dr. Zamir Iqbal, Lead Financial Sector Specialist, Finance & Markets Global Practice, World Bank Global Islamic Finance Development Centre; Mr. Mohamed Rafe Mohamed Haneef, CEO, CIMB Islamic Bank; Mr. Ashar Nazim, Partner Global Islamic Banking Center, Ernst & Young; and Dr. Hatim El Tahir, Director Islamic Finance Group, Islamic Finance Knowledge Center Leader, Deloitte & Touche were present at the mega event.
Dr. Farrukh Iqbal, Dean and Director, IBA delivered the welcome note establishing the importance of Islamic finance as a real phenomenon. He said that, serious and substantial investment in human capital is required to address market challenges.
Dr. Ishrat Husain, Chairman CEIF emphasized the importance of Islamic finance as a viable alternative to a fragile conventional financial system, which was on the brink of collapse in 2008. Zakat, Sadaqah and Awkaf along with Islamic Finance can promote financial inclusion and remove income disparity. He stressed the need for providing practical, workable and feasible Islamic finance solutions for global financial stability.
Shaikh Taqi highlighted the fact that such conferences are beneficial only if the stakeholders take an account of what has been done so far and what needs to be done to take the industry to the next level. As followers of Quran and Sunnah, we all believe in waging a war against Allah (SWT) by indulging in Riba based financing activities. Hence, it should not be promoted as a choice between two parallel systems. The argument frequently put forward for gradual development of Islamic finance industry is that it is a nascent sector. There has to be a political will not wish for implementation for a phased program to implement Islamic finance system in the country.
Central Bank Governor pointed out the role of Pakistan as an Islamic finance leader in the world. He mentioned that the US$2 trillion industry is expected to reach US$6 plus trillion by 2020. The Central Bank of Pakistan, declared as the best central bank supporting Islamic finance, is striving to mitigate financial inclusion through Islamic finance. Centres of Excellence in Islamic Finance have been established in 3 major cities to cater to shortage of trained Islamic finance professionals.
Dr. Mirakhor stated that Islamic finance was initiated as a risk sharing and not a risk transferring system, but the purpose was not achieved. With interest based benchmark regime missing, the governments are indulging in Riba based financing. For Islamic finance to become a real deal, the monetary policy should be devoid of Riba. Depositors are subject to injustice with a meager 3% -4% return on their investments. Dr. Mirakhor stressed on the need to rethink Islamic instruments. Products should be developed to cater to upcoming sectors such as Biotics and Robotics.
Dr. Azmi Omar commented that although Islamic finance industry is growing in terms of breadth and depth, it is ridden with a number of challenges. Only 20 of OIC countries have Islamic banking regulations, while 19 have worked on Islamic capital market reforms. Takaful framework is present in only 17 OIC countries Lack of awareness is a serious concern. He mentioned that IDB Group is working on the blueprint for the development of Islamic Finance industry. IRTI has launched online Islamic finance courses, which have received overwhelming interest from 126 countries.
5-6 September: World Islamic Finance Forum kicked off in Karachi, Pakistan with a big bang on September 5. The highly...Posted by IBA Centre for Excellence in Islamic Finance on Friday, September 9, 2016
The Finance Minister highlighted the fact the government of Pakistan has traditionally supported propagation of Islamic finance in the country and will continue to do so. The ministry of finance has been instructed to give first preference to Shariah compliant sources for fund raising. Several measures have been taken to make the environment conducive to growth. Establishing of a Steering Committee at the Central Bank, the recent launch of Karachi All Share Islamic Index, Setting up of an Islamic Finance Department in SECP, issuance of Sukuk and Islamic capital market reforms are some of the efforts in this regard. The Minister stated that, if possible, entire debt of Pakistan, would be converted into a Shariah compliant mode.
Some thought provoking arguments were presented by the industry leaders. Mr. Irfan Siddiqui, the President of Meezan Bank, largest Islamic bank in the country, stressed the need for technology given digital disruption. With alternative non-banking payment systems growing across the globe, smart phone banking is the need of the hour. Irfan mentioned that there is resistance from customers in terms of sharing profits under Musharakah modes of financing.
Rafe Haneef, CEO of CIMB Islamic Bank, presented some interested arguments. He said that 35 years ago Islamic finance was a disruptive play moving from risk transfer to risk sharing. However, having failed to do so, it turned out to be a submissive play. In his view, it would remain so under state protection for deposits and central bank role as the lender of the last resort. Now conventional banking has been disrupted by cheaper, better and faster Fintech solutions. Peer to peer landing although has grown at a CAGR of 130%, is still 1% of the banking sector. According to Rafe, it would grow to a maximum of 5%, not creating much disruption for banking players, given state protection for deposits available at banks. Rafe talked about the 3I phenomena i.e. Imitate, Improve and Innovate. Islamic finance industry is still trapped the imitate phase. Even the imitated products are expensive and laden with documentation. Sales target should not be product based but should be dollar driven to stimulate product development. Product innovation through collaborative models should be considered seriously by Islamic banks. Rafe commented that banking will be completed transformed in the next 10 years with banks being forced to follow complex risk management frameworks such as BASEL III.
Ashar Nazim, Partner Ernst & Young, on the other hand, emphasized the need for simple, effective and accessible solutions. He highlighted the importance of data sciences which are at the heart of wealth management, payment and financing solutions. Unlike the past when wealth was managed by likes of UBS with a minimum ticket size of US$1 million, new players like Nutmeg and Rob adviser are catering to ticket size of as small as US$ 100. With non-banking payment systems available, remittance cost have come down by a significant 80%. Data sciences will be critical for Islamic bank of future.
Head Global Islamic Finance Development Centre at World Bank, opined that Islamic Finance inside similar to 'Intel Inside' should be aimed as the tagline for future, given the asset backed stable nature of this form of financing.
- Awami Awaz
- The Financial Daily