The past two years have seen "slowing" overall growth in the global Islamic financial services industry, according to the Islamic Financial Services Board (IFBSB.
But Malaysia's Islamic financial sector, Asia's largest, has continued to enjoy robust growth during this time, the Kuala Lumpur-based IFSB says.
Malaysia's sukuk, or Islamic bond, market in particular continues to see its "pipeline" of issues expand, according to the head of global banking business, Arshad Mohamed Ismail, at May Bank, which now boasts the biggest portfolio of Islamic financial assets in Malaysia, and the fifth-largest in the world.
Not only the sukuk market but also Malaysia's Islamic banking sector has been growing at a near 10 per cent annual clip of late, to the point where Islamic banking assets now represent a "systemically important" 24 per cent of so of the country's total banking assets,
Malaysia's experience to some extent mirrors that of the GCC but the fact that it has outperformed in is in part due to Malaysia's special position within the arena of Islamic finance.
For example, as Mr Ismail tells The National: "Malaysia is a huge market where issuers are free to issue conventional bonds as well as sukuk. So, you have conventional investors as well as Islamic investors" subscribing to all types of securities [issued there]."
And, as Ashraf Mohammed, the assistant general counsel at the Manila-based Asian Development Bank in the Philippines, which offers technical assistance for Islamic finance development notes, Kuala Lumpur is also home to the standard-setting IFSB which "manages and supervises" Islamic financial institutions.
More formally, the IFSB "promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry - broadly defined to include banking, capital markets and insurance sectors", Mr Mohammed tells The National.
The IFSB Global Summit, due to be held in Abu Dhabi on October 22-24, will take place against an overall background of slowing but steady growth in Islamic financial services but also a quickening global economic growth and demand for infrastructure finance that point to more rapid expansion ahead.
New players continue to enter the market. Following an agreement between the Malaysian prime minister Najib Razak and Japan's Shinzo Abe, leading Japanese banks have set up Islamic financing units in Malaysia and, in some cases, use the country as their global base for Islamic finance operations
According to the 2017 annual report of the IFSB, 2016 was "another year of slowdown for the global Islamic financial services industry [IFSI]". In dollar terms,the size of the industry remained approximately unchanged, largely because the dollar appreciated against Islamic nation currencies.
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"Total Islamic banking assets increased from US$1.4 trillion to $1.5tn while the volume of sukuk outstanding increased to $318.5 billion." The assets of Islamic funds declined to $56bn [while] takaful [insurance] contributions increased slightly to $25bn.
"Basically, what we are seeing,certainly for the last couple of years, is that there is a rate of growth in the [Islamic finance] market but it has not been accelerating in the way that it was between 2009 and 2014 when there was a lot of growth," says Mr Mohammed.
"I think the reduction is partly due to general macroeconomic circumstances but also, in terms of the Middle East, to the reduction in oil prices and uncertainty this brought. Saudi Arabia and the UAE are doing pretty well [as is Jordan in Islamic banking]. Kuwait and Bahrein not so much."
The sharp drop in oil prices several years ago provoked speculation that energy exporters would turn to the Islamic bond market to raise funds for infrastructure. "I think there has been sporadic successes in the area" such as a recent $9tn Saudi financing," says Mr Mohammed.
But, he adds, "the main issue as far as governments are concerned has always been [that they] are concerned about ease of fundraising and pricing and I think, in terms of ease of going to the market and pricing, most still find the conventional bond market much easier to tap, and with better pricing."
Development in Islamic banking has, meanwhile, been "more dynamic than total Islamic assets suggest", says the IFSB. Banking assets of Middle East and North Africa countries excluding the GCC fell from $607bn to $541bn in 2016 but this was offset by growth in the GCC and Asia.
While the share in total Islamic financial assets of Mena excluding the GCC declined to 30 per cent, the GCC increased its share to 42 per cent. "Most jurisdictions [saw] reasonable levels of growth in assets, financing and deposits of Islamic banks," the IFSB adds.
Read more:
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Led by Malaysia, (followed by others such as Indonesia Bangladesh and Pakistan) Asia now accounts for some 22 per cent of total Islamic banking and other financial services industry assets of $1.9tn, or around 1 to 2 per cent of total global financial asset (as of the end if 2016).
Islamic banking was introduced into Malaysia in 1983. when there was only one Islamic bank in the country but in 1993, Bank Negara (the central bank) allowed other lenders to offer Islamic products and services and "since then the market has grown significantly", notes Mr Ismail.
One question outstanding, however, is what impact a rise in US and other interest rates might have on Islamic markets.
"If there is a big difference between non interest-paying Sharia deposit accounts and interest-paying accounts, it's likely we will see a flight of capital from Islamic banks to conventional banks," says Mr Ismail. But, he adds, the impact is not expected to be severe.
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Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
The bio
Favourite book: Peter Rabbit. I used to read it to my three children and still read it myself. If I am feeling down it brings back good memories.
Best thing about your job: Getting to help people. My mum always told me never to pass up an opportunity to do a good deed.
Best part of life in the UAE: The weather. The constant sunshine is amazing and there is always something to do, you have so many options when it comes to how to spend your day.
Favourite holiday destination: Malaysia. I went there for my honeymoon and ended up volunteering to teach local children for a few hours each day. It is such a special place and I plan to retire there one day.
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
Teachers' pay - what you need to know
Pay varies significantly depending on the school, its rating and the curriculum. Here's a rough guide as of January 2021:
- top end schools tend to pay Dh16,000-17,000 a month - plus a monthly housing allowance of up to Dh6,000. These tend to be British curriculum schools rated 'outstanding' or 'very good', followed by American schools
- average salary across curriculums and skill levels is about Dh10,000, recruiters say
- it is becoming more common for schools to provide accommodation, sometimes in an apartment block with other teachers, rather than hand teachers a cash housing allowance
- some strong performing schools have cut back on salaries since the pandemic began, sometimes offering Dh16,000 including the housing allowance, which reflects the slump in rental costs, and sheer demand for jobs
- maths and science teachers are most in demand and some schools will pay up to Dh3,000 more than other teachers in recognition of their technical skills
- at the other end of the market, teachers in some Indian schools, where fees are lower and competition among applicants is intense, can be paid as low as Dh3,000 per month
- in Indian schools, it has also become common for teachers to share residential accommodation, living in a block with colleagues
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Generation Start-up: Awok company profile
Started: 2013
Founder: Ulugbek Yuldashev
Sector: e-commerce
Size: 600 plus
Stage: still in talks with VCs
Principal Investors: self-financed by founder
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