KPMG Survey Highlights Barriers To Islamic Finance Growth

A number of barriers remain to the expansion of the Islamic finance industry, including a lack of qualified Islamic bankers, weaknesses in financial reporting and transparency, and the issue of regulatory capital, according to a KPMG survey conducted by the Economic Intelligence Unit (EIU).

The EIU conducted interviews with a number of leading figures on behalf of KPMG, and the report entitled “Growth and Diversification in Islamic Finance” sought their views on the current and future development of Islamic finance. Included in the survey are case studies on HSBC Amanah and Unicorn Investment Bank which detail their experiences in this area.

Respondents highlighted the following issues that the Islamic finance industry faces: Lack of young qualified Islamic bankers across all regions; while training is available and specific countries such as Malaysia are making huge investments in this area, respondents observed that high turnover remains a problem. Lack of development in Islamic finance regulations was also cited - many Muslim countries have not put the legislation in place covering the authorisation of Islamic banks, or the issuance of Islamic finance products. Nor have they considered putting it on the agenda. The quality and transparency of financial reporting on Islamic finance also differs from one jurisdiction to another.

The survey additionally found that measuring the performance of Islamic financial products can be difficult. However, with the introduction of Basel II and the requirement that banks allocate risk by rating, there is greater likelihood of the ratings of Islamic financial products and instruments growing in importance over the next few years, it said. Respondents felt that a tailor-made rating agency would be the solution, as the major western ones have been slow to develop rating methods and specific criteria for Islamic financial products.

On a positive note, the report also highlighted the areas where product and market diversification are beginning to take hold in what, undoubtedly, remains a relatively young industry which has experienced a period of rapid expansion, to the point where it has an estimated US$500 billion under management. One respondent felt that takaful (insurance) is potentially the most lucrative area for development, because it remains under-developed, especially in conservative Gulf Co-Operation Council countries.

Paul Furneaux, Financial Services Partner with KPMG in the UK explained:

“Respondents were aware that they would have to be more creative in product innovation in areas such as derivatives, swaps and options, but recognised that the market is currently at the bottom of a steep learning curve. The role of Islamic scholars will be crucial in helping to determine the level of sophistication of the products themselves.”

A number of key areas for potential development were highlighted including:

• The issuance and trading of asset-backed securities or ‘sukuk’ where there is significant potential for the growth in Europe and the US. However, several respondents felt that there had not yet been enough issuances in the market to stimulate the growth in secondary market trading as a growth area.
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• Project infrastructure financing, which will include the development of markets in the West
• Structured finance derivatives
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• Private equity and retail banking which goes beyond Islamic mortgages.
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However, respondents also reported that there was a need for the market to consolidate and refine itself, as well as consider innovation and new product development.

Respondents acknowledge that while Islamic finance continues to be a male-dominated industry, several women have excelled in the sector, and have had a huge financial impact in Islamic countries. They suggested that the role of women in the sector will undoubtedly become stronger, as they can help tackle the human resources bottleneck that currently exists. For this to happen, however, many Muslim countries would have to introduce legislation guaranteeing gender equality and equal opportunities in the workplace.

For the future, convergence is the theme that unites many respondents and the point at which the ‘tipping point’ may be reached between Islamic finance and the global financial system to allow it to move from being a niche player into the mainstream. But there is also an issue around Muslim countries addressing their Islamic financial architecture by deciding which model they would prefer to follow – either a ‘dual’ banking system or the ‘Islamization’ of the banking system. Many bankers interviewed for the survey felt that adherence to the former model would be preferable.

Paul Furneaux concluded:

“Overall the future is bright for the Islamic finance market. As respondents commented, even if the oil price goes down, their collective view was that this would not have a material effect on its continued development.”

http://www.tax-news.com/news/KPMG_Survey_Highlights_Barriers_To_Islamic_Finance_Growth____27673.html

Businesses bullish on the prospects for Shari’ah-compliant products – Economist Intelligence Unit

A global survey of C-level and senior executives shows that demand for Shari’ah-orientated products and services is strong, and expected to grow. Among the reasons: expanding Muslim populations, rising purchasing power, shifting consumption patterns, and a broader range of products and services on offer. The range of Shari’ha-orientated products and services is broadening, from food and Islamic finance products to pharmaceuticals, fashion and tourism, among others

The Economist Intelligence Unit carried out 13 in-depth interviews with executives of companies from the Shari’ah industry to produce the report, The Shari’ah-Conscious Consumer: Driving Demand, commissioned by Kuwait Finance House. “The research highlights the global nature of this business and the evolving dynamics across different regions,” said Trevor McFarlane, Senior Editor for Continental Europe, the Middle East and Africa for the Economist Intelligence Unit, who directed the study.

The study is based on an online survey of 398 executives worldwide. Among the key findings of the report:

• The Shari’ah-conscious consumer market is growing worldwide. More than one-half (54 per cent) of survey respondents say that the market for Sharia-compliant products and services is already significant for their business. Asked the same question but for their business in three years’ time, the number of respondents giving the same answer jumped to 68 per cent. Businesses are seeing this translate into sales: over one-half (51 per cent) of respondents are currently enjoying annual growth in revenue of at least 5 per cent, while 34 per cent are registering higher than 15 per cent growth.
• Religious conviction is a major driver of demand. When asked to select the top three factors influencing demand, most (56 per cent) respondents chose the growing acceptance of Islamic precepts. Muslim population growth in both Muslim (46 per cent) and non-Muslim (39 per cent) countries were also cited as important drivers of demand.
• The market divides into three geographic segments: Muslim majority countries, “mixed culture” countries (eg in South-east Asia), and non-Muslim countries. Muslim-majority countries are seeing the fastest-growing demand. When asked to select the top three regions where Shari’ah-oriented demand is currently growing strongest, 70 per cent of respondents chose the Arabian Gulf countries, followed by North Africa (36 per cent) and South Asia (34 per cent). In three years’ time, respondents see largely the same trend: around 62 per cent selected the Arabian Gulf countries, while 41 per cent picked North Africa and 38 per cent see growth in demand coming from South Asia.
• Halal food and Islamic finance are the mainstays of the sector, with halal-friendly tourism and Islamic fashion showing future promise. Respondents see food and finance as having the fastest growth, both now and in three years’ time. Improving standards related to issues such as labelling and marketing communications could help to accelerate that growth. More than four-fifths (81 per cent) of respondents say labelling products as halal is an important factor for consumers.
• Lack of professional management among product and service providers is a major barrier to growth. A significant proportion (44 per cent) of respondents says that poor management and insufficient market awareness on the part of producers holds back development of this sector. Almost as many (42 per cent) say that a lack of convincing branding for products and services blocks growth. Standardisation and certification, a troublesome issue within the global market for halal food, is seen by industry experts as a must for further development of the halal food segment.
• Islamic finance is seen as an important enabler for the broader industry. More than one-half (55 per cent) of survey respondents cite access to Shari’ah-compliant finance as important to their business. An even higher percentage (58 per cent) says that easy access to such finance is crucial for their customers as well.
• Demand for Islamic bonds (or Sukuk) is expected to grow. Nearly 30 per cent of survey respondents say they expect demand for Sukuk to grow strongly, a view shared especially by those who work in finance. With international banks, particularly European ones, providing less loan capital in order to meet stricter risk management guidelines, banks and other lenders in the Middle East and North Africa (MENA) are expected to take up the slack. Their Shari’ah-compliant lending is expected to focus on financing infrastructure and construction. This points toward growing future demand for Islamic bonds to finance large-scale projects, particularly around the Gulf.
• In future, firms will have to show that they share the values of integrity and community to which Muslims aspire if they are to win the Islamic market. When considering what best promotes demand for goods and services that comply with Shari’ah over half (52 per cent) of survey respondents point to a reputation for honesty and integrity on the part of the company offering the goods or services.

http://www.cpifinancial.net/news/post/13949/businesses-bullish-on-the-prospects-for-shariah-compliant-products-economist-intelligence-unit

One-fifth of EU countries to have Muslim population by 2050

LONDON - A survey by a British newspaper has found that due to the rise in the levels of immigration from Muslim countries and low birth rates among Europe’s indigenous population, a fifth of the European Union (EU) would have Muslim populations by 2050.

Last year, five per cent of the total population of 27 EU countries was Muslim. But, according to forecasts, the figure would rise to 20 per cent by 2050, The Telegraph reports.

It further revealed that Britain, Spain and Holland would have an even higher proportion of Muslims in a shorter amount of time.

The data gathered from various sources also projected UK would be EU’s most populous country by 2060, with 77 million people.

The findings have led to allegations that policy-makers are failing to confront the widespread challenges of the “demographic time bomb”.

Meanwhile, experts said that there has been a lack of debate on how the population changes will affect areas of life from education and housing to foreign policy and pensions. (ANI)

Link: http://blog.taragana.com/n/one-fifth-of-eu-countries-to-have-muslim-population-by-2050-134915/