Abdulla Mohammed Al Awar is the CEO of the Dubai Islamic Economy Development Centre (DIEDC), prior to which he was the CEO of the Dubai International Financial Centre (DIFC) between 2009 and 2012. He has served as member of several committees and boards in Dubai including the Economic Committee of the Executive Council of Dubai, Dubai Free Zones Council, Bourse Dubai, and the Investment Committee of the Emirates NBD Real Estate Fund.
1) The word ‘ethical’ is not usually associated with banking in common speech. In fact, many believe that in the world of banking, ‘ethical’ is neither ‘competitive’ nor ‘efficient’ and pursuing ethical banking is averse to a bank’s interests. Do you believe there is some truth in this view?
To some extent this is true in practice more than in theory. Every economic system is based on a foundational premise, or value. Secular economics is value neutral, but even being value neutral is a value in itself. As such, banking is flexible in interpretation and practice and, therefore, liable to abuse. Islamic economics, on the other hand, must observe the teachings of the Sharia, which remain consistent and cannot be violated at any point in time. As a result, a primary goal of Islamic economics is to promote public interest and prevent harm.
With Islamic banking, we aim create a responsible corporate culture that does not consider maximising profits as the ultimate outcome. ‘Returns’ are considered just one aspect of the banking industry’s ethical-social function – with the focus on reasonable economic profits and social benefits. When banks and financial institutions started assuming excessive risk and applied questionable practices to achieve their ends, they stopped performing this function, which is vital to a society’s economic development. A positive impact on the social economy, the environment and the society in general are just some of the transformations that banks needs to achieve by integrating ethical practices. Failure to do so could result in a financial crisis in every decade.
2) To what extent have Islamic banking products been able to compete with conventional banking products?
The growing demand for an ethical alternative to conventional banking among both Muslims and non-Muslims has helped maintain the double digit growth registered by the Islamic banking sector in the last few years. According to forecasts, the value of assets in the Islamic finance sector is expected to increase by 80 per cent over the next five years. Indeed, the growth of sukuk listing has also witnessed a proportional growth in Islamic finance. Dubai has served as a perfect hub for Islamic finance through attracting sukuk listings from different entities regionally and globally.
According to the ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI 2015), in 2014, Islamic finance assets registered an estimated value of US$1.8 trillion, which are expected to climb to US$3.2 trillion by 2020. Islamic banking that currently represents 74 per cent of all sharia-compliant assets is projected to reach US$2.6 trillion by 2020, followed by 16 per cent in outstanding sukuk.
Harmonisation of standards remains a challenge while also presenting the greatest opportunity for growth in Islamic finance. Without concurrence on a universally accepted set of standards, the possibility of developing products with a global appeal is rather remote. Until Islamic finance has the capability to go global it will remain a niche, specialist product.
The second main challenge is to differentiate Islamic finance from conventional finance. Islamic financial institutions need to be more innovative, instead of simply replicating products and services offered by their conventional counterparts. Education, knowledge and expertise in Islamic finance are key factors that will drive the industry’s growth. However, having said this, it must be noted that according to the Global Islamic Economy Report 2015, the total number of Islamic financial institutions including Islamic banks/windows, takaful institutions and financing and investment companies operating globally has grown to 1,143.
3) With the increased push towards diversification, what role do you see for the Islamic economy?
The UAE has put in place all the necessary plans to step up the contribution of the non-oil sectors – which currently stands at 68.6 per cent of the country’s GDP – to the national economy between now and 2021. Efforts are underway to take this contribution to as high as 80% by 2021, by developing the Islamic economy and supporting projects and initiatives focused on the knowledge economy.
The ‘Dubai: Capital of Islamic Economy’ initiative was launched in 2013 with the aim of diversifying the UAE’s national economy by providing solutions to support the growth of the Islamic economy sector. The initiative has ensured the steady growth of the national economy, and helped sustain high-quality performance in sectors like commerce, retail, tourism, aviation, hospitality, finance, and logistics services.
By developing and strengthening the interconnection between Islamic finance and other sectors of the Islamic economy, we can make a big difference in the outlook of the Islamic economy and foster investment opportunities and massive partnerships that will bolster economic stability and development in our region.
4) One of the key challenges for Islamic finance is establishing mainstream internationally-recognised standards. What steps are being taken to achieve this?
The issue of standards is quite broad and does not pertain to just one sector but the whole ecosystem. That is why within our purview, the seventh pillar of standards and certification addresses the other six pillars of our strategy which include: Islamic finance, halal Industry, family tourism, Islamic knowledge, Islamic Arts and Design and Islamic Digital Economy. In line with our aim to take the lead in the creation of universally accepted sharia standards, we have been negotiating with relevant entities across all jurisdictions in the region and abroad, regarding the creation and implementation of an underlying structure that is acceptable in Dubai, London, Istanbul, and Kuala Lumpur. Our efforts will soon bear fruit. We are closer to making Dubai a global centre for Islamic arbitration and promoting Islamic arbitration as an alternative to conventional arbitration.
5) In terms of the future, is Islamic finance merely a niche or is it a genuine contender in becoming an alternative to conventional banking?
Islamic finance has been identified as a key growth segment, and sharia-compliant financial products are likely to increasingly attract investor interest as awareness for their advantages surge. Demand for Islamic finance instruments is expected to surpass US$421 billion and the sukuk market is poised to top US$100 billion by 2017, even as the growth of takaful consistently surpasses that of conventional insurance. Today, there is a growing opportunity for Islamic finance to connect with the synergetic halal food and lifestyle sectors within the ever-expanding market. In addition, there exists today a global leadership opportunity for financial solutions that are positioned as part of an ethical and just financial system. Such leadership efforts will go a long way to strengthen real economy sectors.