Category Archives: Unclassified

Careers in Islamic finance tap into embryonic field

Careers in Islamic finance tap into embryonic field


My children, son (14) and daughter (11), asked a straight-forward two-part question as part of their homework assignment on parent car-eer choices: why did you choose Islamic finance? Will you retire in Islamic finance?

At surface level, they seem to be easy questions, but they are more difficult to explain than stock screening or writing about Sharia-compliant risk.

  • Query: Are there programmes or courses for children of parents in Islamic finance to train the next generation?


Today there are more roads leading to Islamic finance, but for those of us who got into this space in the mid-1990s, especially living in the West, it was not about the money, but an interest, a cause or an (job) opportunity to get into something during the post-formative stages of development, i.e., after establishment of IDB, DIB, KFH, Albaraka, Tabung Haji, etc.

All of us in one way or another want to leave a legacy behind for the ‘village’ that raised us, and Islamic finance, being embryonic, better affords that opportunity, even today. Put differently, conventional finance and capital markets are older, more developed and efficient vis-à-vis Islamic finance, hence, less opportunity to make a mark.

For example, over the years certain people have been equated for achievements at certain institutions, even if affiliation is no longer evident. Iqbal Khan (founder of HSBC Amanah), Richard Thomas (UBK), Esmail Daddabhoy (Islamic repos at UBS), Governor Zeti Akthar Aziz (Islamic central banker), Michael McMillian (Special purpose vehicles for Islamic structures), and people have equated me to Islamic indexes (Dow Jones Indexes).

But there has to be due credit given to (western) conventional institutions, especially non-banks, that have embarked upon addressing the needs of the Islamic finance marketplace. To them, it’s not about religious sentiment, but new market opportunities, as many of their existing markets are mature and saturated, hence, eroding margins.

For Islamic finance, the credibility issue is neatly addressed when institutions like S&P, Thomson Reuters, Clifford Chance, and PWC enter the space, as these global brands will not risk tarnishing their brands without due diligence on a sizeable opportunity. And their decades of experience is the need of the hour for this niche market to become ‘conventionally efficient and competitive.’

Thus I got interested in Islamic finance after I read an article in the New York Times and then saw a Tombstone ad in the Financial Times about a deal closed by The International Investor (Kuwait). I wound up at an index provider after I pitched the idea about being the world’s first Index provider to have an Islamic equity index, and they saw an opportunity for licensing revenue with Islamic indexes.


Once people get into Islamic finance they may job hop from one Islamic finance entity to another, usually based on compensation during the pre-crisis days, while others stay at one firm until a sense of accomplishment of the vision or retire. So, for career Islamic finance people, it’s all they know and it’s how they are generally type-cast/labelled.

  • Query: Do non-Muslims in Islamic finance encounter the same labelling issue? Is it easier for non-Muslims (than Muslims) to go (back) to conventional finance, or is this too broad a generalisation question?
  • Query: What about a Sharia scholar leaving Sharia advising or changing profession to become an Islamic banker or lawyer? Muddassir Seddiqi, no relation, is a good example of a scholar turned scholar/lawyer. Is this a possible avenue for scholars going forward?

So, what kind of second career do Islamic finance people land? For example, Iqbal Khan, HSBC Amanah founder, is now founder/CEO of Fajr Capital, Hussain Al Qemzi, previous CEO of Sharjah Islamic Bank, is CEO of Noor Islamic Bank, and I went from being a Global director at Dow Jones Islamic Index Group (10 years) to Global head of Islamic finance and OIC Countries at Thomson Reuters.

The second career in Islamic finance is about a fire in the under-belly. It’s a continued commitment to possibly (1) right some wrongs, (2) finish what you started, (3) make a difference, (4) pierce the Islamic ‘glass’ ceiling, or (5) desire to go back to an unstructured environment to create value.

A career in Islamic finance is like raising a child; bumps, bruises and challenges at different ages, but also achievements and accomplishments along the way to adulthood. We get into Islamic finance for a cause and it becomes a causeway to a career.


Islamic banking products boost the economy

Islamic banking products boost the economy

A recent specialized economic study indicated that Islamic banking products play a significant role in boosting the economy and create job opportunities through related ventures.

The study published by the “Investors” magazine said Islamic banks have become strong competitors and are also attracting non-Muslim clients, which encouraged traditional banks to consider Islamic banking departments and ventures.

The study noted there was increase in demand for such investments and ventures coinciding with increase in oil revenues, as the industry is more and more present and succesful.

A field study on Islamic banking was conducted on the Lebanese society due to its diversity and it indicated that 93 percent of the Lebanese people who understand the meaning of Islamic banking support establishment of such banks and 86 percent are willing to invest their money in the industry.

Turkey: Islamic Banking In Turkey – Indonesia – Pakistan A Swift Comparison And Benchmarking Against Malaysia

Turkey: Islamic Banking In Turkey – Indonesia – Pakistan A Swift Comparison And Benchmarking Against Malaysia

Worldwide, the Islamic finance industry is developing fast. Whilst it makes sense for the Islamic financial institutions to foster growth and to regularly measure themselves against the financial market as a whole, sometimes it is also worthwhile to look around and see what happens in different countries.

It is easy to talk about “market shares” and “deposits”, but what do they really mean? And what can be expected in the near future?

Turkey and Indonesia both are secular republics with a large majority of Muslim population, but Islamic finance developed very different. With a population that approximately holds the middle between both countries; the Islamic Republic of Pakistan is used as an outside comparator. To put all into even more perspective, some data from Malaysia are also included as a benchmark.


Worldwide, the Islamic finance industry is developing fast. Whilst it makes sense for the Islamic financial institutions to foster growth and to regularly measure themselves From the very start in 1985 with Albaraka Türk, the Turkish participation banks (before called Special Finance Houses) were poised to aim at the Turkish market as a whole. Therefore they did not really target the small niche of the “convinced” Muslim population in particular. This of course influenced marketing and product development. Part as a consequence of this strategy (and compared to Indonesia), the Turkish participation banks could have a faster growth and now cover roughly 3.5 % assets of the total Turkish banking industry. One may also note the strong growth of the sector that outperforms the conventional counterpart now for 8 consecutive years.

The loss of Ihlas Finance House (2001 – alleged fraudulent insolvency) meant the loss of 40 % of the deposits held by the sector at that time and the subsequent stampede on the other Special Finance Houses (now participation banks) meant another 35 % loss. Because of their ties to the “real economy”, the Special Finance Houses were not hit by the big financial crisis that hit Turkey in 2001 and they recovered fast. Their deposits now have been taken into the guarantee fund of the banks (to avoid other shock withdrawals) and the sector has acquired bank status.

There is no specific government aid to the sector and no (government or corporate) Islamic bond. There also is no access to the money markets, so we can hardly talk about a level playing field, as compared to conventional banking.

There are no Islamic windows and therefore foreign market players can only enter the market through shareholdings in the existing participation banks (or have to start their own participation bank from scratch).

A Government sukuk issuance could be in the make, so has been rumored for some time now. The talks on the projected Rent (Ijarah) Certificate however move slow, subject to rather inactive local financial markets, cheap conventional international funding and political factors.

A well thought off strategy of decentralization – for instance using techno / tax incentives and privatizations – created upcoming of several bigger conglomerates throughout the country.


With its’ first established Bank Muamalat Indonesia (together with Bank Syariah Mandiri still today front runner), the situation differs profoundly in Indonesia. As from the very start, products and marketing were directly aimed at precisely that group of clients of “convinced” Muslim (market share of roughly 1.5 %). Whilst the present impressive government initiatives aim to broaden that base (a potential “floating market” of approx. 75 % of the population would be within reach), Bank Muamalat confirms to adhere as before to their strict policies and client target. It might mean an extra strong growth potential for the other market players.

The need to mobilize internal capital and attract foreign investment, required special measures. Indonesia’s Central Bank announced in July 2007 that – subject to full implementation of the “blue print for development of the Indonesian Shari’ah Banking system” – total assets of the Islamic banks (and Islamic business units) are expected to triple by the end of 2008 (growth of approx. USD 6 billion) to reach an overall volume of 5 % on the total Indonesian banking assets. When deposits / loans follow same development, it will be clear that opportunities are at hand (growth potential of approx. USD 5 billion).

Foreign banks are not really visible yet on the Indonesian Islamic finance market. HSBC pioneered as first big international institution with a full dedicated Shari’ah head office in Jakarta – the projected growth potential is enormous: they calculated that roughly 50 % of their clients would be willing to use the products if priced competitive. Recently also Albaraka Group announced the prospect of opening of a branch there.

The first Government Sukuk (plans to raise up to USD 1 billion have been announced) is in the pipeline. Actual issuance could however be postponed till the fourth quarter of 2007 or even the first quarter of 2008, pending parliamentary approval. Indonesia at present already knows corporate Ijarah and Mudharabah Shari’ah Bonds. Access to the money markets has been opened.

Conventional banks that want to participate in the “Islamic pie” need to dedicate 5 % of their assets to such venture. This commitment, together with other incentives, will be responsible for the expected fast growth over the next two years.


From the late 70s onwards, Pakistan has a protracted history of Islamic banking. As from July 1st, 1985 all commercial banking in Pak Rupees was made interest free. The sudden conversion (and lack of preparedness) posed difficulties on implementation however. As from 2001 an evolutionary process was then chosen for, in order to nurture acceptability and development in a more structural approach. The first “Islamic bank license” was awarded to Meezan Bank back in 2002 (founded 1997). But as said, Islamic banking has been introduced since the mid 80’s.

Most note worthy is the present Islamic Banking Policy (December 2001), under which Islamic banking is promoted parallel to conventional banking. Implementation of AAOIFI and IFSB standards is on the way. Besides a Draft for the new Government Securities Bill, Draft Risk Management and Draft Shari’ah Compliance guidelines have been published.

A growth of % 40 per annum is being expected and a % 15 market share is targeted.

Next to the fully fledged Islamic banks, the conventional banks can opt to open up Islamic banks subsidiaries or even dedicated “stand alone Islamic banking branches”. A vast concentration of the Islamic banking to the big cities (Karachi and Lahore) can be noticed. There is government and corporate sukuk in the market.

In 2007 ABN AMRO opened an Islamic branch, Emirates Global Islamic Bank has started a dedicated Islamic commercial bank and QATAR Islamic bank has confirmed plans to setup a Shari’ah compliant banking unit soon. Citibank was another big foreign entry.


Starting off in 1983 with Bank Islam Malaysia Berhad, separate Islamic legislation and banking regulations exist side-by-side with those for the conventional banking system.

In order to create an efficient, progressive and comprehensive Islamic financial system, Bank Negara Malaysia recognized the need to, i.e.:

  • Attract a large number of global players;
  • Develop a broad variety of instruments; and
  • Install a comprehensive financial infrastructure.

A large variety of Islamic financial products and services (more then 100) are at present offered by the banks using various Islamic concepts such as Mudharabah, Musharakah, Murabahah, Bai’ Bithaman Ajil (Bai’ Muajjal), Ijarah, Qard, Istisna’ and Ijarah Thumma Bai’.. next to the existence of the Islamic Interbank Money Market.

Probably subject to pressure from the Dubai DIFC, Malaysia recently opened up regulations to allow sukuk issuance in foreign currency and competes with Singapore (and recently also Hong Kong decided to enter the race) to be the prime Islamic finance hub in the Asian region.


First of all, it has to be noted that real entrance of foreign investment in Turkey, Indonesia and Pakistan still bounces on inadequate tax regimes.

Though it is difficult to distract far going conclusions from the table hereunder, at first sight, it is clear that both Malaysia and Turkey share the following characteristics: relative big concentration of the population in bigger cities, lower portion of population working in agriculture and a lower weight of that sector in the overall economy. The GDP per capita (calculated in relative purchase power – not in hard dollars) in those countries also is 2 upto 4 times higher then in the other two countries.

Also in Indonesia and Pakistan there is a remarkable concentration of the Islamic banking sector around the big cities.

In Indonesia and Pakistan, the agriculture sector appear to attract socially very important, but statistically for the total economy less important “rural Islamic banks” (targeting micro finance). There is no such sector in Turkey.

Neither the percentage of Muslim population (Indonesia, Turkey, Pakistan), nor the zeal of the Government to promote Islamic banking (Indonesia, Pakistan) appears to be a determinant for success so far.

The marketing strategy of the Indonesian Islamic banks proved to be successful for the loyal but small niche of the “convinced” Muslim population, but did not succeed to appeal to the “public at large.

The Turkish participation banks on their side are severely handicapped (no sukuk, no money markets, relative few products, no government incentives and no Islamic windows) but expanded thanks to a more neutral banking approach (more focused upon the financial advantages and with slight emphasis to ethical merits).

Looking at the mix of relevant measures that are applicable to the different countries, he following guidelines appear to be clear:

  • dedicate sufficient means to Islamic rural banking / micro finance for the agricultural areas
  • create a good level playing field for the Islamic banks to compete with the conventional banks (for instance access to the sukuk and the money markets), without however any specific need to give them prime conditions (challenge makes competitive, superfluous benefits make lazy and distort the market)
  • open up the markets for international institutions (it attracts financial power and innovation)
  • install possibilities for all financial institutions to create Islamic windows and / or branches (better product awareness and overall acceptance of the Islamic banking also benefits to the dedicated Islamic banks)
  • have the conventional banks that want access to the market commit right from the start sufficient means (the need to dedicate assets to the activity enhances growth in the market)
  • promote diversification of products offered to the public (diversity is one of the handicaps of Islamic finance vis-à-vis the very mature conventional counterpart)
  • try to spread wealth out of the existing bigger cities to smaller cities and do not focus on the existing metro poles
  • try create sufficient liquid financial markets and stock exchanges, if needed through strategic alliances
  • give sufficient attention to international accounting standards, (corporate) governance, transparency and accountability
  • build strong prudential controls
  • give bank status and deposit protection without loosing sight on the underlying principals, focus on market competition, quality of products and pricing thereof.

Muslim commerce is ages old

Muslim commerce is ages old

By Farish Noor

It has become ever so fashionable to talk about Islam and commerce of late. Yet a cursory look at the references to Islam and economics, business, banking, finance and made-for Muslims products and services on offer on the internet would point to the fact that Muslim commerce is booming, and what’s more, has been doing so for the past two decades with scarcely anyone noticing.

Since the 1960s, the Muslim world has experienced a renaissance of sorts: practically every Muslim-majority country on the planet has experienced a crisis of post-colonial governance as Muslim economies realised that they had to develop beyond the import-substitution model that was the norm during the colonial era.

The colonial developmental model was therefore hastily abandoned, and by the 1960s the governments of many Muslim countries realised that they had to adapt to the demands of the international commercial sector, as well as the demands of the new urban constituencies in their midst.

Accompanying this process of economic, institutional and structural change was the rise of a new and potent force: political Islam. From Morocco to Indonesia, Muslims were organising themselves politically as a new constituency under the banner of Islam. While some countries were capable of adapting to these new political realities, other Muslim countries — notably Iran under the Shah — tried their best to open up new avenues for change while holding back demands for radical reforms in the political system, but to no avail.

Political Islam peaked in the late 1970s and 1980s with the Islamic revolution in Iran and the Islamisation that took place in countries like Pakistan, Sudan and Nigeria. Across the Arab world, the demands of political Islamic activists were difficult to avoid considering their popularity among the urban classes in more developed parts of countries like Egypt, Morocco and Tunisia. In Asian Muslim countries, the situation was no less different, with Islamisation developing in earnest in Pakistan, Malaysia and Indonesia.

The 1980s, for instance, witnessed the rapid re-structuring of the Malaysian political economy when proponents of political Islam were courted by the state and co-opted into the governmental apparatus.

Today, countries like Malaysia and Indonesia are breaking new ground in areas such as Islamic banking and finance. Furthermore, the popularity of consumer goods that carry a distinct “Made for Muslims” brand is striking. A visit to shopping centres and supermarkets in Muslim countries today would reveal a plethora of goods ranging from “Muslim cola”, such as Zam-Zam or Mecca Cola, to “Muslim jeans”, such as Al Quds jeans, clearly made with Muslim tastes and preferences in mind.

Malaysia is now in the process of developing what may be the first-ever Muslim car, with a compass pointing to Mecca and a special compartment for the Qur’an. In areas such as popular entertainment and plastic arts, Muslim popular culture has become a major business, with giant conglomerates like EMI signing up Muslim pop groups as part of their stable of entertainers.
It has to be remembered, however, that what we are witnessing in the Muslim world today is hardly revolutionary or radical. To that end, it is important to stress a number of salient points.

First, it has to be stated again and again that Islam is not a religion and belief-system that is anti-commerce. The ethical tenets of Islam do not deter one from engaging in commerce, for the Prophet Muhammad himself hailed from a family that was involved in commercial and trading enterprises. Islam defends, and indeed promotes, free enterprise, private property and the accumulation of capital.

Second, what is happening today in the Muslim world is not a novel departure or the invention of something new. All Muslims are doing is appropriating the tools and norms of commerce to serve their own communitarian ends.
Third, the development of a Muslim business sector is good news for all. It serves as a means of developing societies, generating and distributing new wealth, and also as a bridge-building mechanism in times of crisis when the relationship between the West and the Muslim world is not as rosy as it could be. The development of things, like Muslim colas, jeans or cars, testifies to the fact that Muslims actually enjoy goods and services that have for a long time been produced by Western industrial society.

The emergence of Muslim commerce should therefore be seen not as an obstacle, but rather as the opening of a new terrain of commercial possibilities and opportunities for business communities to come together across the world, to explore, develop and service a vital consumer market that is aware of its economic clout and opportunity. At a time when the media constantly bombard us with images of societies in turmoil and instances of inter-cultural conflict and violence, the entrepreneurs of the West and the Muslim world may well have another role to play, namely as cultural bridge-builders and cultural entrepreneurs who can help to create that vital “bridging-capital” that brings societies together instead of tearing them apart.