The Islamic economy – be it the halal industry, tourism, retail, pensions or telecommunications – needs well-regulated, geographically harmonised sharia-complaint finance if it is to realise its full potential, Dubai Islamic Economy Development Centre CEO Abdulla Mohammed Al Awar tells The Banker.

Our main objective is to achieve convergence and interconnectivity between the seven key sectors of Islamic economy – Abdulla Mohammed Al Awar

Q: What is the role of Dubai Islamic Economy Development Centre [DIEDC] in promoting the growth and diversification of the Islamic economy in the United Arab Emirates?

A: Since its inception in 2013, DIEDC has worked closely with various stakeholders to articulate the vision of Dubai to become the ‘capital of the Islamic economy’. Through its synergies with several entities across different sectors, the centre remains focused on promoting and nurturing a culture of ethical and responsible investments in an Islamic economy ecosystem that ensures sustainable growth and prosperity.

Our main objective is to achieve convergence and interconnectivity between the seven key sectors of Islamic economy to enable each sector to fulfil its potential and drive social and economic development in the UAE. 

To date, we have supported and endorsed key players in the market with the launch of initiatives ranging from the halal industry, Islamic banking and finance, and the digital Islamic economy, among others. Given its promising future and reliability, I strongly believe that the growth of the sector lies in the hands of young entrepreneurs keen to tap into the opportunities available in the Islamic economy spectrum. Innovation in Islamic finance in particular is essential to engaging with small and medium-sized enterprises and offering them new instruments to facilitate their enterprises that will help expand the Islamic economy. 

Q: In what ways can the Islamic economy drive the UAE towards a more diversified growth model?

A: The UAE has already chosen to lower the contribution of the oil sector to the nation’s gross domestic product [GDP] in the next 10 years through prudent economic diversification and the development of important sectors. The Islamic economy is a nascent industry with considerable potential for growth. Through its strong performance year after year, this new sector reiterates its key role in empowering wider economic sectors.

If we are looking at raising the contribution of the industrial sector to the country's GDP to 20% by 2025, up from the current 14%, we need to consider investing in the halal industry, which has a projected potential market of $2600bn in 2020. The same is the case with financial services, retail and tourism, telecommunications and research and development. All these sectors have sharia-compliant channels that can be strengthened to make greater contributions to the national economy.  

Q: What will the development of the global Islamic economy mean for Islamic financial institutions? 

A: A global Islamic economy will mean a new phase of growth and investment opportunities that fuel a new era of economic development. The nation as a whole needs to collectively and creatively drive Islamic assets. 

People need to be encouraged to steer away from their comfort deposit zones towards the profitable investment clusters represented by the Islamic economy’s ethical and socially responsible businesses. Today there is greater exposure and awareness for the takaful and re-takaful industry, Islamic pension programmes, sukuk and similar instruments, given the growing Muslim population. We need to develop similar sharia-compliant instruments to cater to the needs of corporates and individuals wishing to expand their businesses. Without Islamic capital, we cannot have an Islamic economy. 

Islamic finance is the fuel that drives the development of the Islamic economy. According to a new report by the European Islamic Investment Bank, entitled ‘Dubai as the global hub of Islamic asset management’, the Islamic asset management sector remains largely underdeveloped despite its sizeable international potential and appeal.

The report points out that pension funds globally have assets in excess of $27,000bn with Islamic pension funds making up a meagre 0.001% of this figure, although Muslims represent almost one-quarter of the world’s population. By diverting 20% of investments in existing regional pension funds into sharia-compliant funds, $36bn can be added to the global Islamic asset management industry.

Islamic institutions need to identify ways of incentivising the creation of multi-asset class funds. Islamic funds under management are projected to grow from $60bn currently to at least $77bn by 2019, with research suggesting that latent demand could reach $185bn in the same period. 

Q: To what extent is trade between members of the Organisation of Islamic Cooperation [OIC] driving the globalisation of the Islamic economy? What are the challenges associated with achieving the harmonisation of cross-border sharia-standards? 

A: Given the geographical proximity of many Muslim countries to one another, as well as their religious and cultural links, great potential exists for trade, especially in Islamic goods and products. Furthermore, increasing the share of the intra-OIC trade to address the issues of poverty, low economic growth and investment in the member states is a top priority.

If we look at the current Muslim population and the projected global expenditure on halal food and lifestyle products (forecast to grow by 65% in the next 10 years to reach $2460bn) we realise the abundant opportunities available to enhance not only trade between OIC members but also other sectors, regionally and internationally. At DIEDC, we are keen to see efforts driven towards growing the production and manufacturing capabilities in Muslim countries that have the financial assets and the modern infrastructure to lead the manufacture of halal goods manufacturing. Muslim communities can then move from being top consumers to top producers of halal food and lifestyle products. 

However, challenges remain. There is a lack of a middle ground in terms of consensus on standards – not only between OIC members but also within individual countries. Despite the rising demand for halal products worldwide, the industry cannot grow faster if harmonisation of standards has not been achieved among major jurisdictions. Islamic finance, as is the case with Islamic law, is subject to different interpretations. This leads to different practices and uses of concepts across jurisdictions. There is a pressing need today to remove the ambiguity surrounding sharia standards and ensure standardised, mutually acceptable guidelines that factor in the dynamic needs of all jurisdictions. 

Q: In what ways could the Islamic finance industry benefit from a greater convergence with the conventional ethical finance sector? 

A: Ethical finance can benefit not only the Islamic market but also the non-Muslim markets. Islamic finance factors in social and economic development. Therefore it can perform better and fulfil its mission if it is linked to other Islamic sectors that are increasingly attracting investors from different beliefs and backgrounds. 

The rise of ethical or responsible finance occurred primarily as a reaction to the global financial crisis of 2008. Today, there is growing interest in making socially responsible investments. Developing new financial instruments based on sharia principles to drive the growth of responsible investments can only be achieved if convergence between Islamic economy sectors takes place. Several issues need to be addressed in some Muslim countries as well as in the majority of the world. Poverty, unemployment, brain drain, inequality and economic slowdown are challenges that can easily be resolved if we leverage Islamic finance more proactively in projects that are focused on improving the quality of life. 

As human beings in the 21st century world, we need to rethink our raison d’etre and reshape our business strategies to fulfil not just our individual aspirations, but also the aspirations of the communities we belong to. Succeeding generations have the right to a resilient financial system that can achieve economic prosperity, while protecting the dreams of the youth. We need to develop the right infrastructure for the establishment of such a financial system that can become a global model for the world to follow.


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