This article is sponsored by Refinitiv. It was first published in the State of the Global Islamic Economy 2019/20 report produced by DinarStandard and supported by the Dubai Islamic Economy Development Centre. The report can be downloaded from here.
Q: Islamic finance growth in 2018 declined to 3% compared to 7% in 2017. What would you consider is the main factor for the slowdown in growth?
There are a number of factors that have contributed to this slowdown. The overall macroeconomic conditions, geopolitical tension in key Islamic finance markets, and the threat of trade wars have all contributed to a slowdown in economic and banking growth. The Islamic finance industry is no exception, but there are some factors that are specific to our industry. As the industry reaches maturity in established Islamic finance markets in Malaysia and GCC, experts have predicted that growth would be mostly driven by emerging and frontier Islamic finance markets. We are already seeing a number of governments in markets across central Asia, Southeast Asia and Africa promoting policies to facilitate the growth of Islamic finance. Despite this, these markets have not demonstrated the level of growth that was expected, and a number of structural challenges continue to persist, such as standardization, awareness and access to information and expertise. Unless these are addressed, it is unlikely that these new markets will be able to carry the growth of the Islamic finance industry.
Q: What can the Islamic finance industry do to address these structural issues?
To address these challenges, the industry must come together to create a global ecosystem for Islamic finance. Currently, we have several disconnected hubs that each operate at different stages of their development and focus on addressing the specific needs of their domestic markets. Emerging and frontier Islamic finance markets have a distinct disadvantage when it comes to engaging with the more developed markets or benefiting from their information expertise. The industry needs to work to create a global ecosystem, driven by technology, that can narrow the information gap so that institutions in Africa and/or America have the same access as institutions in Bahrain, Malaysia and the UAE.
Q: What role can companies such as Refinitiv play in supporting the establishment of an Islamic Finance global ecosystem?
As the world’s largest provider of data and information, we at Refinitiv have a critical role to play. Islamic finance has been a key area of focus for us since 2001. We provide data and insights to over 400,000 financial professionals around the world, who rely on our information for strategic decision making. In Islamic finance, we have noticed a significant demand for not just financial information, but also for qualitative information related to regulations, fatwa, standards and other content sets. For an Islamic bank, it is equally important to know the structure and share consideration of a sukuk, as it is to know the price, return, and credit worthiness of the issuer.
Therefore, we have focused on collecting and distributing financial and qualitative information to the industry. Our Islamic finance development indicator (IFDI) is the most comprehensive Islamic finance database available today. We collect the details of every Islamic institution that discloses its financials (over 1400 institutions in 72 countries) and can provide a dollar by dollar breakdown of the $2.5 trillion Islamic finance industry. Supplementing this, we provide extensive information related to Islamic money markets, sukuk, equities, indices, funds and other content, to ensure our clients are empowered with the market information they require.
In addition, on the qualitative side, we have developed a comprehensive Sharia and legal monitor for the Islamic finance industry. The Sharia and legal monitor provides a database of various content sets covering more than 20,000 data points including regulations, standards, fatwa, sample contracts, guidance notes, scholar information and many others. This information has been translated to English (where required) and has been smart tagged to ensure users from around the world can easily access and benefit from this information.
Q: With the growth of fintech around the world, what impact do you think this will have on the Islamic finance industry, particularly with regards to the structural challenges you mentioned?
Fintech is going to be a complete game changer for the Islamic finance industry. Fintech will breakdown borders to create a global industry and enable institutions to provide the next generation of products and services, along with transparency, that will bring the industry closer to its core principles. In addition, technology will improve the efficiency of Islamic institutions, so that there will be no operational or cost disadvantage for Islamic banks compared to the conventional ones.
However, in order to achieve this, we have to work towards addressing the structural challenges facing the industry. Standardization must be promoted across markets to create a global industry rather than a number of individual self-contained markets. Awareness needs be increased amongst all stakeholders to align expectations and increase adoption of Islamic finance solutions. And finally, we must address the issue of access to information and expertise. Without this, we will continue to see different markets developing at different rates, with inefficiency and other hurdles hindering the growth of Islamic finance in emerging and frontier markets.
© State of the Global Islamic Economy 2019/20