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Dubaiís timely vision
Rushdi Siddiqui (Participation Finance/BANKING) / 13 January 2013
As I was on DIFCís Islamic Finance Advisory Council (2007) and presently on Malaysiaís Securities Commission International Islamic Advisory Council, hence, a number of colleagues have asked me about the recent announcement by His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.
Shaikh Mohammed, stated: “Our cosmopolitan outlook to doing business continues to be our economy’s driving force. Adopting a modern and scientific framework for Islamic economies worldwide, here in Dubai, meets the demand from local, regional and international investors for a central hub to invest, grow and do business.”
More specifically, the announcement said: “... set up a comprehensive platform of Islamic economy products and services aimed at integrating Islamic economy as part of the overall Dubai economy. The platform includes Islamic finance instruments, Islamic insurance, Islamic contracts’ arbitration, Islamic food industry and trade standards (Halal food), and Islamic quality management standards.”
Integrated and holistic
If one looks at the announcements from Dubai Inc in last few weeks:
1. The massive Mohammed bin Rashid City, compromising of culture, entrepreneurship, retail and tourism.
2. ‘Dubai plans to create an Islamic finance council to regulate Shariah-compliant equity and fixed income products to boost the industry’s role in the economy.’
3. DFM, Dubai Financial Market, ... invites experts to counsel on its ‘standards for issuing, acquiring and trading sukuk,’ slated for discussion and issuance in March 2013.
4. Shaikh Mohammed’s announcement included the reference to the $640 billion Halal industry, ‘Dubai also seeks to develop Islamic quality standards for Halal food approval. This will encourage the food industry and promote linkages with global and regional businesses, as well as different business sectors including transport, storage and handling.’
The approach to an Islamic economy requires a broader understanding that banking and finance is just one element (important lubricant) for economic development and diversification. It (banking) is not the economy itself, but it play roles of an intermediary, and, in a well diversified economy, say, a developed G-20 countries, the financial sector, in an equity index, has about 20-25 per cent weighting, not 40-55 per cent.
Announcement common theme
The announcements have a common theme, an Islamic economy requires asset-backed/based Islamic instruments, linked to the real economy, for financing. Thus, the Mohammed bin Rashid City will be financed (partly) by increased supply of AAOIFI approved investment grade sukuk, murabaha syndicated loans, etc., and such instruments will be listed and traded on DFM.
Furthermore, Shaikh Mohammed’s reference to the Halal industry is about, what I call, convergence. The $1.2 trillion Islamic finance industry has ‘ignored or missed’ financing the Halal industry since its birth (1970s), hence, here is the beginning of the convergence opportunity resulting in a $2 trillion plus industry. For example, many Halal food companies have conventional debt or factories financed conventionally, thus, an opportunity for sukuk refinance, where it is economically feasible.
Thus, Halal is not just about food, but is also a consumer non-cyclical asset class, and, with Muslim demographics risings and interest by non-Muslims, the inclusion of Halal by Shaikh Mohammed is him understanding and doing something about the eco-system Islamically. Thus, it would be only a matter of time when Jafza announces the first Halal Park in the GCC and based in Dubai.
Time and Dubai
Dubai, in many ways, was always ahead of time not only regionally, but in the 57 Muslim countries. In being a leader, sometimes one may slip and fall. However, it is the next step that defines us from the crowd. As Samuel Smiles, Scottish author, stated:
“We learn wisdom from failure much more than from success. We often discover what will do, by finding out what will not do; and probably he who never made a mistake never made a discovery.”
Dubai is about what Mr Smiles, an appropriate name, is talking about.
The series of recent announcements out of Dubai convey an important message, and not just a slogan. Its about the rise of Dubai, this time higher than Burj Khalifa, and its about a globally recognised and respected leader, Shaikh Mohammed, making a ‘depth’ commitment to Islamic finance and the Halal industry to create a foundational Islamic eco-system.
This model will also be exportable to other Muslim countries.
The writer is Global Head of Islamic Finance & OIC Countries for Thomson Reuters. Views expressed by the author are his own and do not reflect the newspaper’s policy
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