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Crowdfunding can drive Islamic finance growth

The relationship between the markets and the people has been demonstrated in detailed research which shows that, in the long run, a 30 per cent growth in equity markets can lead to 20 per cent growth in GDP per capita.

There has been a significant growth in Islamic financing in recent years, and yet there is still strong potential for further growth, particularly through crowdfunding.

It was debated during an expert panel on the final day of the 10th World Islamic Economic Forum (WIEF) in Dubai.

Abdulla Mohammed Al Awar addressing the panel on ‘The role of capital market in economic growth’ during the last day of the 10th World Islamic Economic Forum.

As demonstrated in advancing the UAE’s economy over the last decade, Islamic financing promotes sustainable, inclusive growth by creating a virtuous circle in which the capital markets are enhanced by economic progress, which then itself promotes further investment into society. The relationship between the markets and the people has been demonstrated in detailed research which shows that, in the long run, a 30 per cent growth in equity markets can lead to 20 per cent growth in GDP per capita.

With Islamic financing being based upon the highest values and ethics, and a goal of promoting a fairer and more balanced society, it was agreed by the panel that Islamic capital markets are more efficient at mobilising funds to support sustainable growth that traditional markets.

The panel explicated how the global proliferation of Islamic financing can be developed in the Muslim world and beyond, which in turn can have widespread benefits within society. In the first of the 2014, the global sukuk markets reached $286.4 billion further demonstrating the world’s confidence in Islamic products.

One innovative development which was discussed by the panel in considerable depth was the role and future of crowdfunding. A financing platform, which is also Shariah-compliant and has become increasingly popular in both Europe and the US, crowdfunding can be particularly effective when supporting local capital projects and complements the goal of promoting financial well-being across society. Last year, over 500,000 projects were financed in the EU by crowdfunding representing €1 billion of value, providing an indication of the potential for Islamic economies.

The panel, which was chaired by Mustafa Adil, head of Research & Product Development in Islamic Finance at Thomson Reuters, was comprised of esteemed leaders from different organisations and businesses bringing widespread experience and expertise promoting Islamic capital markets. It included: Abdulla Mohammed Al Awar, chief executive at Dubai Islamic Economy Development Centre; Khalid F. Howladar, global head of Islamic Finance at Moody’s Investors Service Middle East; Dr Alberto G Brugnoni, founder and managing partner at ASSAIF; Zainal Izlan Zainal Abidin, executive director of the Islamic Capital Market at the Securities Commission Malaysia; and Richard Thomas, senior advisor to the board at Gatehouse Bank.

Islamic banking veteran

Islamic finance sector must address the current lack of focus in social welfare by including Shariah-based charity principles of ‘waqf’ and ‘sadaqah’ as priority areas, said Dr Abdul Halim bin Ismail, a veteran in the Islamic banking sector.

Speaking at a special face-to-face session at the forum, he said Islamic banking and finance sector has come a long way since the first Islamic bank was established in Dubai in 1975. However, despite considerable growth in the sector, especially in the last 30 years, development of the Islamic banking sector is still an incomplete job, he said.

“There are areas where more could be done to make Islamic banking sector more aligned to Islamic principles. In particular, Islamic banks need to address the gap in social welfare by prioritising ‘sadaqah’ as a key area,” said Dr Bin Ismail, who pioneered the setting up of the first Islamic bank in Malaysia.

He urged banks to collect ‘sadaqah’ from private sector and utilise the funds for investments. Profits derived from such investments must be channeled towards charity, he said.

“Investment and fund management is the work of banks, and therefore Islamic banks should step up efforts to integrate management of ‘sadaqah’ funds as a focal area,” he added.

Allaying concerns over lack of standardisation, stemming from differences in Shariah interpretation, he said active harmonisation efforts are currently in progress in the Islamic finance sector, and many services provided by the sector are now being accepted globally.

Dr Bin Ismail said while Islamic banking initially aimed at addressing the banking requirements of the Muslim community, its current wider acceptance across the world is encouraging. However, he stressed the importance of evolving concrete mechanisms to ensure that funds are used in Shariah-compliant manner around the world.

— abdulbasit@khaleejtimes.com