Dubai Islamic economy robust
Hussain Al Qemzi, Chairman, Awqaf & Minors Affairs Foundation
Dubai - Emirate on target to be capital of Islamic economy, thanks to leadership
Dubai is on target to emerge as the capital of the Islamic economy, Noor Bank chief executive officer and Awqaf & Minors Affairs Foundation chairman Hussain Al Qemzi told Khaleej Times in an interview.
In 2013, His Highness Shaikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, announced his vision to make Dubai the capital of the Islamic economy.
Islamic economies are among the fastest-developing markets in the world. Ten out of the 25 largest growth economies are Muslim-majority countries and the 57 Organisation of Islamic Cooperation nations represent more than $6.7 trillion of GDP. While growth in conventional economies is forecast to average 3.6 per cent between 2015 and 2020, the economies of the OIC countries are projected to grow at a robust 5.4 per cent, according to the International Monetary Fund.
The Islamic economy is a way of life experienced by more than 1.7 billion Muslims around the world and its model cuts across all aspects of economic and social lifestyle of individuals and communities. This model has proved its excellence during the global financial crisis, making it a perfect choice for Muslims and non-Muslims alike.
Dubai has moved in just a few years from a research and preparation phase to one of global engagement with the Islamic economy, represented by its numerous ethically-based sectors. From halal products to Islamic banking and finance, this economy now represents a number of sectors that are receiving worldwide recognition and increasing demand.
In less than a decade of proactive policy being directed towards promoting the Islamic economy, the UAE ranks second, behind Malaysia, in the Global Islamic Economy Indicator.
"The Dubai leadership's support has seen us emerge as a strong contender for the top spot. We are not there yet, but with Dubai declaring its aim to be the global capital of Islamic economy, the government has redoubled its efforts with policies and concrete initiatives that we will see us reach our goal," Al Qemzi said.
On the Islamic finance front, Dubai is the world's leading hub for the multi-billion dollar trade in sukuk issuance. Dubai, as an attractive tourist destination as well on its path to achieve its goal of 20 million visitors by 2020, has been proactive also in promoting family-friendly tourism and the UAE is ranked second behind Malaysia. In the halal food sector, the UAE is ranked third, behind Malaysia and Pakistan.
"In both fashion and lifestyle and media and recreation, the country is ranked second. The Dubai Design District and the planned Halal Zones, which are free zones catering to regional and international halal products markets, are among the targeted initiatives to achieve what we have set out to do. The UAE Scheme for Halal Products is a step towards Halal certification and standardisation, which we plan to go global with."
"All of these show that we are on the right track. To ensure success in this initiative, we all need to continue going through the process of learning - to know what works and what doesn't - that can help us emerge as a more robust and sustainable Islamic economy hub," the CEO said.
Challenges and opportunities
"The challenge, as I see it, is how fast we learn and spread the awareness about the potential of Islamic economy in the country as well as the region and the wider world. With the government support behind the vision to make Dubai the capital of Islamic economy, it's the private sector which has to realise the opportunities that are on offer in various Islamic economy sectors. With Dubai hosting World Expo 2020, opportunities are going to grow and I believe in realising those opportunities Islamic banks can help play a vital role," Al Qemzi said.
He mentioned that there is a clear need for standardisation in the Islamic banking. The lack of unanimity among scholars is a hindrance to the sector and standardisation would ensure that there is less uncertainty in accounting and auditing standards, less documentation, and ensure greater competitiveness when put alongside conventional finance.
The Central Bank of the UAE's proposal to set up a Higher Shariah Authority is a step in the right direction. It would help oversee the work of individual Shariah boards that would be a step towards standardisation nationally. It would definitely spur the growth of the industry. It will help catalyse the innovation necessary for the growth of Islamic banking to be sustainable.
Islamic vs global economy
"Whilst it is true that the Islamic economy is growing faster than the global economy, we must be realistic. It is building momentum from a relatively low base, in a number of sectors. That said, the growth is strong and sustained, Al Qemzi said.
The fast-growing, increasingly affluent and predominantly young Muslim consumer population represents a major opportunity for businesses at a time when many other consumer markets are becoming saturated. Meanwhile, within the OIC, there is a clear drive to develop intra-OIC trade, which is further facilitating the development of the Islamic economy sectors. So, the combination of a young, increasingly prosperous, consumer market, an entrepreneurship engine driving innovation and wealth creation and synergies within and across Islamic economy sectors, is creating opportunities that auger well for the future.
To an extent this is also being reflected in Dubai and the broader UAE market.
"As the Islamic economy develops, Dubai, with its extensive and long standing trading connections, will certainly benefit. By how much? That is hard to forecast. However, there can be no doubt that the Islamic economy's contribution to Dubai's GDP will be significant and will continue to grow as the local, regional and global Islamic economies develop," he said.
At the end of the day, it is important to focus on all of the pillars of the Islamic economy. They are all interrelated and the many parts make the whole. Islamic finance is the most developed of all the pillars, "but as a banker I would like to see more efforts to address the challenges it faces, lack of standardisation and scarcity of trained personnel being the more important. Islamic banks have to play a more engaged role in the development of others, which would in turn benefit the banks".
"However - if I had to pick one, I would say Awqaf [in the Islamic Finance pillar] has incredible potential - but it should not be focused on to the detriment of the others. There needs to be a new way of looking at Awqafs to make them financially sustainable," he explained.
Low oil price impact on banks
Despite lower oil prices, the UAE's GDP growth is expected at 3.5 per cent. Compared to the past three years, banks will see some slowdown due to a softening in various sectors, including real estate.
As a result it will impact the bottom line. But there are opportunities in a slowing economy. Recent studies have suggested that the lower oil prices might lead to more sukuk issuances in the region - as countries source capital to overcome budget deficits. Banks, such as Noor Bank, that are active in the sukuk and syndication financing space will be beneficiaries of any issuances.
The UAE's Islamic banking sector accounts for 17 per cent of assets and 19 per cent of consumer deposits in the country, according to the IMF.