Mr. Furqan Ahmad
Head of Product Development & Segmentation, ADCB Meethaq, Abu Dhabi, UAE
(Furqan Ahmad holds an MBA with major in International Business Finance from the George Washington University, Washington, DC, USA and BBA (Honors) in Marketing from IBA at University of Karachi, Pakistan. Currently he is the Head of Product Development & Segmentation at ADCB Meethaq. Mr. Ahmad is a senior Islamic Banking expert with 8+ years of experience in working with Islamic Financial Institutions and has been responsible for several successful Shari’ah compliant product launches at Guidance Financial Group (USA), Mashreq Bank (Dubai) and ADCB Bank (Abu Dhabi). Mr. Ahmad’s major contributions include assisting with the development of Islamic home finance industry in the USA while working for Guidance Financial Group where Mr. Ahmad as a senior member of National Distribution Team contributed towards the accomplishment of the historic milestone of the first USD 1 billion in Islamic Home Finance contracts in the USA. Mr. Ahmad’s professional expertise encompasses product development, strategic management of client segments and business management of Islamic Banking Liabilities and Investment products. Mr. Ahmad participates in Shariah Board discussions with renowned Islamic Finance Scholars. Mr. Ahmad is a regular conference speaker at international Islamic Finance Forums on Product Development as well as Islamic Finance Products Trainer for the Bank)
The Global Financial Crisis of recent years has shown us the critical importance of having equity participation, risk sharing and fair dealings in all banking and financial products and services. Internationally hundreds of trillions of US Dollars of wealth has been wiped out in the global financial crisis, according to Shaikh Dr. Hussain Hamed Hassan, Head of Dar Al Shariah, who was speaking recently at the International Peace Convention in Dubai, UAE.
Customers, who lost their shirt in the commotion since late 2008, are increasingly looking at alternative ways of banking and the Islamic Banking institutions are well placed to cater to the needs of such clients, especially those who want to avoid the risks which have been rampant in the international conventional financial sector, revolving around sub-prime lending, international financial market meltdown, toxic assets, mismanagement of leveraged products, speculation, hedge funds, interest rate options, unethical practices, federal bailouts, short selling, mortgaged debts, and derivatives.
The world has suffered for too long now under Riba based banking. It is time that the passionate Islamic bankers must now stand up and make a difference. And make a difference not only in the Islamic finance industry, not only in the GCC or other regional markets, but globally. I feel that Islamic Finance is the only solution in these interesting times. The world is hungry to hear the message loud and clear. This is the right time to reveal to the international market that Islamic banking and finance industry has the solution to the global financial crises faced by many.
Under Islamic principles, the sale of debt is not allowed. A loan or debt which has to be repaid in cash is considered as “money” hence the Islamic financial system does not allow it to be sold for anything other than its par value. Secondly, the concept of risk management is different. In the current system, risk is transferred – split and sold. In the alternative Islamic financial system, risk is shared, almost like a collective insurance scheme. This means that instead of a sub-prime loan risk being sold until it reaches a bank in the Middle East or Asia, it will be managed by the original issuing financial institutions that can assess and react to any changes in circumstances.
For Islamic Finance in the GCC region the future is now. It is now time to take advantage of this God-send opportunity and truly represent the proper Shari’ah based Riba free banking and finance in terms of products, processes, and actual transactions with utmost sincere intentions, as a distinct alternative to the Riba based conventional banking system; to improve the lives and financial choices of the people all over the world through equity participation, risk sharing and fair dealings. Otherwise, Islamic banking and finance will be clubbed in as yet another differentiated product or service offered under the umbrella of Riba based conventional banking system.
We know that the road ahead will not be an easy one. The most urgent issues of Islamic Finance of today must be tackled decisively and conclusively. The controversial issues of Tawarruq and standardization must be placed on top of the agenda by the Islamic Scholars and bankers. It would be of significant benefit to the industry to have a global body of the top 100 Shari’ah Scholars and bankers from all the active Islamic Banking hubs in the world today, to openly debate and resolve the burning issues which are causing confusion in the minds of practitioners and consumers.
The achievement of standardization will be the tipping point which will in effect bring about the much needed worldwide revolution of Islamic Finance on a global scale and replace an otherwise oppressive Riba based banking system, the disastrous impact of which has been witnessed by almost all nations of the world during the last year. Trillions of dollars of wealth have been wiped out overnight due to the inventions and use of Riba-infested instruments by financial engineers.
Islamic Accounting standards have been established by Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), and they have now been very well recognized by the world’s apex financial institutions such as the World Bank and the International Monetary Fund. One big leap will be the consistent application of these AAOIFI standards across the Islamic financial world which will then bring about standardization of Islamic Banking worldwide. To make it happen all the national financial jurisdictions must agree to subscribe to it and adopt it unanimously.
The conflicting views of Shari’ah scholars must also now stop in public forums. Instead they must have discussions on round tables with a sense of duty, purpose and single-mindedness in helping build the foundations of a most prosperous Shari’ah based retail investment and banking environment. Retail investors become confused when one Islamic Finance scholar says that a given product structure is Islamic while the other Shari’ah scholar says that the same structure is not Islamic. Consumer confidence gets hit significantly with differing Shari’ah Board opinions on products from jurisdiction to jurisdiction and region to region.
However, there is hope. Malaysia and the GCC are having more and more convergence in the views of scholars by each passing day and that is very encouraging. Malaysia now has products subscribed by the GCC standards. Some of the instruments in Malaysia are also using interpretation that comes from the Middle East. The industry is now moving away from controversial interpretation of Shari’ah to widely accepted interpretation.
Regulators are also in need of more guidance and clarity. One industry leader was recently quoted as saying at an Islamic Finance conference that standards setting, including regulatory, accounting and market standards, constitutes a “challenge” in the Islamic Finance realm. Wherever the documentation and transaction forms can be standardized it must be done right away. Standardization is needed both in terms of contractual documentation and Shari’ah Scholarly opinions to better facilitate transactional and structural standardization in the industry.
Finally, let us not forget that Islamic finance globally constitutes one per cent of the entire financial services industry. Ratio-wise it is still small and the top priority in the future is to increase that ratio. Studies by McKinsey have shown that total UAE banking assets at the end of 2008 were in the range of USD $ 393.7 billion, registering 10% growth versus 2007 (UAE banking assets in 2007 were USD $ 357 billion). Islamic banks have shown modest growth in their share of total banking assets, from 8.8% at the end of 2002 to 13% at end of 2008. Islamic banking assets were about USD $ 53.7 billion at the end of 2008.
Although, globally, Islamic Banking is a young industry with an estimated market size of about 1 to 2 trillion USD, it has been growing at a rather fast pace of between 20% to 30% per annum, over the last decade. With this momentum within 8 to 10 years, Islamic Banking is likely to capture half the savings of the 1.6 billion Muslims worldwide. There are now more than 300 Islamic Banks worldwide operating in over 75 countries across the globe, with the GCC countries having two-thirds of global Islamic Assets (Morgan Stanley Report, 2008).
The global financial crisis has been a blessing in disguise for many banking institutions offering Shari’ah Compliant solutions providing numerous business opportunities to them. For example, Islamic Banking institutions can now target fresh HNW client base. In addition, reversion to more ethical and transparent investments by non-Muslims can offer Islamic institutions significant opportunities for expansion and those institutions which can take advantage of this shift in customer preferences during current times should be in a position to become leaders in the future.