Dear Ali Sakti,
Encouraging news concerning Islamic finance is sprouting. The Takaful industry could grow at between 30% and 40% annually in the next three to five years as more people switch from conventional to Islamic insurance after seeing the world’s largest insurer being exposed as just a house of cards. Another driver is the greater competitiveness among Takaful operators.
The Middle East’s asset management sector is set to grow 15% annually to up to US$300 billion by 2014 as investors seek new avenues for investing their money, a fund manager of Algebra Capital said. Retail investors are eager to find alternatives to equity investments after regional stock markets slumped as much as 70% last year.
Even major European insurers are said to be pondering gaining first-mover advantage by entering the Takaful market. Only timing is the prime consideration, according to PricewaterhouseCoopers.
Mergers and acquisitions to beef up Islamic financial institutions (IFIs) are in the offing, too, in not only the Gulf region but also in East and South Asia, and these involve not only those seeking to be rescued but also those banking on lower market prices due to the global financial woes. And that would spur even greater Islamic finance activity.
It was also reported this week that IFIs in the Gulf region are eyeing bargains in Western markets hit by the global crisis. Of course, it’s not all hunky-dory, as there are some institutions which are on bended knees because of overexposure to the now-collapsed property market in the Gulf.
For sure, the biggest bugbear that dampens any dynamic growth for Islamic finance is the inability to have a set of universally accepted standards and practices. There are some organizations striving to realize this but they have met with limited success so far in gaining acceptance beyond their geographical spheres.
Hence, a proposal by Faisal Private Bank’s chief executive, Marco Rochat, is intriguing. He has suggested a body to oversee the market and ensure trading compliance, asserting that a regulated environment would help a lot of investors. Such a move could bridge the differences between accepted products in the Middle East, North Africa and Malaysia, he contends.
Sohail Zubairi, chief executive of Islamic consultancy firm Dar al-Sharia, chipped in with a remark that Islamic finance scholars are not doing enough to promote the industry globally. He argues that because they had not responded to the economic crisis with a unified voice, an opportunity to push the sector into Western financial centers is being missed.
What’s needed is a central voice in Islamic finance, he contends. That is indeed food for thought. But for a start, how about having a single set of Shariah rules, practices and principles on a national scale? A central bank or a similarly authoritative financial regulator could form a single Shariah board to vet and endorse all the products of a country’s IFIs.