Islamic finance sees big growth in Europe

Updated 02 February 2017

Islamic finance sees big growth in Europe

JEDDAH: In today’s connected world of business, Islamic finance is a concept that people working in the banking and finance industries are likely to come across in their careers.
Islamic finance, despite its label, is not limited to Muslim countries. It has shown growth globally, including in Europe.
Total Islamic finance assets worldwide are projected to grow to $3.5 trillion by 2021 from $2 trillion currently, according to Thompson Reuters’ Islamic Finance Development “Resilient Growth” report published in 2016.
There are 622 institutions providing Islamic finance courses worldwide, and 201 provide Islamic finance degrees, according to the report.
Europe is increasingly showing interest in Islamic finance education. There are 109 institutions that provide Islamic finance education in Europe, 63 percent of them in the UK.
Britain issued its first Islamic bond (sukuk) worth £200 million (over $250 million), according to a statement by the Treasury published on the government’s website in June 2014.
“Islamic finance is attractive to ethical investors or those looking to do business with Shariah-compliant businesses,” said Farmida Bi, a London-based banking lawyer and head of Islamic finance in Europe at Norton Rose Fulbright global law firm.
“These economies (in non-Muslim countries) are interested in the financing opportunities that Islamic finance can offer, both as an external investor and to respond to the demands of their indigenous Muslim populations,” she told Arab News.
The case of the UK
Being home to 3 million Muslims, according to the Office of National Statistics in 2016, the UK is a leading hub for the Islamic finance industry in Europe.
It also has a fully Shariah-compliant retail bank: Al-Rayan Bank (formerly Islamic Bank of Britain).
“Britain is today the leading center for Islamic finance in the West, including British higher education institutions leading the non-Muslim world in the teaching of Islamic finance,” said Nyra Mahmood, managing director of the UK-based Simply Sharia Human Capital (SSHC Ltd.).
She emphasized the important role financial technology (FinTech) can play in further introducing Islamic finance and banking.
“The opportunities emanating from the FinTech scene and the ethical financial space gives rise to how the UK’s Islamic finance can look at shaping and taking the lead in fulfilling the wider needs of society through technology and innovation, especially with a younger, more socially active generation wanting to join the industry,” she told Arab News.
She said the younger generation expects more from their money, as they are socially conscious and want to see companies embrace their corporate social responsibility along with being part of a financial services sector.
“These are the issues driving a new generation of Islamic finance practitioners and consumers alike, both Muslim and non-Muslim in Europe and beyond.”
Mahmood said factors that can affect Islamic finance moving forward in the UK, directly and indirectly, include the aftermath of the Brexit vote, the UK’s economic outlook for 2017 onward, and customers’ needs.
“With this in mind, the UK’s Islamic finance industry is well positioned.
“As the country looks beyond the EU, there’s an opportunity to align the UK with investors and partners from other Islamic hubs, namely the Gulf and Malaysia, which is already happening,” she said.
“Further engagement and investments with these regions and others, through support from the UK government, can strengthen Islamic finance in the UK and assist Britain economically.”
Islamic finance has witnessed a rise in the past 10 years. Europe’s tallest building, the 95-story Shard skyscraper marking London’s landscape, was financed through Shariah-compliant instruments.
Other projects such as Chelsea Barracks and the Olympic Village were also partly or wholly financed in the same manner, said Mahmood.
There is growing demand among non-Muslims for more education and awareness of the industry as well as products.
In a survey by Al-Rayan Bank in 2014, 57 percent of non-Muslim participants said Islamic finance was relevant to all faiths because they believed it was ethical.
“Many professionals working in Islamic finance today have a background in conventional finance and banking, and many of those are non-Muslim,” Mahmood said.
“As a firm, most of our clients in terms of training in Islamic finance are from the conventional professional services, law firms, accountancy practices and non-Shariah-compliant banking and finance staff.”
Muslims and non-Muslims “are looking for an alternative that promises and delivers on ethical values.
The underlying principles of Islamic finance promote equity, fairness and the betterment of the wider community.”
The case of Spain
Spain is one of the countries curious about Islamic finance. One of its top business schools, IE Business School based in Madrid, has a center that teaches and researches Islamic finance.
“There’s a lack of knowledge in Islamic finance. Everybody is looking but no one is pushing yet,” Gonzalo Rodríguez, general coordinator at the Saudi-Spanish Center for Islamic Economics and Finance (SCIEF), told Arab News during a visit in Jeddah.
“After the financial crisis (in 2008), ethical banking became much more popular, especially among young people. We believe it’s fair, ethical and based on real economy, and we try to spread this approach.”
SCIEF is the fruit of collaboration between the Islamic Economics Institute at King Abdulaziz University (KAU) in Jeddah and IE Business School, and has been running since 2009.
Although Islamic finance and banking remains non-existent in Spain, it is becoming popular among finance students who wish to gain international experience. The role it plays is both educational and advisory.
“We’re trying to spread knowledge of Islamic finance in Spain, and to reach out to all players to explain to them what Islamic finance is, its potential in Spain, and the opportunities we have for Islamic finance in the country,” Rodríguez said.
“We see Islamic finance as an industry and an alternative way to make finance. It opens windows for foreign investments.”
He pointed out what he believes are the three main reasons behind growing interest in Islamic finance in Spain. First, it is seen as a new industry that is booming.
“Second, when people study Islamic finance they find it more ethical and believe in its principles.”
The third reason is that the person is Muslim and wants to adhere to his or her religious teachings.
“As an international business school, we think worldwide. Islamic finance makes 1 percent of assets worldwide. We have students interested in that. They’ll probably not work in Spain, but in other countries,” Rodríguez said.
He and a number of his colleagues from SCIEF came to Jeddah last week to give the third edition of the center’s annual four-day Islamic Finance Executive Program (Jan. 23-26), in partnership with the Islamic Research and Training Institute (IRTI) and KAU.
The program consisted of classroom sessions, roundtable discussions and field visits. Students were mainly international.
The university played a role in teaching and organizing, as the teachers were both from the university and the center.
“Students studying finance at IE Business School can choose the Islamic finance module as an elective, and they’re not necessarily Muslims,” Rodríguez said.
The collaboration between Jeddah and Madrid goes both ways. Every year, SCIEF hosts 10-15 students from KAU coming to the IE Business School “immersion week” on entrepreneurship, not Islamic finance, but they take advantage of Saudi Arabia having a center in Madrid at a top university.
Being a country with a small Muslim minority — 4 percent of the population as of 2015 — having a religious label can be a barrier, Rodríguez said. Applying it will require changes in the way the banking system works.
“At a regulatory level, it’s quite difficult to accept Islamic finance and give a license to a bank, because then we’ll need to change many things in our laws and banking regulations in terms of interest for example,” he said.
“It’s difficult to put it in the agenda because it’s difficult to explain it in Spain. I think there are challenges and opportunities for Islamic finance in terms of lands, investments in real estate, in the halal industry that is growing.”
The center created a think tank in 2016 with “main players of the economy in Spain from banks and law firms,” including Santander Bank.
“We’ll have four meetings per year,” Rodríguez said. “They see the opportunity, and if something happens they want to be there. They know Islamic finance represents 1 percent of assets worldwide.” The first meeting is set to take place on Feb. 23.
Rodríguez said Spain is yet to start adopting Islamic finance and banking due to the small number of Muslims in the country and the lack of knowledge about it.
However, he said FinTech can accelerate its introduction: “Banking is changing, and will absolutely change in the next five years. FinTech is the future. Relations between the bank and client will change.”

INTERVIEW: Philip Morris International mideast chief on using hi-tech to progress toward a smoke-free future

Updated 18 August 2019

INTERVIEW: Philip Morris International mideast chief on using hi-tech to progress toward a smoke-free future

  • Tarkan Demirbas tells Arab News how smart technology will woo 9 million Gulf smokers and reduce risk

Alongside politics and religion, there is one other dinner party subject virtually guaranteed to push people to opposing extremes: Smoking.

In much of the world — especially the West but increasingly in the Middle East and other emerging markets — tobacco has been marginalized to the point where smokers feel shunned and lonely in many social environments, banished to pavements or poorly ventilated kiosks in airports.

After a series of multi-billion dollar lawsuits around the globe for the undoubted bad effects smoking has on health, Big Tobacco — the giant multinational companies that made billions out of the nicotine habit but neglected to say exactly how bad it was — is nowhere near as big as it once was.

All of which leaves Tarkan Demirbas with something of a challenge. He is vice president for the Middle East of one of the biggest tobacco companies, Philip Morris International (PMI).
Think Lucky Strike and the Marlboro Cowboy, legends of the industry and of marketing before grim, litigious reality overtook
the business.


BORN • 1968, Erzurum, Turkey.

EDUCATION • Bogazici University BSc Industrial engineering. • University of West Georgia, MBA.

CAREER  • Senior management positions at PMI in Hungary, Colombia, Malaysia, Singapore, Switzerland. • Vice President Middle East.

Demirbas is on message for the new anti-tobacco era. “There is no doubt that the best way to reduce the risks of smoking is to not smoke or use any nicotine product at all,” he said recently at an event in Dubai’s Capital Club, an oasis of tobacco-friendliness in the anti-smoking desert of the Dubai International Financial Centre.

On the surface, that seems a strange line from somebody who for the past 15 years has been promoting PMI’s products around the world, from southeast Asia through Budapest and on to Bogota with a stint at PMI’s Swiss HQ along the way.

But it coincides with a new direction PMI has taken. The new buzz-phrase in the company is “a smoke-free future.”

PMI launched the initiative with a “commitment and ambition to replace cigarettes as soon as possible with better alternatives to smoking for the millions of men and women who would otherwise continue to smoke.”

That might sound like turkeys voting for Christmas, but there is a sound business logic, as Demirbas explained. “The reality is that the vast majority of smokers simply do not quit. Even the World Health Organization’s own predictions forecast that there will continue to be more than 1 billion smokers by the year 2025,” he said.

“This is why a growing number of experts believe that public health policies should not be based solely on discouraging initiation and encouraging cessation, but need to leverage the potential of scientifically substantiated smoke-free products for the benefit of smokers and public health,” he added.

Technology is key to the campaign, and the product that PMI has come up with is IQOS. The Dubai event marked its regional launch. Imagine a slim mobile phone with a stubby cigarette sucking out of one end, encased it in a stylish carrying case-cum-charger, and you have an idea of IQOS.

Unlike other electronic smoking devices which vaporize nicotine juice, avoiding the harmful effects of the pathogens produced by burning tobacco, IQOS stays with the weed but does not burn it.

By heating tobacco sticks — called Heets — that look like mini-cigarettes to 350 degrees Celsius, the nicotine that smokers crave is released, but the tobacco is not burnt. Demirbas cites respected scientific sources as well as PMI’s own research indicating that 95 percent of the harmful by-products of tobacco are avoided.

Amid jokes that the Marlboro Cowboy would find it hard to use IQOS and ride his horse at the same time, nicotine-hooked cigarette smokers at the event said the result was pretty close to the “real thing.”

There is potentially a big market to go for, globally as well as regionally. Worldwide, some 150 million people use PMI’s tobacco products, still overwhelmingly traditional cigarettes. By 2025, he aims to get 40 million of those onto heated tobacco products like IQOS.

“This year, our priority is to go deeper into existing launch markets. We are encouraged by the results to date, including that there approximately 8 million smokers who have completely abandoned cigarettes and switched to IQOS. Japan is the best example of IQOS’ success, where we have achieved nearly 17 percent of the national share of the market,” he said.

IQOS is currently in nearly 50 markets, including Japan, Korea, Canada, a number of European countries such as Germany, the UK and Spain, as well as Russia, Ukraine and Colombia.

PMI passed a significant milestone in its campaign to go global with IQOS when the American Federal Drug Administration authorized IQOS and other variants. It will market its products in the US in partnership with Altria, the big investor which has made a commitment to the “smoke-free future” with multibillion dollar funding of Juul, the market leader in the worldwide vaping craze.

 “There are 40 million American men and women who smoke. Some of them will quit, but most won’t, and for them IQOS offers a smoke-free alternative to continued smoking,” Demirbas said.

Progress towards smoke freedom remains elusive in China, the world’s biggest market, where PMI markets Marlboro and in turn promotes traditional Chinese tobacco brands around the world.

The UAE joined the list of countries heading smoke-free last year when an IQOS stand appeared in Dubai International Airport’s duty free section. The UAE was ambivalent about the value of trying to lure smokers off tobacco and onto safer products, with the Emirates’ health authorities warning against the use of e-cigarettes and vaping devices. 

But the IQOS airport stand was a sign of a change of heart, and was followed by public pronouncements that vaping would also be made legal. Users in the UAE had previously resorted to some pretty furtive measures to get their nicotine fix, but non-tobacco nicotine products appeared to be here to stay, judged by the large numbers of people seen sucking on devices in many outdoor public places.

After the UAE launch, non-cigarette nicotine is going mainstream. The Heet sticks will be on sale for around DH20 (SR20) per pack — roughly the same as a pack of Marlboro — in most traditional smoking shops, while the devices — retailing at around Dh250 — will be sold in Carrefour supermarkets and, eventually, branded flagship stores.

Demirbas sees the UAE as a testing ground for expansion into other Middle Eastern markets, with Saudi Arabia high on the list of targets. PMI already knows there is an appetite for its device in the Kingdom from the large numbers of Saudi citizens buying them at Dubai airport.

At the airport, they have to present national ID cards or passports as proof of age — 18 is commonly the age limit for buying tobacco products in the Gulf region — as well as making a declaration that they are already smokers who wish to quit cigarettes. “I stress that we are trying to convert existing smokers, not trying to get anybody started on nicotine,” Demirbas said.

“From a public health standpoint, we see great potential for reduced risk products in Saudi Arabia. In our view, it is important to set the right regulatory framework to ensure companies adhere to best practices and comply with local legislation with the adult consumers of these products in mind, particularly as alternative forms of nicotine consumption are being recognized in leading global markets, including Saudi Arabia,” he said.

“Our ultimate goal is to convert all the 9 million adult smokers across the GCC, who would not otherwise quit, to IQOS,” he added.

PMI faces significant competition in its mission. Juul, the trendy but controversial device that has grabbed a big slice of the global market as the “iPhone of the vaping business.” Several other vaping products already have a foothold and a cachet that could be challenging for PMI.

At the Capital Club, the test audience for the IQOS launch was a mixed band of cigarette and vape users who gave the new product serious consideration. Some were sold on it straight away, others said they would give it a try and were gifted samples by PMI. The stylish look of the new product was a big selling point for the tech-style savvy consumers.

Others were put off by the charging process that has to be carried everywhere and used between smokes. One complained that the taste was simply too similar to the cigarettes he had been trying to kick for years.

As Big Tobacco seeks to reposition itself in the new anti-smoking age, the multibillion dollar nicotine industry will always be controversial. Maybe IQOS will be the hi-tech product that helps millions finally kick the smoking habit. Demirbas hopes so.

“We’ve invested $6 billion in it. It’s the most advanced technology there is,” he said.