The growing Islamic finance and Islamic banking industry has produced a wide variety of new Shariah-compliant products and structures. The global Islamic finance industry, which has made tremendous developments over the last few years, is now worth more than $1 trillion and is growing rapidly. This has increased the number of Islamic banking and financial institutions, and also a variety of Islamic financial services products.
Rushdi Siddiqui, global head of Islamic finance and OIC (Organization of the Islamic Conference) countries at Thomson Reuters, New York, who was in the Kingdom recently, discussed a number of important issues with Arab News in an interview.
You have talked about moving Islamic finance to 2.0, what does this mean?
The Islamic finance industry suffers from two major problems. 1. The information search costs for Shariah-compliant structures, transactions, products, institutions, scholars, etc., in one place supported by real time news is very high. And you cannot ‘google’ this information. 2. The Internet has made the world flat, and the Islamic finance industry needs to have global connectivity, where, say, Islamic Bank of Thailand treasury can connect with counter-parts at Al-Hilal Bank (UAE) and/or Qatar Islamic Bank and/or Bank of London Middle East (UK).
Can you elaborate on this global connectivity?
Once there is communication and correspondence between and among Islamic banks, Takaful operators, asset managers, regulators, etc., collaboration and contribution will follow with the end result of convergence meaning the beginning of standardization. By convergence, I mean, within Muslim countries (OIC) where Islamic finance has taken root, and non-Islamic financial institutions (in the West). The Thomson Reuters (TR) platform has two very important attributions: Global and neutral and complimented with intelligent information, hence, we are committed to reducing the high information search costs, and building the infrastructure for global connectivity in Islamic finance via Reuters messaging.
How does the Islamic finance industry produce the Islamic asset management industry?
That is a very important question. If we take the concept of Funds Supermarket from the US in the 1980s, and bring it to the Islamic investing today, then we raise the profile of the various Islamic funds for all investors (including non-Islamic), and, concurrently, reduce the information search costs. We have an incredible entity within Thomson Reuters called Lipper, and it covers more than 500 Islamic funds, and the data is updated frequently. We have taken the Islamic equity funds and created a platform, Islamic Funds Information Supermarket, on our global platform, 3000 Xtra. This will allow peer review (transparency), allow for fund of fund strategies (maturing of the market place), allow for searching Islamic fund Reuters news, etc. So, if you’re looking for Islamic funds from Saudi Arabia, Malaysia, Bahrain, and elsewhere, you will be able to find them here, and if you are a fund sponsor looking for a global platform, and want to compliment “white labeling,” TR Islamic Funds Information Supermarket is the place to be. Now, as depth develops with Islamic asset classes, we look forward to covering Islamic private equity, venture capital, real estate, leasing, and such Islamic funds. Lipper will be able to raise the profile of such funds on our supermarket.
The Takaful and Retakaful area and Islamic syndicated loans don’t get much exposure compared to, say, sukuk. How are you addressing these important areas?
Fully agreed. We have developed a platform for Takaful and Retakaful to address this precise point. We have looked at countries where Takaful companies are listed and have provided company data, are working with index providers for a Takaful Index, and with Reuters global Takaful news, it has become a power tool for those interested in Takaful all under one platform.
Your responsibility has been recently expanded to global head of OIC countries. What are some of the priorities here for you at TR?
We want to assist not only with the IDB (Islamic Development Bank) mandate, to increase intra-OIC trade and investment, but also raise the profile of these 56 Muslim countries amongst each other and to the non-Islamic world. For fostering intra-OIC trade and investment, the precondition is intelligent information, be it Reuters OIC country news in real time, capital market information, country information, regulatory environment, etc. What we have done is put all the OIC countries on one platform and provided intelligent information about each country. We want to work with each country, public and private sector levels, where contribution from them will result in a more robust offering.
For OIC countries that have an interest in developing Islamic finance, they can learn from the information we have from Malaysia, UAE, Bahrain, Saudi Arabia and the non-OIC Islamic hubs, like Hong Kong, Singapore and UK.
If we can change gears, and talk about the credit crisis and its impact on Islamic finance because we’ve seen headlines about sukuk defaults. What is the message Islamic finance needs to convey to the G20 countries, which are considering changes to regulations?
Islamic financial institutions have indeed captured negative headlines since the days of peak of oil prices, easy credit and government support. The subprime, rather more appropriate term “sub-crime,” induced credit crisis, has aptly flushed out the false promises and assertions of the disconnect between Islamic banking and finance to conventional finance.
Many in the industry have been cheerleading Islamic finance, making comments such as, “... see no bailouts and bankruptcies amongst Islamic banks, hence, this is the path for salvation for conventional finance and its banks.” These types of comments are not going to make friends and influence people.
Lets take the example of the US Treasury. The US Treasury’s stress test of the 19 banks was a confidence building, not solvency ensuring measure. The Islamic (commercial) banks, within their capacity of “Amanah” (or trust), need to undertake a similar, but customized, stress test exercise consistent with the uniqueness of the Islamic banking business model. The stress test should showcase, and not cheerlead, that a different banking model that has so far avoided the need for government financial support merits consideration for the conventional banking system. Thus, the subprime crisis presents a compelling window of opportunity for Islamic finance to both showcase the merits of asset-based or backed financial intermediation as well as the deployment of savings into real investments without the so called “financial weapons of mass destruction,” excessive leverage and derivatives.
