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Islamic Finance: remarkable growth presents a real challenge

Remarkable growth Between 2006 and 2010, Islamic Finance has seen a 19 per cent CAGR (compound annual growth rate) - bringing it to an estimated global value of USD 1 trillion. Future growth predictions are even more remarkable, with some forecasts suggesting Islamic Finance could continue to grow at more than four times the rate of conventional finance – and forecasting it to reach USD 5 trillion in value by 2016. Whilst approximately 80 per cent of this business is in the Middle East, Asia represents a significant market with Malaysia having a sizable 12 per cent market share and Indonesia witnessing strong growth (forecast to grow by 55 per cent in 2011). The Malaysian Islamic financial sector is seen as one of the most progressive and attractive in the world. Asia driving growth One of the main drivers for the rapid growth in Islamic Finance is an increasing Muslim population. As at 2009 the global Muslim population stood at 1.6 billion (October 2009 study by the Pew Research Center report of Mapping the Global Muslim Population). The majority – 62 per cent - is in Asia. This population is increasingly demanding Sharia compliant banking products. Global significance Perhaps because of this strong growth, there is increasing awareness of Islamic Finance in the non-Muslim world. · Governments are increasingly supportive with tax laws and regulations accommodating Islamic Finance (e.g. Australia, France and the UK) · In 2009, General Electric issued its first Sukuk, as Western companies are issuing the Islamic equivalent of bonds · The Vatican issued a statement of support in March 2009, commenting that the ethical principles on which Islamic Finance is based may bring banks closer to their clients and to the true spirit which should underpin every financial service · In 2010, the US White House appointed a Sharia finance specialist · Global financial institutions are increasingly active through the opening of Islamic Windows There are risks… but there is a solution There is much talk within the market about standards. This usually focuses on differences in interpretation of Sharia when related to finance, and the shortage of suitably qualified Sharia scholars to take up board positions at financial institutions. However, there is another aspect to standards that is crucial for a young and rapidly growing market: the standardization and automation of business processes. As the volume of Islamic financial transactions increases, so too do the risks associated with manual processing.

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Islamic Finance: remarkable growth presents a real challenge

Commentary

What role do Islamic Financial Institutes have in the Finance world of tomorrow?

The Issue of Choice In February 2011, KPMG last wrote about the issues regarding the infrastructure and regulation of Islamic banking in Malaysia. In continuing this series on this topic, we will move on to examine Islamic banking’s challenges in differentiating itself from conventional banking in the already crowded market and where the opportunities exist in Malaysia for it to become a truly innovative market leader in certain sectors. Islamic finance at its heart offers a system of finance for both individuals and companies that are based on principles of Shariah law.

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Why are transfer pricing tensions increasing in Asia?

The economic landscape is not looking very promising and transfer pricing audits are escalating in both intensity and frequency. Developed nations are struggling with significant debts and deficits as their economic growth stagnates, while developing nations have now latched onto the idea that they should reap the benefits associated with their low cost bases and their large untapped markets.

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Will Linked-in help or hurt your banking career?

Once upon a time, a typical job-search process involved simply browsing job advertisements in newspapers, writing a CV and cover letter and submitting them to the relevant organisation. However with ever-increasing technological advancements and the advent of social networking platforms, many job-seekers have ditched traditional methods of job-searching in favour of logging in to their social networks and trying to connect with potential employers. In fact, so overwhelming is the growth in social media that according to a recent blog post from their CEO Jeff Weiner, LinkedIn is growing at around one million new members each week, which equates to roughly one member per second. But are online networking sites really effective when it comes to finding your dream job in the banking and financial services industry, and what are the drawbacks to be aware of if you’re using social media in isolation? It’s public so your details are available to everyone One of the major limitations of relying on social networking to secure a job is that there is no filter on the people who can approach you. Your details are available to everyone, so you could find yourself inundated with queries from organisations you have no interest in working for, and regarding jobs that don’t nearly resemble the opportunity you are looking for. The end result: you waste valuable time and energy sorting the wheat from the chaff. It broadcasts your intention to being open to approaches from competitors even if you’re not – people make their own assumptions Something else to consider is the effect that the active use of platforms such as LinkedIn has on your standing with your current employer. If you’re not considered a ‘natural networker’ or it’s not a crucial part of your existing role to find new ways of connecting with other professionals, actively using these channels could potentially jeopardise your current work situation. You need to be vigilant about maintaining a professional presence While more casual social networks such as Facebook are intended to facilitate informal socialising between friends, they are also being increasingly monitored and used by employers to form opinions on job applicants. Some research even indicates as many as 44% of recruiters have eliminated candidates based on what they have found online (according to a survey conducted by ExecuNet).

Commentary

Payment institutions: what role can they play for corporates?

The global financial crisis was a stark reminder for many companies that effective working capital management and strong counterparty risk management are important.

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FATCA: A shake-up in the World of Finance and Banking Secrecy?

A new American tax law has the potential to shake-up not just the U.S. tax reporting system, but also the way financial institutions do business globally.

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China's 5 year financial sector and the new 5-year plans

As with its predecessor, the new 5-year Development Plan attaches importance to continuing financial sector reform in four main areas: (i) strengthening financial institutions, (ii) development of financial markets, (iii) improvements to monetary policy instruments, and (iv) enhancement of the supervisory framework.

Commentary

Why private banks should stop poaching and start coaching

With the growth of the high-net-worth population in Asia–Pacific significantly outpacing the rest of the world, it is no wonder that the demand for wealth management talent in Asia is at an all-time high. More than half of wealth management firms plan to increase staffing levels by at least 10-to-20 percent. However, firms face a limited talent pool to fill their ranks.

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Collateral management wisdom

As the rest of the world scurried to locate adequate collateral in order to secure transactions against mounting counterparty risk and to gain access to central bank liquidity, Asian banks and financial institutions were relaxed.

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How facebooked is your bank and do you twitter?

In the banking industry, growth is back on the agenda.

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How can and should banks go into the cloud ?

Technology is not a proper subject for businessmen to study. However every few years something comes along that changes the landscape and businessmen need to re-examine the role of technology within the enterprise. These “disruptive” technologies are coming thick and fast in 2011, so here is a primer on the first of the three disruptive technologies you should be thinking about:-

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Asian Banking & Finance hiring hotspots

Increasing market strength and new government regulation will see new permanent roles created this quarter in China.

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Investment operations get back to the gym

A new wave of fitness training for investment operations is getting underway. Straight Through Processing (STP) systems achieved a certain level of effectiveness over the last 20 years, but they have been thrown a new set of challenges in recent months. These challenges will inadvertently cause a wholesale review of operating models in asset management business worldwide. With the increasing demand from securities firms for end-to-end STP reviews, SWIFT’s rapidly-growing consulting unit has developed some insight in response to this trend.

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New multi-bank solutions for a global banking dilemma

You would have thought we’d have gotten further Ever since the East India Companies of the 17th century, business around the world has been growing more and more international. Customer and supplier relationships are to an ever increasing extent occurring across the borders, often with very broad patterns linking into several markets, the result of modern multinational corporations.

Commentary

Compensation policies as a strategic value creator

In the aftermath of the global financial crisis, compensation practices in the Financial Services industry have come under significant scrutiny by regulators and politicians, particularly in Europe and the US. The Financial Stability Board (FSB) and the Committee of European Banking Supervisors (CEBS) have been at the forefront of issuing a series of implementation standards on compensation with the ultimate goal of designing appropriate incentive structures that seek to align bankers’ compensation to the nature and degree of risks undertaken.

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Empty thrones

Throughout the last two quarters, most hiring managers in banks were grappling with multiple offers and counter offers, thinking the worst of them.

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The future of banker compensation

The compensation landscape at financial institutions is undergoing dramatic change. New approaches to remuneration are being implemented to comply with changing regulations and drive long-term business success.

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