Category Archives: Islamic Economy

Halal certification is fast-growing hard currency for trade in halal products

Author: Blake Goud, Thomson Reuters Islamic Finance Community Leader

Trade is important.  Just look at the attention paid to the depreciation of global currencies. The falling Ringgit, the depreciating Chinese renminbi and the newly free-floating Kazakh Tenge.  The fight for competitive advantage in trade is impacted significantly by the value of the currency in countries where goods are produced and where they are consumed.

For trade in halal products, there is another unit of currency—the halal certification—which also affects the value of a halal product differently in the country where it was produced (and certified) and where it will ultimately be consumed.  The value of the certification for the producer determines how wide the market is for their product.  For example, Malaysia, whose halal certification is widely recognized and whose halal exports reached RM 10.8bn ($2.6 billion) in the first quarter of 2015, the halal industry is well connected globally within the Islamic economy for food, cosmetics and pharmaceuticals.

The success of Malaysia in capitalizing on the Islamic economy for economic growth has led other countries to seek similar opportunity.  Pakistan, which has a small but growing meat export industry, hopes the recently launched Pakistan Halal Authority will improve the ability of meat exporters to be the source of food imports into the Gulf Cooperation Council countries which are geographically close but where much of the meat comes from the far more distant Brazil.

The growth in intra-OIC trade is a specific priority for the Organisation of Islamic Cooperation (OIC) which targeted 20% intra-OIC trade by 2015.  Its standards organization, SMIIC, has been promoting a unified halal standard to reduce the barriers to intra-OIC trade in halal products.  A recent effort to promote the adoption of the OIC/SMIIC halal standard was led in Gambia by The Gambia Standards Bureau (TGSB) which highlighted the opportunity that halal trade provides for SMEs.

Efforts like TGSB focused on producers, traders, exporters and importers primarily in food and agricultural products but not all countries are just looking to halal food.  Pakistan’s PHA is not limiting its standards to just meat, where the opportunity is the clearest.  It will also focus on food (including processed foods), cold drinks, toiletries, cosmetics and pharmaceuticals.

This wide-ranging focus on the core sectors as well as products structurally affected by Islamic values (broadly referred to as the Islamic economy) makes for a huge market, a large share of which occurs on a cross-border basis.  The Thomson Reuters State of the Global Islamic Economy Report estimated that the Islamic economy grew 9.5% in 2013 and will grow 10.8% annually through 2019 when it is expected to reach $3.7 trillion.

While not all of that growth occurs within the OIC countries, and not all of that market is traded across borders, a large proportion of it is and that is why countries as diverse as The Gambia, Malaysia and Pakistan are focused on setting up the infrastructure so that their halal brand is valuable with all of their potential trade partners.


The first Thomson Reuters State of the Global Islamic Economy report was released in 2013 at the Global Islamic Economy Summit and the most recent one was released last year.  Join us at the Global Islamic Economy Summit from October 5-6, 2015 in Dubai, UAE for the release of the third State of the Global Islamic Economy report.

New tech competition wltm entrepreneurs with big ideas to win $10,000

The technology industry is abuzz these days with stories of companies raising money at ever higher valuations and the number of technology-focused companies getting huge amounts of capital and even higher valuations. This year alone, 107 companies have completed fundraising rounds with venture capital investors of $100 million or more, according to a report from CB Insights and KPMG.  Of these companies, 35 have entered the ‘unicorn club’ (VC-backed companies with $1 billion valuations).

One area where fundraising from venture capital is rare is in the Islamic economy overall and the Islamic digital economy in particular.  In their Digital Islamic Services Report, Deloitte reports “no VC funds in the Middle East […] specifically targeted at Islamic needs and Digital Islamic Services”.  The dearth of venture capital interest in the Islamic digital economy does not mean there is a lack of a market. Muslim consumers represent an estimated 8% of the global digital economy according to an ongoing Thomson Reuters study on the Islamic Digital Economy that we had an exclusive look at and the aggregate value of Muslim consumers within the digital economy is expected to grow 20% annually through 2020, outpacing the rest of the global digital economy.

The growth rate of the Islamic digital economy, and its potential to outpace the (still rapidly growing) digital economy is entirely understandable with a large Muslim population that is younger on average than the global population.  In some markets, such as Pakistan, the digital economy is just becoming enabled with the recent launch of 4G mobile networks that make it possible for many apps (particularly those relying on GPS technology to customize content based on specific location).

Progress, such as the introduction of 4G in Pakistan, will create a massive opportunity in similar markets where the cost has been too high and the mobile networks not ready to support the demand for capacity from widespread diffusion of smartphones.  This is particularly likely to be the case in markets where the population is younger, which will support rising demand for mobile technology from Quran apps to Halal Travel Apps, online Islamic education websites and location-services software to locate the nearest Halal restaurant.  The Islamic Digital Economy has woven into the lives of many Muslims worldwide and has become part of their day to day lifestyle.

With the backdrop of venture capital funds seeking out the latest ‘hot’ digital economy company and the dearth of Islamic digital economy companies being a part of this ‘unicorn economy’, there is a big opportunity for tech entrepreneurs if they can get noticed.  One way to get noticed is through the first #Innovation4Impact competition that will be a feature at the Global Islamic Economy Summit (GIES) in Dubai, UAE from 5-6 October 2015.

Innovation 4 Impact, which is organized by the Dubai Silicon Oasis Authority and Thomson Reuters, in collaboration with the American Muslim Consumer Consortium, is looking for innovative entrepreneurs across the globe whose solutions will disrupt the status quo across the digital sphere. The competition aims to support start-ups and businesses in the Islamic digital economy and serve will as an incubator for SMEs across the world. The winner will receive a combination of incubation services worth over $10,000 with an all-expense-paid trip to Dubai to showcase their business in GIES.

The Innovation 4 Impact competition is open to any company or entrepreneur with a potentially groundbreaking idea or business venture. Applicant’s ideas will be judged on different aspects including: innovation, economic and social impact as well as the scalability across markets and regions. Visit the website for details on how to submit your idea and to enter.  The deadline is August 10, 2015!

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Written by Blake Goud, Islamic Finance Community Leader at Thomson Reuters.

Make the digital economy work for the Islamic economy

The Islamic digital economy including spending connected to halal food, travel, fashion, recreation and culture, pharmaceuticals and Islamic finance is set to grow double digits—up to 25-30% per annum—according to a recent report by Deloitte.  A large part of this spending can benefit small and medium-sized enterprises (SMEs) which make up a large majority of the total businesses in Organisation for Islamic Cooperation (OIC) countries and a share of GDP that reaches up to one-third to one-half in countries like Malaysia and Indonesia.

The digital economy includes technology that assists the SMEs in reaching a wider market, mobile payments to capitalize on the wider market, and ways to use cloud computing and big data.  Innovation 4 Impact, organized by the Dubai Silicon Oasis Authority and Thomson Reuters is a business competition that specifically targets entrepreneurial activities for Islamic businesses.  Entries for the competition open June 28 and run through August 10 and the shortlisted candidates will be showcased at one of the biggest features at the Global Islamic Economy Summit 2015 to be held from 5-6 October 2015 in Dubai, UAE.

The Innovation 4 Impact competition uses a section committee to shortlist the entries based on the quality of the application as well as interviews with the candidates.  The criteria that the Selection Committee will consider includes both the quality of the entry in its ability to serve Islamic economy businesses and also have an impact on building the wider digital economy.  The innovations submitted to Innovation 4 Impact will be also judged in terms of the quality of their business model and soundness of the financial model for growth to ensure that the entrants are both truly groundbreaking for the entire Islamic economy but also able to become sustainable.

The finalists for the Innovation 4 Impact will receive paid travel and lodging to Dubai for GIES and must be able to be present at the event.  Please go to the Innovation 4 Impact website for all the details and to register your interest and complete your application!

Do you provide services for halal travel deserving of an Islamic Economy Award?

Author: Blake Goud

Halal travel is an area within the Islamic economy where many different product sectors overlap to provide the services demanded by Muslim travelers and destinations. Non-Muslim-majority destinations including Singapore and Okinawa are ensuring they provide the facilities and services to attract a growing share of the tourism market.   Excluding hajj and umrah, Muslim travel expenditures grew 7.7% in 2013 to $140 billion globally (11.6% of all tourism dollars) and is expected to accelerate, reaching $238 billion by 2019 according to the Thomson Reuters State of the Global Islamic Economy Report 2014-15.

So the dollars and cents are there for destinations to take account of whether they meet expectations for the growing market of Muslim travelers.  A survey conducted by Okinawa’s tourism organization found a large proportion of people who didn’t know about the opportunity that halal tourism presented (30%) while 36% said they affirmatively wanted to reach out to attract the Muslim market (96% of these did so because it tapped into a new market).  This means that over one-third of tourism-related businesses want to attract halal tourism spending and another third may be open to it but need more information about the opportunity.  That is a significant opportunity anda relatively special opportunity also for the economies hosting the tourists.

Why is travel and tourism a special opportunity?  It provides an inflow of spending that can boost the local economy and a large share of that spending goes into SMEs including hotels, restaurants, retail shops, local transportation, and tour guides.  While there are some global chains that will capture a share of the spending from Muslim tourists, there is an opportunity for SMEs to grab a rising proportion of that share.  The survey in Okinawa of prospective tourists found that ‘food’ was a deciding factor, only surpassed by price.

Travelers need to eat and, particularly in destinations with very small Muslim populations, the availability of halal food could be challenging.  The global companies that operate in many markets are best able to meet the need, but SMEs can take a bite out of this share if they are aware of what is required to prepare and label halal food.  When people travel, they don’t want to eat the same food they get at home but they will unless they can be sure the local alternative will be halal.

That presents an opportunity for chambers of commerce, governments, tourism bodies and other organizations to highlight the unique SMEs in their market to bring tourism dollars to these businesses and deliver the maximum benefit to the local economy.  A recent example of how this is done is a halal travel book prepared by the Singapore Tourism Board which specifically focuses on Indonesian tourists.  Singapore may have an advantage compared to other countries through its proximity to large Muslim markets (Malaysia and Indonesia) but this type of promotion can help capture the growing travel and tourism-related market to support local SMEs.

The 3rd Annual Islamic Economy Awards are now open to entries across the Islamic economy in Hospitality and Tourism, Food and Health, SME Development, Money and Finance, Media, Waqf and Endowments and the Islamic Economy Knowledge Infrastructure.  Nominate your own company or another that you love today!  The deadline is July 30. 

Ethical Finance Innovation Challenge & Awards (EFICA) returns for third year

Each year the list gets longer: the biggest banks admitting guilt in LIBOR rigging, FX rigging, money laundering and other misbehavior that leads them to multi-billion settlements with regulators.  It is no wonder people are looking at different models for how finance can better serve the people around the world who rely on the banks for financial intermediation, rather than just the banks and their employees.

For the third year in a row, Thomson Reuters and Abu Dhabi Islamic Bank find and recognize individuals and institutions that are leading the way towards a more ethical future for the financial services industry.  The EFICA award in the past two years have recognized bankers and new banking products that share risk and reward between the banks and their clients, as well as several innovative methods of microfinance.

Last year, the Lifetime Achievement Award recognized Dr. Amjad Saqib who developed a unique microfinance institution, Akhuwat, based on the principle that by empowering the poor through small, interest-free loans and involving centers of community activities like the mosque in the process, the overall costs can be reduced.  In addition, by giving small loans without expecting to receive interest, it can more quickly benefit the client and their business, make them self-sustaining and eventually allow them to donate to support future clients.

The EFICA Awards are looking to benefit the ethical finance and Islamic finance industry with three tracks:

  • Ethical Finance Initiative Award to recognize a new or existing ethical financial solutions or initiatives that can be implemented within the financial sector
  • Islamic Finance Industry Development Award to recognize the best practice business model initiated by an institution or an individual that have successfully implemented initiatives that have made a significant impact on promoting Islamic finance to the global community.
  • Lifetime Achievement Award to recognize an individual that has made a significant ethical impact in the practice of ethical and/or Islamic finance.

Applications for the 2015 Ethical Finance Innovation Challenge and Awards (EFICA) are now open at www.efica.com

Islamic Economy Award 2015, Submissions are now open!

It’s awards season!  The Islamic Economy Award is back, organized by the Dubai Islamic Economy Development Centre and Thomson Reuters to recognize innovative world-class business initiatives and ideas that have contributed to the social and economic welfare of the Muslim population.

The award recognizes ideas from across the many areas of the Islamic economy including:

  • Money and Finance
  • Food and Health
  • Media
  • Hospitality and Tourism
  • Waqf and Endowments
  • SME Development
  • Islamic Economy Knowledge Infrastructure
  • Islamic Arts

The eight categories correspond to the areas of the Islamic economy, a fast growing market to serve the 1.6 billion Muslims around the world.  Past winners have also led the development of healthy, halal, organic food that can not only feed Muslims, but provide a healthy option for anyone who is concerned about the quality of their food.

Applications for the 2015 Islamic Economy Awards are now open at https://www.islamiceconomyaward.com/

The Submission Deadline is on the 30th July 2015

Note – Get the latest updates by follow #IEAward 

Islamic financial institutions must boost transparency to meet AAOIFI governance standards and address critics

A key difference between Islamic and conventional financial institutions is the legal rights of depositors. While in practice, institutions treat their (profit-and-loss-sharing mudarabah) depositors as if they were conventional deposits, they are subject to losses as if they were equity instruments (the depositor as rabb al-mal shares profits with the bank but remains subject to losses).

Despite being on the hook for losses from the mudarabah assets in a similar way as the equity investors are to the overall institution’s losses, mudarabah depositors are not permitted to vote and can effectively only vote with their feet by withdrawing their deposits if they believe them to be at risk of loss or can find a higher return elsewhere. In this regard, mudarabah depositors (or as they are usually called — profit-sharing investment account holders or IAHs) do have priority over equityholders in the liquidity they are granted, which, in normal situations, entitles them to withdraw their deposits without any loss.

All of these factors contribute to the need to develop standards on the governance within Islamic financial institutions (IFIs), which AAOIFI instituted in 2005. The particular standard that focuses on corporate governance issues begins by outlining the underlying principle for the management that ensures they are “held to the highest fiduciary standards since they are accountable not to the equity-holders who appointed them but also for the safety of all key stakeholders as well as the community the IFI serves”.

The governance standard is that — just a standard — so it doesn’t prescribe certain methods for ensuring that an Islamic financial institution must do certain things as a result of its fiduciary standard; that is left up to the individual institution. However, it does outline some principles that are of interest to IAHs and how the financial institutions ensure what is referred to as “equitable treatment of fund providers and other significant stakeholders”.

Without really laying out what these principles are, it does provide specific context about the transparency responsibility of IFIs towards ‘fund providers’ (which includes the IAHs): “An IFI should ensure equitable and unbiased treatment of fund providers and other significant stakeholders and associated investments as well as in relation provision of adequate financial and non-financial information to allow them to take appropriate decisions regarding their dealing with the institution.”

Many IFIs provide at least the minimum transparency to IAHs that they do to their equity investors in the form of interim and annual reports available on their public websites. They also have specific presentations for investors that cover some of the information that depositors (or those who advocated on behalf of depositor protection) would need to identify the strength and stability of the bank and trends in the payout.

The investor presentations (for the institutions that produce them) and annual reports (to shareholders) provide details on the stability of the institution and its ability to generate profits to share with depositors. This is a good step towards transparency (and banks should be required to make their annual reports available if they take deposits from retail depositors), but this information does not address the underlying conflict that the governance standard asks banks to meet.

By not creating a report that addresses the conflicts of interests inherent in managing a financial institution where management and those whose funds they are managing (like IAHs) can diverge, it leaves the goal of the standard unfulfilled. More importantly, it leaves the process of generating profits as a ‘black box’ that makes it easy for critics to suggest that there is no difference between Islamic banks and conventional banks and that the statements of profit-sharing between the banks and their deposits is artificial. Greater transparency would help cut through these arguments and encourage better practices by Islamic banks.

Find out more information about the governance standards which are now accessible through the Legal & Shariah section of Zawya Islamic.

The Opportunity for Ethical Sukuk

Author: Michael Bennett[i], The World Bank.

Source: Thomson Reuters Sukuk Perception & Forecast 2015

Islamic finance shares a strong similarity with ethical investing. Like ethical investors, Shariah-compliant investors demand that their investments not only be attractive in economic terms, but that they meet certain non-financial criteria as well. In the case of Shariah-compliant investors, these non-financial criteria involve compliance with Islamic law and principles.

Growth of ethical investing

The concept of ethical investing – investors using their money to promote ethical activities and social good – has deep roots in the doctrine of many religions. Islam, Christianity and Judaism, for example, all share a focus on the individual’s moral responsibility to use money in a way that betters one’s community and is consistent with one’s faith. These religious prescriptions have impacted individual investment decisions for centuries.

Over the past few decades, ethical investing has grown from being just a matter of individuals exercising their faith to become a comprehensive investment strategy. A large and growing number of individual and institutional investors, including asset managers, pension funds and university endowments, now include achieving certain social, environmental or corporate governance objectives as a part of their money management process. In making investment decisions, these investors overlay a qualitative analysis of a company’s policies or practices in the specific area or areas of concern to the investor onto their quantitative analysis of the company’s financial condition and prospects.

Ethical bond market

The conventional bond market has been used to channel investment to worthy causes for decades. The World Bank pioneered this use of the bond market when it issued its first bond in 1947.  The World Bank, and other supra-national institutions, issue bonds and use the proceeds of those issues to fund sustainable development projects in developing countries. Only recently, however, with the growth of the ethical investing movement, have investors sought to invest in bonds in which the proceeds will be used to promote specific ethical activities. Driven by this investor demand, the ethical segment of the conventional bond market has begun to expand rapidly, with supra-national “theme bonds” (linked to specific development themes such as women’s empowerment or access to water) and “green bonds” (bonds for which the proceeds support specified environmental projects or activities) leading the way.  Table 1 illustrates the growth trajectory of the green bond segment of the ethical bond market.

Get the full article by download your complimentary copy of the sukuk report hosted on Zawya Islamic, to know more about the opportunity for ethical sukuk. Click Here for Download

Thomson Reuters Zawya released enhancements to the Zawya Sukuk Monitor including features allowing visual data alongside figures signifying the global sukuk market overview, Click here

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[i] Michael Bennett is the Head of Derivatives and Structured Finance in the Treasury Department of the World Bank. The findings, interpretations and conclusions expressed herein are those of the author and do not necessarily reflect the views of the World Bank or its affiliated organizations.

Green sukuk bridge between Islamic finance and SRI

The Global Islamic Finance Forum was held in Kuala Lumpur last week and included a few areas that don’t receive as much attention as they are due.  Much of the focus of Islamic finance is on raising its quantitative developments.  Or put simply, increasing the assets in Islamic finance without considering how these are deployed and what impact this has both directly in what is financed and through corporate social responsibility.  In addition, there has been relatively limited attention played in how to improve governance at Islamic financial institutions both in the sense of traditional corporate governance and in sharia governance.

The concept of expanding a focus beyond just quantitative development is encapsulated in the ICD-Thomson Reuters Islamic Finance Development Indicator, which was released at GIFF where governance and CSR are included along with knowledge and awareness to provide an overall picture of the state of the Islamic finance industry.  

Building on this foundation for measuring the growth and development in Islamic finance, an unexplored area for future development discussed at GIFF was exploring ways to build more linkages with the socially responsible investing and sustainable finance industry.  The two industries have focused on different things in their development where a large challenge has been replacing fixed income instruments whereas in SRI, a bigger issue is broadening beyond the traditional negative screens (which have significant overlap with the sector-side Islamic investing screens).

Continue reading to see where and how the two sectors converge. GIFF session summaries are available on the portal, click here to register

2nd Islamic Economy Awards nominations now open

Author: Blake Goud – Islamic Finance Gateway Community Leader

The Islamic economy is too often characterized around its biggest silos: the multibillion dollar banks recycling petrodollars across the world and the expansion of global and regional conglomerates into the halal food market as their indigenous market growth slows to a crawl. SMEs are always either the next big thing in the $1.1 trillion halal food market and $1.35 trillion Islamic finance market, or the acquisition target, but they rarely get recognized in between.

In the future, the evolution of the Islamic economy will be dictated by not just small and medium-sized enterprises (SMEs) but microbusinesses that start with an idea and end up creating and capturing a niche market. The Islamic Economy Awards is looking to find these idea-driven SMEs. Last year, the awards highlighted, among other winners:

• Tanamera, a small natural products manufacturer in Malaysia
• Saffron Road, an American halal food producer that equally values the sustainability of its products for a broad consumer base
• TimeZ5, which designed and manufactures the first physiological prayer mat offering pain relief and improved posture

The Islamic economy awards cover eight categories including media, hospitality & tourism, waqf and endowment, SME development, Islamic arts, food & health, finance and Islamic economy knowledge infrastructure. Apart from food and finance, many of these markets are filled with ideas but few established companies, which provides a huge opportunity for people with an idea to meet market demands.

As entrepreneurs know, it is important to find a niche within the market that the bigger companies are not able or not willing to serve and the Islamic economy offers many, both within the established sectors like halal food where specialty producers can tap into consumer demands more rapidly than multinationals or in Islamic finance where the big banks have not found an effective way to tap the base of the pyramid. There are also opportunities in the less developed areas of Islamic art and design and media where a shortage of offerings, highlighted in the Review Report from the 2013 Global Islamic Economy Summit, has constrained growth of entire sectors within the Islamic economy.

The employment crisis facing majority Muslim countries can be solved in part by bringing local ideas to meet local needs, which is always something the SME will be better at than the multinational. But the Islamic economy is not limited to Muslim consumers. As Saffron Road showed with its frozen food offerings, moving beyond just the basics of being halal or sharia-compliant can win consumers among the wider base of customers who are searching for companies that slow down the wheels of production to make sure things are done the right way, in accordance with their values.

The Islamic Economy Awards are searching for the next product that is halal and which can disrupt existing markets and offer consumers something more closely aligned with their values. Nominate yourself or a company you respect in 1 of 8 Islamic Economy Awards. Hurry, the deadline is October 7, 2014!