Skill shortage stymies growth of Islamic finance

Kuala Lumpur/Jakarta: Southeast Asian universities are adding Islamic finance courses as Bank Negara Malaysia’s Sharia Advisory Council warns a skill shortage in the industry is hampering growth.

Universitas Muhammadiyah in Malang, Indonesia and Kuala Lumpur-based International Centre for Education in Islamic Finance (INCEIF) said this month they plan to start new programmes. Malaysia needs 40,000 more qualified people in the industry by 2020, Dzuljastri Abdul Razzaq, head of the International Islamic University Malaysia’s finance department, said. Indonesia will require 17,000 more over three to five years, according to a central bank survey.

Malaysia’s Sharia banking assets rose 24 per cent last year, while Indonesia’s have grown by an average of 38 per cent over the past five years, central bank data show. This has helped drive a 67 per cent jump in global sales of Islamic bonds in 2012 to $29.1 billion (Dh106.89 billion). The skill shortage is slowing product development and preventing the industry from expanding at even quicker rates, according to Lee Hishammuddin Allen & Gledhill, a Kuala Lumpur-based law firm that has a Sharia practice.

“The Islamic finance sector is growing faster than the supply of talent,” Mohammad Akram Laldin, who sits on the Malaysian central bank’s Sharia Advisory Council, said in Kuala Lumpur. “The industry has to continue its efforts to bridge the gap.”

Universitas Muhammadiyah plans to start an Islamic economics degree within five years in response to requests from banks, H. Nazaruddin Malik, dean of the business and economics faculty, said in an August 7 interview. The institution currently runs short courses on Sharia-compliant accounting. INCEIF is in talks with colleges to start programmes in Oman, Turkey, and Kenya, said chief executive officer Daud Vicary Abdullah.

“The shortage impedes growth because you don’t have the best people making the best decisions,” he said in an August 10 interview in Kuala Lumpur.

New jobs to come online

In Malaysia, about 56,000 new finance industry jobs, including non-Islamic roles, will become available in the next 10 years, particularly in areas such as wealth management, Sharia advisory and corporate finance, according to the central bank’s Financial Sector Blueprint 2011-2020 released in December.

Indonesia’s Sharia-compliant banking industry currently needs 36,933 professionals, Harisman Sidi, director at the International Centre for Development in Islamic Finance at the Indonesian Banking Development Institute in Jakarta, said in an August 8 email, citing data from the country’s monetary authority.

Bank Indonesia is encouraging Sharia-compliant lenders to put more resources into staff training to help meet its target of expanding Sharia-compliant banking assets to 10 per cent of the total by 2020 from about 4 per cent, Edy Setiadi, director of Islamic banking, said in a July 30 interview in Jakarta.

“Because the market share is still small, Islamic banks are still not the top destination for many graduates of the country’s best universities,” he said.

Malaysia, home to the world’s largest sukuk market, has 16 Sharia lenders, according to data from the central bank’s website. That compares with 26 commercial and 15 investment banks which do not comply with religious tenets.

Lack of opportunities

“There isn’t a lack of talent, there’s just a lack of opportunities,” Raj Mohammad, the Singapore-based managing director at consulting company Five Pillars Pte, said in an August 10 interview. “There aren’t a huge number of Islamic financial institutions that are popping up everywhere.”

Sharia-compliant notes returned 6.6 per cent in 2012, according to the HSBC/Nasdaq Dubai US Dollar Sukuk Index, while debt in developing markets climbed 12.2 per cent, JPMorgan Chase & Co.’s EMBI Global Composite Index shows.

The average yield on worldwide sukuk was little changed at 3.14 per cent, and has declined 85 basis points this year, according to the HSBC index. The difference between the average and the London interbank offered rate, or Libor, narrowed one basis point, or 0.01 percentage point, to 205 basis points, the gauge shows.

The Bloomberg AIBIM Bursa Malaysia Sovereign Shariah Index, which tracks ringgit-denominated government sukuk, was little changed at 109.261, near the record high at 109.288 reached on July 26. It has advanced 3.4 per cent this year.

Under Islamic law, commercial transactions can take place as long as the provisions don’t violate the Quran. The charging or receiving of interest is banned and investment in businesses that deal in tobacco, gaming, or alcohol is prohibited. The shortage of skilled professionals is exacerbated by a mismatch between what is taught in courses and the abilities sought by employers, according to Kuala Lumpur-based Aberdeen Islamic Asset Management Sdn.

“Many graduates are knowledgeable in the various terminologies and products but don’t know the basic tenets of fund management and how the Sharia component then fits into the whole picture,” Abdul Jalil Abdul Rasheed, who helps manage $3 billion as chief executive officer at Aberdeen Islamic, said in an August 7 email.