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F for Finance: The UAE becomes Islamic economic hub

As part of our A to Z of the UAE, we look at how the nation aims to connect European centres with the Middle East and Asia

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The DIFC wants to further expand its range of Islamicfinance services
GN Focus

The banking sector and the financial service industry in the UAE play important roles in the economic development of the country. First backed by domestic lenders, the industry attracted foreign banks and finance companies over time, enticed by high demand for retail and corporate financial services and by a business-friendly legal and regulatory environment.

The Dubai International Financial Centre (DIFC), launched in 2004, has grown to the largest financial hub in the Middle East, Africa and South Asia — regions expected to have a combined worth of assets of $10 trillion (Dh36.7 trillion) by 2020. The DIFC in its half-year 2016 operating review released on August 31 said the number of companies based here rose 16 per cent during this period, while many international banks elsewhere were grappling with restructuring measures, ultra-low-interest environments, job cuts and money outflows. 

“Dubai and DIFC serve as the gateway to the world’s fastest-growing markets across the Middle East, Africa and South Asia,” DIFC Governor Eisa Kazim says in the report. “This is reflected in our latest results and initiatives, which represent a major milestone in delivering on the centre’s forward-looking 2024 strategy.” 

Future plans include an expansion with new buildings and infrastructure with a target of housing 50,000 employees, a fintech development centre, further expansion of Islamic finance services and establishing a new South-South financial axis between the Middle East, South East Asia and China in order to benefit from renminbi-denominated transactions and to connect with South East Asian financial markets and the regional Islamic finance hub of Malaysia.

The DIFC is no longer the only dedicated financial free zone in the UAE since the establishment of the Abu Dhabi Global Market (ADGM) last year, which offers registration for a mix of financial and non-financial businesses.

“The mix of well-established, local family businesses and international companies registered with ADGM is testament to the free zone’s commitment to being an open, trusted and well-regulated financial and commercial hub, designed to serve the financial needs of Abu Dhabi and the UAE,” Dhaher Mohammad Bin Dhaher Al Muhairi, CEO of the ADGM’s Registration Bureau, said in an October statement on the market’s first anniversary.

Notably, both financial centres want to establish themselves as hubs for Islamic finance. The DIFC, apart from participating with the ADGM in the newly launched UAE-Luxembourg Council for Cooperation and Development of Islamic Banking and Finance that aims to strengthen ties in this sector with Europe, is also actively trying to attract fresh Islamic investment from South East Asia, particularly Malaysia, and supporting fintech initiatives to develop digital services for Islamic banking and investment. 

Amjad Naser, Head of Sharia at Noor Bank, sees big potential for the sector in the country. “The UAE is one of the top three countries in Islamic finance globally, after Saudi Arabia and Malaysia, and has already contributed significantly towards this market,” Naser tells GN Focus.

“The country is well known today for being a safe haven to live and invest, which keeps encouraging more investors to come. Most sustainable investments will meet the Sharia-compliance criteria, and we are seeing a large demand for investments to be supported by Islamic investment capital.”

The ADGM has endorsed the Islamic finance rules of the emirate to provide a clear standard for Islamic finance and business in the free zone. 

“Sharia standards and guidelines form part of the regulation for Islamic finance and they have been successfully improved from time to time,” says Naser, adding that “this shows the demand for Islamic finance as the industry keeps moving forward by having a specific fatwa.”

However, it remains to be seen if the UAE can succeed in its goal of becoming a global Islamic finance hub, but it will certainly be an important way station between the West and East, connecting the European Islamic finance centres of London and Luxembourg with the Middle East and Asia including China — through the latter’s New Silk Road initiative — giving access to regional liquidity and local expertise in the field.