Dubai: Dubai’s initiative to make the emirate the hub of Islamic economy has seen bin surge in Islamic banking and capital market activities, but more government support at policy level could help speedy growth of the industry, said Hussain Al Qemzi, Group CEO, Noor Investment Group and CEO Noor Bank.
Data suggests that Islamic banks’ asset growth is outstripping their conventional peers in the Gulf region especially in Saudi Arabia and Qatar due to government support. As the biggest borrowers, government entities in the Gulf need to push Islamic structures. This means that governments in the Gulf countries, directly or indirectly, are the most important players when it comes to placing funds or depositing funds in banks.
“The UAE needs to incorporate a policy that mandates government entities to place money with Islamic banks, and carry out all monetary transactions using Islamic structures. Such an initiative will not only give a significant push to Islamic banks in the UAE, but also provide the much needed momentum for Dubai to achieve the status of an Islamic finance hub,” said Al Qemzi.
Islamic banks in Qatar reported rapid growth in their balance sheets by 28 per cent between 2009 and 2013 as they capitalised on the government’s large investments. In addition, the Qatari government’s recent initiatives, such as banning conventional banks from engaging in Islamic banking further helped the sector.
While going the same route as Qatar may not be an option, Al Qemzi said some sort of incentive and leeway should be provided to Islamic financial institutions, assuring them of support and encouragement in serving the dynamic needs of customers. “Until the fledgling Islamic financial institutions grow, they require nurturing. Given their relatively weaker presence regionally compared to conventional counterparts, Islamic banks are ultimately seeking a level playing field,” he said.
Al Qemzi said Dubai’s initiative to position itself as the hub of Islamic capital markets comes with advantages such as such as business friendly free zones, political stability, ideal geographical location, congenial environment, a vast talent pool and, most importantly, the government’s commitment to making Dubai the global capital of Islamic economy. Additionally, Dubai is today recognised as a regional trading, real-estate and tourism hub. Dubai’s positioning gives it a defining advantage over comparative global Islamic markets.
The trend of increasing number of non-Islamic entities, both corporate and sovereigns tapping the sukuk market is viewed as positive development for Islamic financial service industry. “We welcome such initiatives that will increase the size of the market for all industry players. Many first time issuers are going down this route including governments of the UK, Luxembourg, UAE, Hong Kong and South Africa. We are also increasingly seeing dual tranche structures that have led to greater acceptance for Islamic instruments in the global financial community,” said Al Qemzi.
With the increased supply of sukuk, secondary market is expected to become more vibrant. “We feel that the secondary market for sukuk has come a long way from where it was a few years ago. However, despite the headway it has made, the Islamic capital market remains relatively illiquid when compared to the conventional market. This situation is unique to the Middle East due to the limited supply and keenness of Islamic investors to hold on to such instruments. However, with recent issuances we anticipate far greater activity that will in turn make the market more liquid,” he said
Going forward, more Islamic issuances, especially by players who have already transacted conventional issuances, will provide greater depth to the market and confidence to investors who are yet to invest in Islamic instruments.