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Iqbal Khan: The Evolution, Principles and Aims of Islamic Finance (6.3.13)

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Iqbal Khan is the CEO of Fajr Capital - an ethical investments and advisory firm backed by Abu Dhabi Investment Authority, Government of Brunei, Government of Malaysia, HSBC and others. He was the founding CEO of HSBC Amanah and recently received the Royal Award for Islamic Finance from the King of Malaysia. In this lecture he discusses the history and evolution of Islamic Finance and its current relevance against the backdrop of the global economic crisis.

Published in: Economy & Finance
  • Iqbal your slide deck is extremely insightful, values which should be universal and fundamental to business.
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  • Iqbal niyat (intent) is paramount in every action we undertake. Without which - honesty is relative and a justification for one’s actions and conscience. Sandeep Sharma – If you recall our shared past.
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Iqbal Khan: The Evolution, Principles and Aims of Islamic Finance (6.3.13)

  1. 1. Sponsored by o Sustainable Business Initiative The Principles, Aims and Evolution of Islamic Finance Iqbal Khan 5 March 2013 Twitter: @IqbalKhanCEO Fajr Capital | 1
  2. 2. The importance of ethical finance is underpinned in the monotheisticscriptures • Being in debt is equivalent to servitude because of the immense burden CHRISTIANITY to repay. Hence, “The rich rule over the poor and the borrower is slave of the lender” (Proverbs 22:7). • "The first question an individual is asked in the afterlife at the final JUDAISM judgment is: “Did you conduct your business affairs honestly?” (Babylonian Talmud, Shabbos 31a) • “However plentiful usury may look from the outside, its end is want and ISLAM ignominy” (Hadith) Islamic Finance is a continuation of the principles of CSR, ethics and fairness in the Abrahamic faith Fajr Capital | 2
  3. 3. Islamic Finance principles consist of core basic tenants 1 If something is immoral, one cannot profit from it 2 To share reward, one must also share risk 3 One cannot sell what one does not own In any transaction, one must clearly stipulate what he or she is 4 buying or selling and what price is being paid Removing speculation and creating value-enhancing and sustainable activity Fajr Capital | 3
  4. 4. Islamic Finance is the outcome of CSR derived from religion andapplied to banking Co esp rp on te R or s Accountability to God ra nce at ibi po a e lit or ern “More-than-profit” So y C v Ethical cia mentality go l profits (rather than “profits-at- any-costs”) Business ethics Shari`a “code of ethics” Islamic Finance is capitalism with a moral compass Fajr Capital | 4
  5. 5. The industry has developed a comprehensive product offering overits young history Development of industry Evolving richness in products − Development of theoretical framework 1950s − Muslim-majority nation independence structured products Debt issues − Egypt and Malaysia pioneering institutions 60s − Establishment of OIC (1969) insurance − Islamic Development Bank (1974) and DIB 2000s 1970s 70s − One country-one bank setup private − Advancement of Islamic products equity 80s − 1990s 1980s Full “Islamization” of Iran, Pakistan and Sudan syndications 90s − Entry of global institutions e.g. HSBC Amanah project − Tipping point reached in some markets finance structured 00s − Development of industry-building institutions equity and trade finance Industry has near like-for-like parity with conventional offering Fajr Capital | 5
  6. 6. In all, the Islamic finance industry is developing a global reach… Growth Engine Awakening Ripe for Growth Future Markets Source: Standard and Poor’s “The Globalization of Islamic Finance” Fajr Capital | 6
  7. 7. The development of the Islamic finance industry has been fuelledby pioneering institutions and industry building organisations Fajr Capital | 7
  8. 8. Growth and drive is being led by customer demandGovernment driven Sudan • Islamic Finance was not established by a Iran Malaysia royal decree or a presidential announcement, but it was the will of the people which created the industry. Pakistan Bahrain • Growth in the GCC Islamic banking Brunei markets are primarily driven by UK customer demand Singapore Kuwait UAE • Malaysia presents a near ideal Bangladesh regulatory and market-driven model for Qatar Islamic business USA Sri Lanka Japan China Indonesia Saudi Arabia Egypt Turkey Key: Bubbles indicate illustrative size of Islamic banking assets Source: Central Bank, Reports, industry estimates Market driven Fajr Capital | 8
  9. 9. The Islamic finance ecosystem is growing: Total Islamic finance assets may surpass $1.8 trillion in 2013 Top 20 Islamic banks make up 55% of the total Islamic Islamic finance continues to grow at an exponential pace. banking assets and are concentrated in 7 countries, Higher growth in personal financing assets is made up including GCC, Malaysia and Turkey. 13 Islamic banks have from a number of factors: pricing differential has been an equity base of more than $1 billion. Building regional reduced or eliminated, customers are more accepting of institutions and participating in larger transactions requires Islamic finance, and the industry’s distribution capability the industry to scale up. has improved immensely. Fajr Capital | 9Source: Ernst and Young – The World Islamic Banking Competitiveness Report
  10. 10. Some of the pioneers of the Islamic finance industrySHARI’A SCHOLAR ENTREPRENEUR ACADEMIC REGULATOR PRACTITIONER Sheikh Ibn Baaz Sheikh Saleh Kamel Royal Professor Lord Eddie George Sir John Bond (1910 – 1999) (1941 – ) Ungku Abdul Aziz (1938 – 2009 ) (1941 – ) (1922 – ) Fajr Capital | 10
  11. 11. Mountaineering Analogy: The Islamic Finance industry has come a longway since the days of its pioneers, but it still has a long way to go…  Creating role model institutions which facilitate the demonstration effect.  Democratizing wealth and ensuring stability.  Fortifying and Beacon strengthening the House industry’s foundations.  A globally recognised one trillion dollar + industry. 150% increase over the Laying the Foundations  last five years.  Exponential growth in core markets i.e. Middle East and Malaysia. The evolving political and economic paradigm will drive our industry forward Fajr Capital | 11
  12. 12. Today’s interconnected and dynamic world is presenting a unique opportunity for Islamic finance to prosper THE GREAT RECESSION OCCUPY MOVEMENTS ARAB AWAKENINGThe global economic crisis – sparked by The “Occupy Movements” have The Arab Awakening was driven by the the bursting of the U.S. housing highlighted grassroots support for young people facing dire socio- bubble and fuelled by various concrete reforms in the financial economic conditions, with access systemic imbalances. The effects services sector. The movement led to to social media and a hunger for of the crisis is now being felt by protests and occupations in over 80 change. The uprisings led to those at the grassroots, and is countries and across every continent regime changes in Tunisia, Egypt, leading to a political and economic except Antractica. Libya – and protests in Bahrain paradigm shift. and Syria, amongst others. Fajr Capital | 12
  13. 13. The current global economic crises highlight the need for a value-based approach to financial services 1 • Need for savings and investment orientation to Financial Institutions replace consumption and credit culture 4 2 Policy Implications Global Markets Impact points • Differentiation between • Dangers of opaque sale of deposit-taking institutions debt now shown to be and investment managers evident 3 • Stronger links needed Real Economy between banking and real economy investment Material crisis requires moral solutions Fajr Capital | 13
  14. 14. How Scotland can capture the Islamic finance opportunity • Regulatory and public sector support to make Scotland a1 POLITICAL ENABLEMENT ‘hub’ for the Islamic finance industry. • Trade and Investment engagement with high-growth OIC2 ATTRACTING ISLAMIC FUNDS markets to attract funding for projects i.e. Sukuk model. • Creation of a Centre of Excellence to provide much-needed3 RESEARCH AND INNOVATION research and analysis to support the industry’s growth. • Islamic finance academic programmes at Scottish4 THE PEOPLE PARADIGM universities to attract domestic and international students. • Boosting job creation and economic prosperity by enabling5 CREATING SUSTAINABLE GROWTH Scottish companies to expand in Muslim-majority markets. Fajr Capital | 14
  15. 15. Martin Luther King, Jr. (1929-1968)“Through our scientific genius we have made of the world a neighborhood; now through our moral and spiritual genius we must make of it a brotherhood.” Fajr Capital | 15
  16. 16. Sponsored by o Sustainable Business Initiative http://www.businessschool.ed.ac.uk/sbi Fajr Capital | 16

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