The Centre for Islamic Finance at the University of Bolton is an initiative to facilitate research and promoting the understanding of Islamic Finance through lectures, conferences and short courses.
The Centre for Islamic Finance was launched in 2012 with an inaugural lecture given by Dr Ahmed Ali, President of the Islamic Development Bank and was attended by business leaders, academics and finance managers from across the UK.
The Centre for Islamic Finance is the inspiration of its founder and Chairman, Professor Mohammed Abdel-Haq, a British Jordanian of Palestinian origin.
As well as his academic knowledge, Mohammed has a wealth of practical experience. In a long career in Islamic finance he is the founding member of a London Merchant Bank and was, until recently, Chairman of one of the leading UK compliance companies.
Prior to that Mohammed was Managing Director and Global Head of HSBC Amanah Private Banking. Mohammed is active in public life and holds a number of positions, amongst them he is a member of the Council of Chatham House and a member of the Advisory Board of the Centre for Social Justice. He is the author of a book on Islamic finance and is a regular speaker at conferences.
‘I am highly confident that the establishment of this centre will boost innovation, research and ultimately give benefit to society by the greater understanding of Islamic finance.’
His Excellency Dr Ahmed Ali, President of the Islamic Development Bank
Statement of the President; Dr Ahmed Ali, IDB Group, at the Inauguration of Centre for Islamic Finance at the University of Bolton 29 May 2012
Your Excellency, the Chancellor, Baroness Morris of Bolton. Your Excellency, the Vice-chancellor, Dr. George Holmes. Respectable Guests, Distinguished Ladies and Gentlemen,
Very good afternoon to you all, Thank you for the invitation.
It gives me an immense pleasure to participate in the inauguration of the Centre for Islamic finance at the University of Bolton.
Since Islamic finance is gaining greater attention all over the world, there is a rise in the demand for quality education in this field. It is understood that such demand will grow in parallel with the tremendous growth of market share of Islamic banking.
Countries in Asia such as Malaysia and Pakistan are keen to tap such promising industries and want to become the centre of Islamic finance in their respective region. As such, in Malaysia, the share of Islamic banking assets has reached 22% of the total banking industry; while Pakistan plans to capture 12% market share of Islamic banking during this year.
The week before, I attended a conference in Indonesia and I observed that Islamic finance has been growing there faster than in any other country. A recent report of Bank Indonesia showed that the Islamic banking industry has achieved 4.2 percent market share of the overall banking sector in Indonesia. The report also indicated that it is growing very fast at a rate of 35 to 40 percent per annum and is expected to capture 15%–20% market share of the total banking industry in the next ten years. [1]
On a global scale, as suggested by 2011 The World Islamic Banking Competitiveness Report, the assets of Islamic banks are expected to reach USD 1.1 trillion by the end of 2012. Indeed, it shows a tremendous growth of about 35% in comparison to USD 826bn in 2010. Islamic financial institutions are becoming major economic players in an increasing number of OIC member countries.
Excellencies,
The UK deserves credit for being the first Western country to have recognized the importance and potential of Islamic finance. Consequently there are more colleges and professional institutions offering education in Islamic finance in Britain than anywhere else in Europe. In addition, the United Kingdom has by far the largest number of Islamic banks as compared to any other Western country.
Excellencies,
Great Britain now houses five domestic Islamic financial institutions offering Islamic financial products and services and the City of London has established itself as the third largest market for Islamic finance after the Gulf Co-operation Council states and Malaysia. [2]
Indeed, the growth of Islamic finance in the UK has been helped by the UK Government which has removed double taxation on Islamic mortgages.
IDB’s cooperation with the United Kingdom in general and the City of London in particular is fairly broad. On the capital market side, IDB’s Medium Term Note Program amounting to USD 6.5 billion for Sukuk issuance is registered with the Financial Services Authority in the UK and listed in London Stock Exchange. Under this program, IDB has made several issuances in US Dollars as well as in Pound Sterling.
Excellencies,
One of the most important pillars of Islamic economics is an ethical and moral dimension. The lack of emphasis on such dimension in conventional economics has led to an excessive emphasis on the serving of self-interest and maximization of wealth and wants satisfaction. The effort to create a balance need not come as a surprise because even a number of Western scholars have been critical of this excess. The injection of an ethical and moral dimension into economics naturally makes it imperative to ensure greater justice in the financial system.
The effort to introduce greater justice has led to the introduction of risk-sharing in financial institutions. However, such an effort also has the effect of adding greater health and efficiency in the financial system. This is because the introduction of risk-sharing makes the banks more responsible and cautious in lending. In addition, the linking of growth in credit to the growth of the real sector removes the possibility of excessive credit expansion. Moreover, some speculative transactions which aggravate risk unnecessarily without adding any real value to the economy and are termed as gharar (deceptive risk) in Islamic fiqh are also prohibited in Islamic finance. This can help curb the extension of credit for speculative purposes. In addition, sale of debt is also prohibited in Islamic finance to ensure that the creditor evaluates the debt proposals carefully and does not pass on the risk to an unsuspecting third party. The ability to shift the risk of default to others by selling the debt leads to laxity in the evaluation of debt proposals and to excessive lending. The truth of these principles of Islamic finance became vindicated during the recent financial crisis when Islamic banks were generally more able to maintain their health and strength while other banks were more exposed to serious problems.
Excellencies,
Distinguished Ladies and Gentlemen,
Let me now shed some light on the Islamic Development Bank Group. The establishment of this Bank in 1975 was a reflection of the principles of Islamic finance. It was established in pursuance of the Declaration of Intent issued by the finance ministers of the OIC member countries, as an International Development Bank for the purpose of fostering economic development and social progress in member countries and Muslim communities in non-member countries in accordance with the principles of Islamic banking. It started its operations in 1975 with only 22 member countries. The number of its member countries has now reached 56. In addition to serving its member countries, IDB also cooperates with Muslim communities in non member countries where IDB focuses on the area of education aiming at enabling the Muslim community to be good citizens and to serve their society at large. One of the examples is the cooperation of IDB with the Muslim community in the UK.
Moreover, in the spirit of the Paris Declaration on Aid Effectiveness adopted by the international donor community and in demonstration of their shared values and commitment to reduce poverty, IDB and the UK Department for International Development (DFID) signed a Memorandum of Understanding in January 2009, setting the framework for future cooperation. IDB and DFID are working closely to reduce poverty, in particular through achieving the UN Millennium Development Goals (MDGs). The MoU has identified a number of priorities for joint action, including: health, education, food security, climate change, and water and sanitation as well as job creation, private sector development, statistical capacity building and development effectiveness. In this context, IDB is very pleased to be currently hosting a development effectiveness specialist from DFID, who is helping in designing an improved results framework, in order to better capture and measure the development impact of IDB's assistance. Although cooperation between IDB and DFID aims to target a wide range of geographical areas and countries in Africa, Middle East and Asia, a special attention is being given to fragile and conflict-affected states such as Somalia, Palestine, Afghanistan and Yemen.
It is also important to stress that the Bank is truly a south-south organization. It was established with the clear objective of enhancing solidarity among its member countries. The Bank has made substantial progress over the years and has been able to maintain its health and strength in spite of a number of global financial crises as a result of its adherence to the healthy principles of Islamic finance. The IDB has not only succeeded in proving its viability, but also achieved AAA ratings in the last ten years or so by all the three major international rating agencies: Standard and Poor's, Moody's, and Fitch, at a time when a number of leading financial institutions and advanced economies have been downgraded.
Allow me to give you an idea of the size and scope of the IDB, I am pleased to inform you that since its inception, the IDB Group has extended more than USD 81 billion of financing for the benefit of its member countries and Muslim communities in non member countries around the world. As a matter of fact, in the last financial year, the annual volume of operations financed by the IDB Group reached USD 8.3 billion. These operations covered project and trade financing in addition to numerous types of technical assistance and grant programs.
In order to address the changing and growing developmental needs of our member countries, the Islamic Development Bank has evolved into the IDB Group. The IDB Group now includes four main entities in addition to the Bank itself. These are: IRTI (The Islamic Research and Training Institute), ICIEC (The Islamic Corporation for Insurance of Investment and Export Credit), ICD (The Islamic Corporation for the Development of the Private Sector), and the ITFC (The International Islamic Trade Finance Corporation). In addition to these entities, the IDB Group has established and supervised several specialized funds and programs such as: The World Waqf Foundation (WWF), Awqaf Properties Investment Fund (APIF), and most recently, the Islamic Solidarity Fund for Development (ISFD) to focus on fighting poverty in our member countries.
The IDB is playing an important role in the development of the global Islamic financial architecture. In doing so, IDB has been a founding member of the Islamic Financial Services Board (IFSB) in Malaysia, the International Islamic Center for Reconciliation & Arbitration (IICRA) in UAE, and the following organizations located in Bahrain, namely the General Council for Islamic Banks and Financial Institutions (CIBAFI), the Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI), the International Islamic Financial Markets (IIFM), the Liquidity Management Center (LMC), and the International Islamic Rating Agency (IIRA).
Excellencies,
As reflected in the IDB motto “Together We Build a Better Future”, IDB really values partnership. It endeavors to enhance its scope of operations in all spheres of development through partnership with all agencies, organizations, and foundations that have similar development missions. IDB works closely with all UN agencies such as UNESCO, UNDP & WHO, and multilateral development agencies such as IMF, The World Bank, EBRD, OECD, ADB, AfDB, IADB & Arab Development Institutions as well as non-government organizations and donor countries which are interested in development in our member countries. In this context, I see great potential for cooperation between Britain and the IDB Group in different areas of development and humanitarian assistance in our member countries.
IDB partnerships include all entities in the society. In addition to working with such developmental partners, IDB has also been collaborating closely with academic and research institutions, especially through Scholarship Program to support promising students from member countries and Muslim communities in non member countries. More than 13,000 students have graduated from these different scholarship schemes and another 7,000 are currently pursuing their studies in different universities that include world renowned academic institutions like Oxford University, Cambridge University, UCL and Nottingham University.
Excellencies,
Distinguished Ladies and Gentlemen,
As emphasized yesterday during my participation in a roundtable discussion hosted by the Lord Mayor of London in the Mansion House in London, Islamic finance should focus on fostering inclusive economic development rather than focusing on short-term trade financing in order to strengthen its developmental impact. Inclusiveness in Islamic economics and finance can be achieved through various channels: Islamic banking, capital market product, micro insurance, Islamic microfinance institutions and ultimately the Islamic social sector institutions consisting of Zakat and Waqf institutions.
Another aspect that hampers the potential contribution of Islamic financial institutions in the economic development is the lack of proper liquidity management tools available in the market and this is one of the major challenges facing the industry. The IDB, in cooperation with the State of Qatar and Dallah Al Barakah Group, has taken an initiative on the establishment of a mega Islamic bank that performs its functions in financing large projects and providing variety of instruments that allow the Islamic banks to better manage their liquidity by acquiring these instruments whenever they have excess liquidity and liquidating them when needed.
Excellencies,
Last but not least, the development of human capital plays an essential role for the operational soundness and sustainability of the industry. For realizing the future desired success of the Islamic financial industry which is growing at an increasing pace, this growth should be matched with a similar increase in qualified and well-trained professionals who are capable of raising the competitiveness of the industry to the highest international standards.
I’m highly confident that the establishment of this Centre will boost the innovative research in the area of Islamic finance which will ultimately give benefit to the society to have a comprehensive knowledge in Islamic economics and finance.
May I once again summarize the major challenges facing the Islamic financial services industry and appeal to the scholars and students in this newly established centre to exert their utmost effort in their research and works. These are: (1) liquidity management or enhancing the capabilities of the Islamic financial services institutions to manage properly their liquidity; (2) training and development to qualify staffs and managers; (3) as the Islamic financial industry is still in its infancy in comparison to the conventional banking, there is a need of innovating and developing new instruments, products and modes of financing compatible with the Islamic finance principles. And at the same time suits the development and needs of our society.
Thank you for the invitation and I am looking forward to a very fruitful and productive interaction between this Centre and the Islamic Development Bank Group, especially with the Islamic Research and Training Institute.
[1] Speech by Dr Halim Alamsyah, Deputy Governor of Bank Indonesia, presented in the opening keynote session of the 2nd Annual World Islamic Banking Conference: Asia Summit, Singapore, 8–9 June 2011.
[2] Ercanbrack, Jonathan (2011). “ The Regulation of Islamic Finance in the United Kingdom”, Ecclesiastical Law Journal , 13 (1). pp. 69-77