Manama - MENA Herald: Thomson Reuters, the world's leading provider of intelligent information for businesses and professionals, in partnership with the Dubai Islamic Economy Development Centre (DIEDC), and in collaboration with National Bonds Corporation (NBC), the leading sharia-compliant savings and investment Company in the UAE, present the key findings from the Innovation in Islamic Liquidity Management 2017 report. The key findings have been released exclusively in the 23rd Annual World Islamic Banking Conference (WIBC 2016) in Bahrain, in the presence of key market players and professionals.
Although the Islamic finance industry is still small relative to the global financial industry, it is on pace to grow from total assets of $2 trillion at the end of 2015 to an estimated $3.5 trillion by 2021. This 60% growth in assets in five years will be all the more significant in a slow global growth environment, while facing challenges associated with Basel III implementation characteristic of the post-crisis environment. These regulations impact many aspects of banking, which accounts for three-quarters of Islamic finance assets, but they particularly complicate Islamic liquidity management.
According to Innovation in Islamic Liquidity Management 2017 report, few instruments have been able to meet both the industry’s needs and its stakeholders’ full expectations. As a result, Islamic banks in the GCC today hold 9% of their assets in cash and equivalents and 10% in placements with other financial institutions. This is estimated to be approximately $100 billion. Currently, Islamic banks place liquid funds in short-term instruments such as commodity murabaha that Shariah rules have deemed non-tradable on secondary markets because of bans on trading receivables. Moreover, stakeholders typically view these inflexible instruments as artificial replications of interest-based transactions. Shariah scholars have allowed commodity murabaha to be used as a temporary solution in limited contexts where no other instruments could be developed.
Islamic personal financing also faces a similar perception problem. These liquidity management products receive even more acute criticism when they are used to structure unsecured personal financing (such as credit cards). Yet the need for financing products that are flexible enough to meet consumers’ demands continues to rise. Today, in most markets in the GCC, personal financing represents a quarter or more of the total assets in the banking system.
The report also highlights new strategies to meet the liquidity management and personal financing needs of Islamic banks and Islamic windows at conventional banks are being developed. These products—including the National Bonds’ Sukuk Trading Platform—address both the operational needs of Islamic banks and preferences of their customers and external stakeholders. The National Bonds Sukuk Trading Platform uses assets in the local economy to structure Shariah-compliant consumer financing. Its structure segregates the component transactions, which occur on a bilateral basis by the different parties, at different times, with no conditionality. It also provides this service with lower transaction costs than some of the alternatives in the market.
Mohammed Qasim Al-Ali, CEO of National Bonds, said: “The UAE, and specifically Dubai, has become one of the most active financial hubs globally. In the context of Dubai’s drive to establish itself as a capital of Islamic economy, it is necessary that financial transactions align with Islamic values to ensure a sustainable and lasting economic and social impact.”
He added: “Preserving the financial sector is vital to shaping a stable national economy. In order to achieve this, we need to keep innovating new products & services that bridge the gaps in existing liquidity management platforms and to comply with sharia standards related to funding individuals and companies.
“Our online trading platform, which is available 24/7, offers our customers a modern and simple approach to access finance that is 100% sharia-compliant. Through this project, launched in cooperation with a number of Islamic financial institutions in the UAE as an innovative partnership between banks, customers and National Bonds, we seek to enhance the efficiency of liquidity management tools via locally introduced solutions that eventually support the local economy
Nadim Najjar, Managing Director, Middle East and North Africa, Thomson Reuters said, “The lack of Islamic liquidity management instruments has been a challenge in modern Islamic banking throughout its 40-year history. The report, Innovation in Islamic Liquidity Management 2017, discusses the key challenges facing liquidity management in Islamic finance and highlights some of the current existing solutions to overcome these issues. It is a highly engaging and dynamic study that inspires and excites Islamic finance stakeholders and professionals to assess the current liquidity management landscape and challenges”