Developing World Class Human Capital in Islamic Finance

By Syed Othman Alhabshi

Deputy President, AcademicINCEIF

Agenda

• Introduction: The Islamic Finance Ecosystem

• The Fast Changing World of Finance

• The state of current human talent in IF

• What should be the content of IF education?

• Learning plus industry experience

• Knowledge input

• Industry input

• Conclusion

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Introduction: The Islamic FinanceEcosystem

• Since the last decade, Islamic Finance (IF) has seen unparalleled growth in terms of industry size and value.

• Table I gives some statistics on asset size, number of IF institutions and number of Shariah Scholars by country

• According to E&Y World Islamic Banking Competitive Report 2014/15, the Global Islamic Banking assets witnessed a compounded annual growth rate (CAGR) of around 17% from 2009 – 2013.

• Islamic banking assets in six core markets Qatar, Indonesia, Saudi Arabia, Malaysia, UAE, Turkey on course to touch US$1.8 trillion by 2019.

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COUNTRY IF ASSETS ($million) IF INSTITUTIONS SHARIAH SCHOLARS

MALAYSIA 411,512 92 47

SAUDI ARABIA 269,736 113 40

IRAN 185,323 44 NA

UAE 118,446 77 28

KUWAIT 81,455 101 39

QATAR 71,062 37 21

BAHRAIN 47,246 55 53

TURKEY 37,665 4 NA

INDONESIA 33,155 73 9

BANGLADESH 17,503 23 18

PAKISTAN 13,569 62 21

EGYPT 12,306 30 11

SUDAN 8,012 45 6

JORDAN 5,463 11 9

TABLE I: IF ASSETS, INSTITUTIONS, SHARIAH SCHOLARS BY COUNTRY

Introduction (Cont’d)

• Islamic banks in Saudi Arabia, Kuwait and Bahrain represent more than 48.9%, 44.6% and 27.7% market share respectively

• Positive progress has been has made in Indonesia, Turkey and Pakistan, with 43.5%, 18.7% and 22.0% CAGR respectively from 2009-2013.

• International Islamic banking assets with commercial banks set to exceed US$778b in 2014

• The global profit pool of Islamic banks is set to triple by 2019.

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Introduction (Cont’d)

• EY’s latest report, Global Takaful Insights 2014, forecasts a continued double-digit growth momentum of the global Takaful market of approximately 14 percent from 2013 to 2016 and expects the industry to reach $20 billion by 2017.

• The Gulf Cooperation Council (GCC) countries and Association of Southeast Asian Nations (ASEAN) markets are likely to maintain their current growth path in the next five years, subject to their economic growth.

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Introduction (Cont’d)

• Saudi Arabia will likely remain the core market of

Islamic insurance business, commanding

approximately half (48 percent) of the global

contributions.

• With strong competition from conventional

incumbents, Takaful operators are likely to continue

their struggle in the medium term, although some

will look at alternative customer segments and

explore merger options.

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The Fast Changing World of Finance

New Competitors Basel 3 RegulationASEAN

Regional Integration

Lower MarginsSearch for Growth

All senior IF professionals must master the tools to deliver value creation and

risk control

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The state of current human talent in Islamic Finance

• Like any other discipline, Islamic Finance is industry and knowledge based because it is a service industry

• Being knowledge based, it is important to identify what sort of knowledge we need to provide to the students. Generally, there is need to have Shariah that is applied to Finance

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The state of current human talent in Islamic Finance

• IF is inclusive of economics, banking, takaful, wealth management, corporate finance, capital market

• There is need to go back to basics

• Skills

• Competencies

• Ethics

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The state of current human talent inIslamic Finance (Cont’d)

• What kind of staff are currently serving the IF sector?

–Most of the staff are with experience from either Islamic or conventional institution

–Very few are fresh graduates

–Most of the fresh graduates are in the area of Shariah in the Shariah department

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The state of current human talent inIslamic Finance (Cont’d)

• What are the prevailing problems?

– Lack of Shariah knowledge

– Front liners cannot provide answers related to Shariah

– Appreciation for Shariah is very low even among top management and Board members

– Can lead to moral and ethical problems

– Brand reputation at risk

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What should be the Content of IF Education?

• For a Diploma with 90 credit hours of courses, I would suggest – 30% theory related to finance (lectures, cases, debates,

projects)

– 20%Shariah (as above)

– 20% Practice (either in industry or in university)

– 10%Other skills (soft skills, including ethics)

– 20%Other general courses

We need to give them sufficient practice or practical experience

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What should be the Content of IF Education?

• Given the present scenario, I would suggest at the undergraduate level,

– 30% theory related to finance (lectures, cases, debates, projects)

– 20% Shariah (as above)

– 10% Practice (either in industry or in university)

– 10% Other skills (soft skills, including ethics)

– 30% Other general courses

The above would give the IF part 60% and 40% other university courses. The need for Shariah cannot be under estimated. So are the practice and the other skills.

The Practice can also assist in exposing students to the knowledge part15

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What should be the Content of IF Education?

• For Masters or equivalent, I suggest– 30% knowledge of finance

– 30% Shariah

– 20% Practice (Cases, Projects, Industry visits and Internship)

– Soft Skills including ethics, leadership

– 10% Research (to practice report writing, paper presentation, letter writing, etc)

It is necessary to emphasize on Shariah, Practice and Soft skills which are normally ignored.

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Learning Plus Industry Experience

• To provide relevant and up to date industry experience– Appoint capable industry personnel to be teaching staff

– Have team teaching

– Industry talks

– Industry visits

– Academics to spend time in industry

The key to the success of this programme is to get industry people to accept responsibility and increase commitment to help train students

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Knowledge Input

• Islamic Finance would cover

– Shariah

– Islamic Economics

– Islamic Banking

– Takaful

– Islamic Wealth Management

– Islamic Capital Market

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Knowledge Input

• Soft Skills

• Ethics

• Leadership

• Entrepreneurship

• Team Work

• Writing and Presentation skills

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Industry Input

• Practical Exposure

• Case Studies

• Study visits

• Mingling with CEOs and Senior Management

• Key functions of the Financial Institutions

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Conclusion

• The most important ingredient is the input from the industry.

• Industry must demonstrate the commitment to participate in the nurturing of the human talent that they will require

• The Shariah knowledge will be paramount

• I like to see the close collaboration between Academia and Industry

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Conclusion (Cont’d)

• What have been presented is only for the professionals who will be functioning as executives and managers

• To lead the industry of the future, we need those with more advanced knowledge in Shariah plus strong leadership and entrepreneurship skills.

• For this, academic rigour is also important

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THANK YOU