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A bright future for Islamic Finance

By Tuesday November 4th, 2014 No Comments

At the 10th World Islamic Economic Forum (WIEF) in Dubai, the Editor-in-Chief of The National, Mohammed Al Otaiba, sat down with the prime minister of Malaysia, Najib Razak, for a wide-ranging interview. Among the subjects discussed were the current and future Islamic global economy and the roles of both the UAE and Malaysia within it. Mr Najib also provided an insight into the geopolitics and security of East Asia and the Middle East.

Mohammed Al Otaiba: If I could start with the forum itself, now in its 10th year. Why Dubai?

Najib Razak, PM of Malaysia: I think it’s a natural choice. Dubai is at the heart of the Middle East, and has aspirations to be a financial centre and economic centre, and Dubai is willing to be forthcoming with the logistical support. We are very pleased with all the arrangements that were made, and I think it has been a very successful WIEF in Dubai.

MAO: Sentiments were quite optimistic around the push for an Islamic global economy. Do you share those sentiments?

PM: I do. I think we have not fully realised the maximum potential of the Islamic economy. I think if you break it up into the different components – finance, banking, industry, waqaf and the insurance takaful and so forth – if you take all the various components, you can see we’re still quite a long way from really exploiting the full benefits of the Islamic economy.

MAO: In your view, what are the challenges that need to be focused on?

PM: A strong support from the political leadership to make things happen; institution building; human capital development; the shortage of expertise in many areas like Islamic finance, standardisation and regulatory framework; Sharia experts to make sure your products are Sharia-compliant … so we will have to address many challenges.

MAO: There was a lot of focus on standardisation. Is there a clear framework for the different countries to work together so that we end up with unified standards?

PM: We’re moving in that direction. Some of the ideas, some of the thinking expressed at WIEF has to be followed through. There must be a general commitment and understanding amongst Muslim countries to rise above politics and to implement policies and programmes that can benefit the entire Muslim world. And bridges must be built with the non-Muslim world. You want Islamic finance to have traction outside the Muslim world as well.

MAO: We see three main hubs – in Malaysia, here in Dubai, and London – all pushing to be hubs of the Islamic economy. Are we competing for the same market? Is there room for each?

PM: I think there’s room because if you’re looking in terms of the growth of Islamic banking, in Malaysia it is double digit and is more than twice that of conventional banking. You’re talking about a burgeoning global market. We’re not competing for the crumbs, we’re competing for a bigger share of a bigger business pie. So I see it more as that we can complement each other, although there are times when we have to compete – but that’s the order of the day, anyway, in today’s world.

MAO: So there’s an appetite for these products …

PM: There’s a huge appetite for it, and that’s why WIEF had so much traction in London last year. The mayor, Boris Johnson, got very excited about it – although it is not difficult to get him excited about anything. And you have David Cameron, who has lent his political capital to it. They see value in hosting the WIEF and the results of such an initiative.

MAO: Where do you see the role of education in further pushing this forward?

PM: Education is central. We see a shortage of highly skilled expertise in Islamic finance and Islamic banking. That’s why Malaysia is considered a leader because not only can we produce the entire plethora of Islamic products but we also have the institutions that provide training. For example, INCEIF [the International Centre for Education in Islamic Finance], which is a globally-recognised training institution run by the Central Bank, provides that kind of opportunity to train expertise in Islamic finance.

MAO: There’s a lot, then, that Dubai can learn from the Malaysian experience in terms of Islamic products, or ensuring there is the infrastructure for education?

PM: Yes, and there’s a lot we can learn from Dubai, too, because Dubai has aspirations in certain areas.

MAO: What about the role of small businesses – entrepreneurship – and women?

PM: The vast majority of our enterprises in Malaysia – in most countries – are SMEs, so if you talk in terms of creating business opportunities then you have to focus on SMEs at two levels. One, you must provide start-up capital so that people can enter into business and find that they have the support and help, not only financially, but also technical help. Then, you need to make them grow. How do they double or even triple, and how do they penetrate the export market? So you need to have the support in place so that SMEs will contribute a larger share of the GDP.

We have a master plan in Malaysia for the development of SMEs, and we hope by 2020 they will achieve about 41 per cent of GDP from the current level. [The current level is 34-35 per cent].

MAO: Looking at Malaysia-UAE relations, there’s a lot of investments going both ways. Is there something you can tell us about the Iskandar Regional Development (Authority) and Abu Dhabi’s role and investment in this project?

PM: Well, they were the first to invest in Iskandar and they have got a very good return on investment, I believe in the region of about 47 per cent.

There are also discussions going on for the UAE to get involved in the Tun Razak Exchange, which is our new financial centre. There are also some discussions on Bandar Malaysia, which is a huge real estate development at the heart of Malaysia. So the opportunities are quite exciting.

MAO: Malaysia is a multi-ethnic, pluralistic country with a large – about 25 per cent – Chinese population. What is the Malaysian prescription for social and economic harmony?

PM: It’s having the philosophy of give and take. What our forefathers did was to put in place policies that are inclusive and considered generally fair to all ethnic communities. So you put into place, first of all, a constitution based on the “social contract” between the various major ethnic groups, and you have subsequent policies that are well accepted across the board and inclusive in nature. The key is to ensure a right balance. Balance between ethnic groups, balance between urban and rural, balance between development and environment.

MAO: A different topic: radical Islamism. There is an issue – a problem – out there. Can you outline how you see the form of Islam as advocated by Malaysia, helping stem the ideology of Islamists in the Middle East, South Asia, South East Asia?

PM: The practice of Islam in Malaysia has never been associated with extremism nor with violence. When Islam came to our part of the world it was a peaceful conversion and we’ve been able to practise the model of Islam that is based on the true principles and tenets of Islam. Islam is inherently a religion of peace and we’ve been able to do so in Malaysia and the principle of Wasatiyyah [moderation], which is being moderate and and advocating excellence as well. It doesn’t mean that being moderate means mediocrity, no. Being moderate doesn’t mean you are a wimp, no. It means you are acting on the basis of what is fair. In other words, social justice is important. Marginalisation, generally speaking, leads to radicalisation, so if you make sure your policies do not marginalise any groups within the country, then you minimise the chances of radicalisation. Then the teaching of Islam, too, in our schools, formally and informally … you must make sure there are no preachers who twist the true meaning of Islam. For example, jihad. What does jihad mean? And in what context can you take another person’s life? These all must be truly understood, by Muslims in Malaysia and everywhere so that they will then realise they can make a choice between taking the path of extremism or the true path of Islam.

MAO: There have been reports of some Malaysians going to fight in Syria. How many, do you know, have travelled to Syria? How do you monitor potential recruits? And again, how do you attempt to stem that flow?

PM: We have laws in place to deal with it and those who have decided to become foreign fighters in Syria and in Iraq, they have been arrested under the law and it goes before a judge. If you are deemed to be a freedom fighter in a sense that you are taking up arms, then you are breaking the law, and you can be charged. So this is the path that we have taken and we are in the midst of strengthening it to make sure it doesn’t apply only in the country but overseas as well.

MAO: Just going back to the current forum. London, Dubai, Kuala Lumpur, are currently the top three centres for sukuk listing. Which do you think will be on top in 10 years?

PM: Malaysia is the leader now with more than 60 per cent of sukuks [issued]. I could imagine Malaysia continuing to be the leader, but we do need to realise that there are new centres developing and there will be competition. But if you keep on improving and building up your expertise and your capacity, I’m sure Malaysia will continue to be the leader.

MAO: What are your thoughts on the Middle East at the moment?

PM: The Muslim world is a divided world, that’s my concern. We need to resolve two problems: one is the rather sharp division between the Sunni and Shia, which is tearing the Muslim world apart. Secondly, the emergence of new forms of extremism, which is of great concern to the Muslim world and also outside the Muslim world. Then thirdly, there is the ongoing problem of the Palestinian issue. One has to find a long-term solution to the plight of the Palestinian people; they’ve suffered for so long. So I think these are the three challenges for the Muslim world. Then there is the whole problem of underdevelopment and underachieving in the Muslim world, which needs to be addressed.

MAO: So addressing this – it’s not a political solution, it’s more of a development solution. What would come first?

PM: I think they go hand in hand. If we talk about fighting extremism – radicalisation – then there cannot be just a military solution. It has to be economic and social – and also a deeper understanding of Islam.

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