Dubai to open Islamic corporate governance centre in 2014

The Dubai government has announced plans to open an Islamic corporate governance centre next year.

The centre will develop standards for corporate governance based on Islamic values and will provide guidance for companies in both financial and non-financial activities.

The move is part of the UAE’s plan to become a hub for Islamic business in a wide variety of areas ranging from banking and insurance to tourism and education.

The governance standards will not be compulsory for firms, but the centre will issue Sharia-compliance certificates to those companies that meet the requirements, according to Ali Ibrahim, the deputy director for planning and development at Dubai’s Department of Economic Development.

Ibrahim added that the standards would cover issues including corporate transparency and disclosure. He also indicated that certificates would not be issued for individual products.

Demand for the corporate governance centre’s services will primarily come from firms within the UAE but over time is expected to appeal to companies from further afield.

Ibrahim said: “The model will hopefully be universal and applicable to any company wishing to benefit from the standards.”

The centre will be opened in the second quarter of next year.

Emerging market pension funds ready for Sharia-compliance

Global demand for Sharia-compliant pension funds could reach $190bn, according to the Global Islamic Banking Centre at Ernst and Young (EY).

Ashar Nazim, partner at Global Islamic Banking, EY, speaking to Gulf News, said that emerging markets such as Saudi Arabia, the UAE and Malaysia are seeing increased demand for retirement plans that are Sharia compliant.

The maturity of the sukuk market and Sharia-compliant equity indexes mean that there are sufficient assets available for many pension funds to begin their Sharia-compliant proposals, he added.

Within the GCC member states, the mainstreaming of Islamic finance means that there will be a boost to demand for pension funds to be inclusive and offer Sharia-compliant retirement alternatives.

Nazim said: “This is, however, the beginning of a long journey. It begs the question whether we have the criteria in place, and the structures and tools to enable the effective management of this emerging asset class. We believe there will be a gradual evolution over the next 18 to 36 months.”

According to Nazim, the challenges facing the shift towards Islamic pension funds include, operational changes, legal and regulatory issues and customer focus.

UAE plans to set up Islamic Finance Authority

The United Arab Emirates are looking to centralise the supervision of Islamic Finance by creating an independent authority backed by legislation, according to the central bank governor.

Sultan Nasser al-Suweidi, governor of the Central Bank of the UAE, announced that the new authority will be in charge of overseeing and supervising the country’s Islamic finance industry.

Across the globe a more centralised approach to the supervision of Islamic finance is becoming increasingly prevalent.

Speaking to Reuters, Suweidi said: “We will have a sharia authority or a board that will be outside the central bank.

“There is a law that is going to be out. I will not give a time frame but normally those take one year, one year and a half in the UAE,” he said.

The authority will be backed by legislation which is currently being developed by the UAE government, a move which will give the authority an enhanced ability to influence industry practices.

Traditionally, individual banks and financial institutions in the Gulf have used their own sharia boards to enforce Islamic finance regulation. A Sharia board comprises of a group of scholars who decide whether particular financial instruments or activities are religiously permissible.

The problem with having individual firms ruling on what is or is not Sharia compliant is that often decisions can be inconsistent and can leave scholars open to suggestions of conflict of interest.

In the past couple of months, countries including the likes of Oman, Pakistan, Morocco and Nigeria, have all followed Malaysia in introducing a centralised Sharia board.

DIFC boss plans Islamic finance expansion

DIFC chief executive Jeff Singer is fully behind plans to turn Dubai into a hub of Islamic finance, as well as making it the base for increasing numbers of home grown investment managers

By James Brockett

The DIFC expects to attract significant numbers of Islamic financial firms as part of the next stage of its growth, as the authority backs efforts to turn Dubai into an Islamic financial hub, DIFC chief executive Jeff Singer has told Mena FM.

Dubai’s ruler Sheikh Mohammed bin Rashid al Maktoum recently launched the Islamic Economic Strategy, which envisages Dubai becoming the ‘capital of the Islamic economy’ within three years. Three of the DIFC’s board members are serving on the committee for the initiative, and Singer said that Dubai and the DIFC have “all the ingredients” to develop into a multi-faceted hub for Islamic finance.

“At a time when the world’s Islamic population is projected to grow by 35 per cent by 2030, the Islamic finance industry is definitely at a turning point,” said Singer. “Islamic Finance currently accounts for approximately 1.5 per cent of total assets worldwide and has demonstrated one of the fastest global growth rates of between 15 and 20 per cent a year. With the market expected to double to $2.5 trillion by 2017, it clearly has immense potential.”

Of the 318 DFSA authorised firms, currently there are 23 engaged in Islamic finance, a number which Singer expects to see rise rapidly.

“Even though the UAE is a leader in Sharia compliant financial bonds, there are a host of other products which are available in other Islamic hubs which are less developed in the UAE,” continued Singer. “These include wealth management, retirement and healthcare financing, and debt financing for households. This is certainly a pipeline that we expect will strengthen further as we see the UAE and the DIFC evolve into an Islamic Finance hub.”

Rather than having a Central Sharia Board, the freezone’s regulator, the DFSA, requires firms to nominate their own Sharia supervisory Board and make appropriate disclosures to clients. Singer said this provides “optimum flexibility” for firms to either operate as a fully Islamic institution or offer products through an Islamic window.

The DIFC recently reached 1,000 companies in total, a figure which already includes 7% growth this year, and Singer said its aim is to double the total to 2,000 in the next five years. In the fund industry, there are 62 DIFC-based firms marketing a total of 1,524 funds to investors, while another 72 companies manage assets from the DIFC. He said that as the ‘home grown’ financial services industry matures, there was no doubt that investment management was an “important segment of growth” for the DIFC.

“What we are seeing is early stage recognition of the potential to leverage the business friendly environment of the DIFC to produce locally domiciled products for investments into the region,” said Singer. “In addition, it’s a way of making investments made overseas work twice – so still diversifying into overseas markets, but with the assets booked regionally and contributing to the local economies.”

He said that investment firms were now realising the “naturally compelling logic” of having more expertise based in the geographical zone to match the level of service demanded by investors; the MSCI upgrade of the UAE could be a further catalyst.  “We see great opportunities for growth in this area as regional capital markets develop and competition drives the need for portfolio managers and strategists to be based here,” he concluded.