Spark’s Post

FINANCIAL INNOVATION IN ISLAMIC BANKING Over the weekend, I talked about the evolving landscape of Islamic banking in a virtual training attended by over 200 HQ and branch management staff of Public Bank Berhad and Public Islamic Bank Berhad. I shared four key strategies that ought to shape the direction of financial innovation in Islamic banking in the coming years: 1️⃣ Embracing purpose-driven banking 🪴 🌍 Instead of “reinventing the wheel” of traditional banking, Islamic banks need to stick to their “north star” of promoting social justice (’adl) and well-being (ihsan), as intended by Shariah itself, acting as a centre of gravity directing their innovation efforts. Solving the socioeconomic needs of communities is not an entirely new shift (i.e., from halal to tayyib), but rather it has always been the DNA of Islamic finance, taking examples of classical innovations, e.g., Tabung Haji and Mit Ghamr savings projects. Moving forward, product development should not solely focus on the permissibility of underlying contracts but should also be able to foresee and measure the impact the product will have on both people and the planet. 2️⃣ Exploring alternative finance ⚖️ 🤝🏻 Despite regulatory and capital constraints, Islamic banks should not shy away from attempts to widen their footprints and partnerships in alternative finance, including non-debt-based solutions such as venture capital, private equity, and equity crowdfunding. In the past, debts have been made easy and cheap, leading to growing indebtedness, which could deepen existing disparities in society, and Islamic banks should deviate from this practice. 3️⃣ Mainstreaming Islamic philanthropy 💰 This approach involves integrating zakat, waqf, and sadaqah into existing banking products and services. I call for a bolder effort to elevate Islamic philanthropy beyond serving as a funding escalator for business ventures to being a risk absorber to crowd in private investments to fund large-scale projects (e.g., through blended finance) that address more urgent societal challenges. 4️⃣ Leveraging financial technology for financial inclusion 🦾 🤖 In the age of digital banking, incumbent Islamic banks should harness their technological advantage to expand access to formal financial services, especially among underserved populations, and enhance their financial literacy levels instead of creating complex and intricate instruments. #IslamicFinance #FinancialInnovation #IslamicBanking #AlternativeFinance #IslamicPhilanthropy #FinancialTechnology #FinancialInclusion #SustainableFinance

Another insightful discussion yesterday with Prof Tariqullah Khan, who posed a compelling question to the audience: "What is your vision for Islamic Banking?" Here are some visionary perspectives from astute Islamic bankers: Responsible Banking: Prioritizing ethical and socially responsible practices in banking operations. Blended Financing: Leveraging innovative financing models to address diverse financial needs. Toyyib Score: Emphasizing quality and ethical standards in financial products and services. Integrated Reporting: Providing transparent and comprehensive reporting on financial and non-financial performance. Sustainability Champs: Leading the charge in promoting sustainable development and environmental stewardship. Shumuliyyah (Comprehensiveness): Adopting a holistic approach to banking that considers social, economic, and environmental impacts. As the global economy continues to evolve, Islamic banking has a crucial role to play in unlocking new opportunities and addressing real economic challenges. What's your vision for the future of Islamic banking? Share your thoughts and let's continue the conversation! 💬🌍 #IslamicBanking #FinanceVisionaries #SustainableFinance

Hopes high for Egypt’s shariah-compliant index Mohamed al-Beltagy, chairman of the Egyptian Association for Islamic Finance, who reviewed the index, said he expected it to attract investors to enter the market, particularly from the Gulf where “one of the main priorities for investors” is for investments on offer to be “in accordance with the shariah”. Beltagy said that the EGX had been missing out on business from those who would not enter the market at all without assurances of shariah compliance. “I often have people asking me how they can invest in the market in a way that adheres to Islamic shariah,” he said. The EGX33 said that its initial companies were selected from the EGX100. Outlining the broad requirements for listing, the EGX33 said the ratio of a company’s interest-bearing investments and loans must not exceed 33 percent of its total assets or market value and its liquid assets must not make up more than 70 percent of its total assets. It also stipulated that income generated from interest and “activities incompatible to the shariah” should not be greater than 10 percent of a company’s revenues. The ratio is double the standard 5 percent ceiling usually used by shariah-compliant indices, according to Anwar Misbah Soubra, an assistant professor in Islamic Banking at Beirut Islamic University and a shariah-compliant banking consultant. It makes the EGX33 one of the less strict shariah indices on the market. The rules also allow for non-EGX100 listed companies to join the index, providing they have a shariah supervisory board. Beltagy said that many other companies had expressed interest in joining, and the new index was likely to put pressure on existing firms to improve shariah compliance. Beltagy said he believed that figure has since grown to EGP800 billion, with a growth rate of around 22 percent per year. He believes the new index will add to the momentum and help the sector to grow further. “I expect that the Islamic banking and lending sector will reach EGP1 trillion by the end of the year, God willing,” he said #Eifa #Egypt

Global Islamic Finance Summit 2024: Leading Islamic financial institutions gather https://lnkd.in/euCFjHQr #BankingAndFinanceNews Please Repost

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In a world where Islamic finance is gaining traction, a question arises: Why does it use conventional benchmarks for pricing its transactions? Isn’t this against the principles and objectives of Shariah? This question has sparked a debate among supporters of Islamic finance. They argue that using interest-based benchmarks creates confusion, distrust, and inconsistency in the Islamic financial system. They are calling for a more customized benchmark that aligns with the unique requirements and values of Islamic finance. But is it feasible to develop such a benchmark? What are the challenges and benefits of doing so? Some argue that while the majority of Shariah scholars and standards allow the use of conventional benchmarks for pricing Islamic transactions, it is not preferable. They recommend exploring options for developing benchmarks based on Islamic banking markets or linked to some real economic parameter, aligning with the objectives of Shariah. It is also important to understand customer perception for the growth and acceptance of Islamic finance. Some argue many customers may perceive it negatively when Islamic banks use conventional benchmarks. This perception creates a hurdle in spreading the share of Islamic finance. Some recommend introducing a new benchmark that could remove this confusion, create a positive image, and differentiate Islamic financial products. Focuses needs to be there also on how market dynamics and competition will affect how much the Islamic benchmark will differ from conventional benchmarks. The difference will depend on factors such as the market share of Islamic banks, the activity of the Islamic interbank market, and linkage to economic factors. Some believe that developing an Islamic pricing benchmark merits serious efforts. It requires collaboration and transparency among stakeholders. They are confident that the development of an Islamic benchmark will not only foster confidence and trust in customers but also fuel the growth of Islamic finance. P.S. What’s your take on an Islamic pricing benchmark? Do you agree or disagree with the authors? Share your thoughts below. Islamic finance: Time for a change. Don’t be left behind! Visit FinFormed and start growing! #islamicfinance #islamicbanking

Bahrain secured a ranking 1st globally in Islamic Finance Regulations in this year’s edition of the ICD-LSEG Islamic Finance Development Report, cementing the island nation’s standing as a leading pioneer in Islamic financial regulation on an international level. With noticeable growth across the Middle East, the report additionally determined a surge in the practice of sustainable finance at Islamic banks, which has led to the development of new frameworks covering ESG and sustainable investments. The report outlined fintech, digital banking, and artificial intelligence (AI) as some of the key emerging trends, which resulted in pivotal impacts on the development of Islamic banking in the decade leading up to 2022. In addition to being recognised as a country where new digital banks were opening amongst leading countries across Asia, the Middle East, and Europe; Bahrain earned high rankings across key criteria. Read the full article in the link below: https://lnkd.in/d6XQXs_J #gulfnews #ProPartnergroup #uaebusiness #uae #business #bahrain #bahrainbusiness #economy #finance #technology #fintech #financialtechnology #financetech #investments #digitalbanking #ai #artificialintelligence #financetrends

"Islamic Finance in the Modern Era: Digitalization, FinTech, and Social Finance" by Prof. Dr. Hussain Mohi-ud-Din Qadri and Prof. Dr. M. Ishaq Bhatti This book focuses on recent developments in financial technology: specifically, how FinTech affects the Islamic finance industry. It examines the challenges of Shariah compliance and explores opportunities for riba-free finance. The book describes contemporary FinTech solutions, investigating their relation to Islamic financial institutions. It outlines the current status of Islamic FinTech, arguing that it can provide Shariah-compliant innovative financial services to bridge the gap and compete with or complement conventional finance. Islamic FinTech can play a transformational role in making Islamic finance more accessible to a wide range of audiences and can also support the SME sector, which has been significantly impacted by the fallout of the COVID-19 pandemic. First, the book addresses thematic issues in Islamic finance, including its role in poverty eradication, elevating SMEs, and the Islamic digital economy. Second, it examines Shariah-compliant instruments in Islamic finance. The final part encompasses the risk profile of Islamic finance products and explores mitigation strategies. The book simultaneously presents theories, practice, and key issues, introducing new ideas and perspectives to the Islamic banking and financial community. The primary audience for the book will be researchers and scholars of Islamic economics and finance, and it will also appeal to practitioners and regulatory bodies. https://lnkd.in/gHsAb_af #ProfDrHussainQadri #IslamicFinance #FinTech #DigitalFinance #ShariahCompliance #IslamicEconomics #RibaFreeFinance #IslamicFinTech #SMEFinance #SocialFinance #IslamicBanking #COVID19Recovery #DrHussainQadri #IslamicFinanceInnovation #FinancialTechnology #IslamicFinanceResearch

In his latest article for Disruption Banking, Richardson Chinonyerem makes some compelling arguments about why #Islamicfinance is set to grow. Find out more: A 2024 report hints that the Islamic finance market is expected to grow at a compound annual growth rate (CAGR) of greater than 10% during the forecast period from 2024 to 2029. One big reason for this expansion is that Islamic finance is based on #ethicalinvesting.  https://lnkd.in/egZy5b-F

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