footprint⦠c. USD 300 trillion. Global Financial Assets. USD 45 trillion. Assets â Principles of Responsible. Invest
Transforming Islamic finance from niche to mainstream industry
Noor ur Rahman Abid
AAOIFI International Conference Al-Madinah Al-Munawwarah, May 2016
Perspective
1 The situation today 2 Why is going mainstream so critical? 3 Key recommendations
4 Future ambition - the 2021 view
There is tremendous potential for Islamic finance to build its global footprint…
40 years contemporary history 4 countries with more than 30% share of banking system market Includes documented and semi documented sectors
c. USD 300 trillion USD 45 trillion
Global Financial Assets
Assets – Principles of Responsible Investing (UN)
USD 3 trillion
Global Islamic Financial Assets
Retail/commercial banking is the biggest segment within Islamic finance… others like Awqaf, pensions, and HNW wealth are less documented
Source: Thomson Reuters
There is significant concentration of Islamic assets in three markets: Malaysia, Saudi Arabia and Iran constitute 65% of global Islamic assets
Source: ICD Thomson Reuters Islamic Finance Indicator 2015
Achieving our true growth potential requires clarity in terms of purpose… with a view to meet the critical needs of the market
Financial Inclusion
2.5 billion people globally currently do not have bank accounts (Indonesia 64% population without bank account; Egypt 85%; Pakistan 87%)
Sustainable Economic Growth
40% of population across OIC markets below poverty line Globally, Socially Responsible Investments (SRI) growing fast… targeting sustainable, long term, premium shareholder returns
Jobs & Entrepreneurship
1 billion youths across OIC markets alone 200 million micro, small and medium size businesses globally have unmet financing needs
A candid view of where we are today…
What’s gone well…
…and what still needs to happen
1
Formation of financial capital and knowledge communities
1
Clarity on purpose of existence and impact being made
2
Driven by grass-root demand
2
Innovation - future banking model (specially for emerging markets)
3
Reasonably good level of international acceptability
3
Transitioning from start-up to a growth play (institution building)
4
Regulatory basics in place
4
Replicating success of core markets across OIC and globally
Nine core markets are the international growth engine of Islamic banking industry… with some 40 retail banks considered systemically important Share of Retail/Commercial Banking Market KSA
51%
Malaysia
21%
UAE
22%
Kuwait
45%
Qatar Turkey Indonesia
26% 6% 4%
Bahrain Pakistan
29% 10%
Quality of growth requires serious attention. An estimated USD 500 billion of Shari’a compliant funds are brokered to conventional system through interbank and money market transactions
In 2015, combined profits of Islamic banks in core markets crossed USD 13 billion… and is well positioned to triple by 2021
Islamic banks have the financial strength to drive the future regionalization of the industry
USD 13b 2015
USD 38b 2021
22 Islamic Banks
USD 1b+ Equity
But ‘market share growth’ in many of the core markets appear to be slowing down and is a concern…
This is because while Islamic retail & commercial banks have made good progress, the journey on remaining (8) segments is still just beginning… TRADE
BANKING
9
INFRASTRUCTURE
1
TAKAFUL
8
7 AWQAF
2
Completing the finance circle needs to be a priority 6 5
PENSIONS
3
CAPITAL MKT
4 SMALL FINANCE & SAVINGS
WEALTH MGMT
Looking forward… (3) supply side recommendations
Seed, incubate and build out the remaining eight segments as priority. This requires national champions Complete the financial financial circle
Create (10) super super regional retail retail banks
Today, the industry has less than 100 million customers. Think Big. Of the 22 large Islamic banks, at least 10 should build multi-market franchises to facilitate cross border flow of financial and intellectual capital
Establish fintech
To stay relevant, embrace and build Sharia-friendly fintech ecosystem Supply Side
Looking forward… (3) demand side recommendations
Re-branding & communication
Invest preferentially in digital channels and collaborative organization models
Build focus on principles underlying Islamic finance (and its alignment with Principles of Responsible Investing)
Innovative outreach
Youths & SMEs segments
Demand Side
Build best-in-class leadership position in start-up and SME segments
(3) Infrastructure strengthening recommendations
KSA, Indonesia and Turkey to develop joint strategy to lobby Islamic finance on G20 forum
Build influential access to international forums like AIIB, World Bank, IMF, Basel, WEF, etc. G-20 & international forums
Fundamentally re-position the critical standard setting bodies to meet future of finance…
Challenge and re-configure board and C-suite leadership for the next era
Strengthening infrastructure institutions
New generation leadership
Infrastructure
“Three By Three Strategy” to transition Islamic finance to mainstream industry over next five years
Complete the financial circle
Create (10) super regional retail banks
Establish fintech accelerators
Supply Side
Re-branding & communication
Innovative outreach
Youths & SMEs segments
Demand Side
G-20 & international forums
Strengthening infrastructure institutions
New generation leadership
Infrastructure
Our ability to innovate will determine our continued relevance to global financial system…
Apple
Sharia’ and Business Model Innovation is a must to stay relevant
Google
Alibaba
7 Yrs
18 mth
7 mth
800 million customer billingrelationship
erased 85pc market cap of GPS companies
became China’s largest money market fund
Implementing “Three By Three Strategy” could easily lead to a 250m customer industry, with more than 50% share of banking system assets across 20 key markets and an asset base of USD 9 trillion
2021
2021
20 mkts with 50%+ mkt share
250 million customers
USD 9 trillion assets
4 markets with 30% plus mkt share
Less than 100 mil customers
USD 3 trillion assets
2015
2015
2021
2015
Transforming Islamic finance from niche to mainstream industry
Noor ur Rahman Abid
AAOIFI International Conference Al-Madinah Al-Munawwarah, May 2016
