Islamic finance empowering women

The economic power of women cannot be denied nor ignored: there have been countless studies testifying to the revolutionary force women can exert on the world economy. But what steps have been taken to harness this power and how can Islamic finance aid in translating this potential? Our cover story this week attempts to find out.

We bring you yet another jam-packed issue with reports on wide-ranging topics including an exclusive interview with the CEO of Tamweel Africa Holding, an in-depth look at Bosnia and Herzegovina’s new Islamic index, and a comprehensive review of the most significant Islamic financial activities over the past month as well as a case study on Tenaga Nasional’s US$750 million Sukuk. Our IFN Correspondents provide us with the latest updates from Egypt, Indonesia and the UAE as well as recent developments in the risk management and European legal space; our columnist Kavilash Chawla highlights the barriers for Islamic finance in the US while our in-house analyses dive deep into the Pakistani Islamic financial market and the Shariah cross-border financing segment. We also have Islamic finance expert Dr Hurriyah El Islamy of the IMF writing on the legal and Shariah issues in cross-border financing as well as a country feature on Bosnia and Herzegovina by Islamic finance consultant Edib Smolo.

As usual, we wish our readers an insightful and informative read.

An economic force to be reckoned with: Women as the newest ‘emerging market’


“Humankind’s most valuable untapped natural resource,” said former UN secretary-general Ban Ki Moon. “Women are the largest untapped reservoir of talent in the world,” said US Democrat presidential candidate Hillary Clinton. And in the Holy Quran (3:195): “...I will not suffer the work of any worker among you to be lost, whether male or female, the one of you being from the other...” said the Prophet (pbuh). In this day and age it hardly needs to be said, but women hold the key to enormous economic power. So what, asks LAUREN MCAUGHTRY, is the Islamic finance industry doing to help and harness this potential? 

Muslims are expected to account for 30% of the world’s population by 2050, and the stage has already been set for the contribution the Islamic dollar will make to the global economy. But the female economic opportunity is equally exciting — and while much has already been written about this trend, it is sadly rare that we see headline news highlighting concrete progress. 

The Islamic finance industry has not been backward in its support for women — far from it. In Malaysia, women hold some of the most influential positions in the industry. In the GCC, women’s net worth is predicted to grow 15% to US$258 billion by 2023 (according to PwC) and institutions such as Dubai Islamic Bank are already providing female-focused services such as Johara Ladies to leverage this. In the UK, former Merrill Lynch banker Samina Akram launched the Women in Islamic & Ethical Finance  Forum in 2015 to international support. “We learn so much from people’s stories, their struggles, what has motivated them, what inspired them. Also more importantly, these inspirational role models in turn motivate, encourage and inspire others,” explained Samina to IFN. “The long-term goal of WIEFF is to become an active think tank for the industry. We hope WIEFF can assist and play an important role to support and inspire female talent.”

Setting the stage
This is a worthy goal indeed. But it is not in the UK that women suffer from daily discrimination, not in the UK that women cannot access financing, not in the UK that women are frequently paid less or nothing for their labor, or are barred from accessing jobs. “Even in the industrialized world, no country offers women the same degree of opportunity as men,” says EY. “And in developing nations, there are often substantial barriers to women earning a living.” According to the latest UN figures, the global male employment-to-population ratio stands at 72.2% compared to just 47.1% for women. And even when they do work, globally women earn on average 60-75% of men’s wages for the same job. “Women are more likely to be wage workers and unpaid family workers; women are more likely to engage in low-productivity activities and to work in the informal sector, with less mobility to the formal sector than men,” confirms the UN.

Opening the door
But what would happen if this changed? The answer, apparently, is an economic revolution. 

If the global wage and employment participation gap was closed, women could increase their income by up to 76% — which would have a global value of US$17 trillion, according to the UN. Not convinced? Try the latest calculations from EY. In their recent report on ‘Women: The Next Emerging Market’, the firm estimates that over the next decade, the impact of women on the global economy will be at least as significant as that of the world’s top two emerging markets. “In the next five years, the global incomes of women will grow from US$13 trillion to US$18 trillion. That incremental US$5 trillion is almost twice the growth in GDP expected from China and India combined.” By 2028, women will control 75% of discretionary spending worldwide. Women already own almost half of all global businesses, and nearly half of those businesses are in emerging markets. And on the corporate side, the average return on equity for companies with a diverse management board is 25%, compared to 9% for a uniform board. 

Or how about the new research from McKinsey Global Institute, released in September 2015, which found that advancing women’s economic equality could add between US$12-28 trillion to global growth? “This impact is roughly equivalent to the size of the combined Chinese and US economies today,” pointed out McKinsey analysts. “The public, private and social sectors will need to act to close gender gaps in work and society.” And this doesn’t just apply to industrial nations and developed markets. “If rural women had equal access to productive resources, agricultural yields would rise by 4%,” noted Ban Ki Moon. 

Hard to argue
The figures speak for themselves, and we could quote facts all day — the economic arguments for female participation are at this point really more of a foregone conclusion. The question, then, is how all of this potential can be harnessed. And, more importantly for our pages, how the Islamic finance industry can leverage this opportunity to provide support for female economic integration — and benefit financially and economically from their success. Female-only banks catering to wealthy GCC clients or comfortable lunches in London boardrooms celebrating the achievements of educated women in the global Islamic finance workforce are all very well — and they are valid and valuable steps forward. But what of the forgotten women, the rural women, the quiet women? What of the women in India, in Pakistan, in Indonesia, in Yemen, in Africa, in frontier and emerging markets across the world who demand nothing more than the opportunity to earn a living for their family — and are often denied even this small chance? How can Islamic finance help them?

Moving ahead
Reassuringly, it is already doing so. It might not hit headlines every week, but the Islamic finance industry — and unsurprisingly, the Islamic microfinance industry — is quietly working away behind the scenes to empower, integrate and enable women to earn their own living and make their own contribution. 

In Egypt, a country with a 94.7% Muslim population, 47% of microentrepreneurs are women. Muhammed Yunus, the Nobel prize-winning Bangladeshi academic-turned-banker who founded the legendary Grameen Bank, and has been called the ‘godfather of microcredit’, directs close to 97% of his small loans toward women. In June this year Axis Bank, India’s third largest private lender and one of the few institutions in the country which offers interest-free banking, launched a new Urban Microfinance segment providing credit facilities to low income women.  In October, IMF Director Christine Lagarde spoke to urge female integration in the Pakistani economy, where women currently own just 3% of domestic businesses. “Closing gender gaps in economic participation could boost GDP by up to a third,” she announced. “These gains are non-trivial. Women can be a game-changer for Pakistan!”

Baby steps 
Incremental changes, tiny steps forward and new commitments are happening every day, every month, every year — and sometimes in the most unexpected of places. But more needs to be done. 

In Minneapolis, the 16th-biggest city in the US, female Muslim entrepreneurs have created one of the most successful small business centers in the country. Flooded by over 50,000 Somali refugees who fled to Minnesota in the 1990s to escape their country’s political upheaval, the city is now home to a quarter of the country’s total Somali population and has had its own problems with integration and unemployment. But the Karmel Square business center, at which 150 out of 175 businesses are owned by Muslim women, has seen Somali unemployment in Minnesota drop from 20% in 2010 to 6% in 2013 — and sparked numerous emulations, such as the rival Riverside Mall on the other side of town, in which 36 of the 47 businesses are owned by Muslim women. The owner of Karmel Square, Basim Sabri, calls it simply a smart business move. “In my opinion, they are the smartest businesspeople in Africa, probably the smartest in the Middle East,” he told the Minnesota Star Tribune earlier this year. “Women play a big role in business.” But it hasn’t been easy. Even to start a small clothing shop in one of these malls requires start-up capital of around US$20,000 — and most of these women rely on family and friends to raise the money, because interest-free loans are simply not widely available. Ali, the owner of a salon at Karmel Square, believes the local banks are missing a trick. “If you have a fixed-rate loan, you can charge me whatever you want and pre-calculate it, and say because of this, this is how much money I’m making on this deal,” she told the Tribune. “The banks could sell anything they want, at any price.” 

In the UK, the Muslim Lifestyle Expo 2016, a showcase for Muslim-friendly brands, was held on the 29-30th October in Manchester — and according to organizer Tahir Mirza, 60% of the 130 exhibitors taking part are female entrepreneurs. “According to our research, women represent 50% of the [Muslim] start-up business community and this figure is set to grow further over the next few years,” he told the BBC. However, he warned that better financial access was urgently needed to encourage this trend. “The traditional working-class Muslim woman doesn’t often get the [financial] support to start a business, and they don’t use traditional crowdfunding methods.”

Islamic recognition
Elsewhere however, countries have already recognized this opportunity and are taking steps to develop it. In Indonesia last week, Economic Coordinating Minister Darmin Nasution highlighted the importance of developing the country’s Shariah finance industry to increase female participation in the economy and empower women — particularly in the areas of fashion and Halal cosmetics, which are currently popular with Indonesian lenders for their strong performance. “Women automatically dominate the female-related businesses,” he said. Indonesia is already home to one of the top five Islamic fashion industries in the world, with annual sales of US$12.7 billion. It also hosts a thriving Halal cosmetics and pharmaceutical industry, which saw US$4.8 billion in sales in 2015, according to Bank Indonesia

Other governments are already ahead of the game. Malaysia’s government-funded SME Bank has a specific Women Entrepreneur Financing Program based on a Shariah financing structure, which offers fixed asset and working capital loans of up to RM2.5 million (US$594,587) to women under its Leaders Acceleration Program. The Malaysian Budget 2016 includes a RM300 million (US$71.35 million) allocation to the National Entrepreneurial Group Economic Fund that includes a new scheme called TEMANITA especially designed for female entrepreneurs. 

The IDB, always a pioneer, has awarded annual cash prizes of US$50-100,000 every year since 2006 for the IDB Prize for Women’s Contribution to Development, and this year the line-up was no less than inspiring. The goal is to “recognize, encourage, inspire and reward women’s participation in the socioeconomic process” and improve women’s access to opportunities and resources. This year, awards went to Nafisa Al-Deek of Palestine for her “pioneering role in promoting the rights of girls in spite of the scarcity of resources and opportunities they suffer as a result of the difficult situation in the state of Palestine”; and to Vannie Kouamou Djounguep of Cameroon for her “innovative and creative strategies to provide girls in her society with a better life”. Prizes also went to the Abnaa El-Ghad (Banati) Foundation in Egypt for its outstanding work toward a better future for homeless girls; and the Bahir Integrated Child and Family Support Organization in Ethiopia for the role it plays in addressing the problems faced by needy orphans and children, especially girls, in remote areas. The bank has its own Women’s Advisory Board and conducts programs across member countries to support women and increase financial literacy and inclusion. 

The road ahead
It’s not an easy subject. It’s not always popular; it doesn’t make headlines; and it doesn’t lend itself to snappy soundbites, career-promoting quotes or immediate and concrete contributions to the bottom line. But supporting women, through whatever means possible, to access finance and to make an equal and genuine contribution to the economy, might be the single biggest step we can take toward growing our future — a future that benefits everyone.

Company Focus: Aktif Bank targeting SME growth via Islamic leasing strategy

Turkey’s largest private investment bank, Aktif Bank, is breaking new ground in the country’s leasing sector after it acquired a 32% stake in Halic Finansal Kiralama (Halic Leasing) as part of its strategy to fund the growth of SMEs in a Shariah compliant manner. The bank intends to position Halic Leasing as the only financial leasing company in Turkey that offers products that are in line with Shariah requirements to its clients, in order to fill the market gap that is not covered by the larger leasing companies, especially those that are owned by domestic banks. DANIAL IDRAKI brings you the story.

Turkey’s leasing sector is one that is still relatively underpenetrated, yet holds much significant upside potential as the sector gains traction and asset size grows over the years. According to a report by the Investment Support and Promotion Agency of Turkey, Turkey’s leasing transaction volume reached US$8.5 billion in 2014, a 50% increase from the previous year. The leasing sector’s total asset size grew at a commendable compounded annual growth rate of 15% from 2007 to 2015 to more than TRY40 billion (US$12.86 billion), and makes up a significant part of the non-banking sector with 23,124 contracts in 2015. “With 143 different agencies all across Turkey, leasing companies provide necessary services to their clients. Furthermore, participation banks in Turkey can also conduct financial leasing operations on tangible items,” the report noted. 

With such a promising growth opportunity, it is no surprise that Aktif Bank has moved into the leasing sector with the acquisition, and leveraging on Halic Leasing’s multinational expertise in Islamic leasing means that the bank could further penetrate into the underserved market of funding SMEs Islamically. The acquisition comes on the back of Aktif Bank’s working philosophy of ‘New Generation Banking’ via widening its products and services through alternative distribution channels, and its intention to finance SMEs’ technology machinery and equipment investments.

Dr Serdar Sumer, CEO and general manager of Aktif Bank, commented in a statement that instead of increasing the number of the bank’s branches, Aktif Bank focuses on diversifying its products and alternative distribution channels as per its sustainable efficiency-focused growth strategy. “In addition to retail, corporate and investment banking, we also offer a wide range of products and services to our clients, namely money transfers, insurance, card products and comprehensive kiosk solutions.” 

“Together with our multinational partners experienced in [the] Islamic leasing sector, we have decided to move forward with this partnership with the primary aim of transferring our expertise particularly to SMEs,” Dr Serdar affirmed. Aktif Bank, the Islamic Corporation for the Development of the Private Sector (ICD) and Ijara Management Company (IMC) signed a shareholders agreement on the 1st September 2016 to collaborate as the new shareholders of Halic Leasing, in which the ICD and IMC hold stakes of 33% and 34.83% respectively in the leasing company.

Through this investment, the bank will also apply its extensive knowledge in capital markets to enable Halic Leasing to raise long-term funds locally and internationally via Sukuk issuances, which would add to the depth of Turkey’s Islamic capital markets. The Turkish government has set an ambitious goal of increasing the market share of Islamic financing to 15% by 2023, from the current 5%.

Conventional wealth manager to capture Shariah opportunities with Islamic fintech

In the hunt for yield in the current low/negative interest rate environment, one investment manager is banking on technology and the burgeoning Islamic finance industry to drive costs down and to transfer savings to investors while yielding attractive returns by mobilizing a Shariah compliant robo-advisor, said to be the first in Asia. VINEETA TAN has the story.

“With the current global economic downturn, price point for clients is key. What we’re looking to do is to offer free financial advice with no upfront fees and no expensive annual fees,” Stuart Yeomans, group CEO of Kuala Lumpur-based Farringdon Group, tells IFN. “We’re looking at getting the price point down to well below 1% — 75bps thereabouts.”

Algebra, the platform Farringdon is currently building, will allow individuals to gain exposure to global Halal asset classes with a minimum investment of US$200 per month — all without the need for face-to-face interaction. Presently engineering the front end of the system, Yeomans expects Algebra to be ready for testing by December and to go live in the first quarter of 2017. A firm believer in fintech as the way forward for the financial services, Yeomans also said that Farringdon is in discussions with Labuan Financial Services Authority (Labuan FSA) to launch a fintech lab in Kuala Lumpur.

The group is consulting several Shariah scholars on the development of this platform, and will select one to join its advisory board, a strong indication of Farringdon’s intention to anchor itself in the Islamic finance space. In fact, the group is in the early stages of expanding its services beyond wealth management to include (Islamic) investment banking solutions as well.

“We’re not only looking at the robo-advisor — further down the line, we’re also looking at entering the investment banking side as well,” revealed Yeomans who confirmed with IFN that the group, with assets under management of US$170 million, is in talks with Labuan FSA to secure an additional license to facilitate its investment banking ambitions.

Sovereign Sukuk: Iran pivots to South Korea for possible issuance

The sovereign Sukuk space has been relatively quiet over the past week as the markets enter the middle of the fourth quarter, save for Iran’s possible offering in the South Korean market and Indonesia’s regular issuance. DANIAL IDRAKI brings you the usual updates.

The Securities and Exchange Organization of Iran (SEO) is planning to offer sovereign Sukuk in the regional and international capital markets with the South Korean market viewed as a favorable destination for the Islamic debt papers, according to SEO’s chairman, Dr Shapour Mohammadi, as reported by the Securities and Exchange News Agency. Iran and South Korea agreed to expand their financial ties and exchange expertise in this regard during a Korean delegation visit to Tehran.

The government of Indonesia conducted an auction of sovereign Sukuk Ijarah (SPN-S 19042017 and three project-based Sukuk series) on the 1st November to finance the 2016 Revised State Budget, according to an announcement on the Ministry of Finance’s website. Target for the auction was set at IDR3 trillion (US$230.1 million).

Upcoming sovereign Sukuk



Expected date


US$2 billion



IRR60 trillion




First quarter 2017










South Africa






Hong Kong

US$500 million to US$1 billion


Ningxia Hui Autonomous Region

US$1.5 billion



XOF150 billion






US$500 million





Shandong Province

CNY30 billion


Sindh Province

US$200 million



KWD5 billion





Sri Lanka

US$1 billion



US$1 billion



IFN Monthly Review: Ups and downs for the Islamic market in October

Welcome to the latest edition of our monthly global analysis, a comprehensive review of what’s been happening across the world’s Islamic markets over the past four weeks. October was a turbulent month, with volatile equity markets scaring investors — although on the flip side, strong sovereign Sukuk issuance also attracted record interest in emerging markets. LAUREN MCAUGHTRY brings you a roundup of the latest news. 

It’s been a month of sovereigns, although not always the ones hoped for. Saudi Arabia’s giant US$17.5 billion issuance disappointingly included no Islamic paper, although the finance minister confirms that Sukuk will form part of the Kingdom’s future fundraising plans. Malaysia, Brunei and Indonesia continued with regular Islamic issuance, joined by some interesting new players including the first sovereign issuance from Jordan of JOD34 million (US$47.94 million). Bahrain successfully tapped the international market for US$1 billion, while Pakistan also raised US$1 billion with surprisingly tight pricing of 5.5% to highlight ample investor demand. In local currency, Qatar issued a further four Sukuk worth a combined QAR1.5 billion (US$411.66 million). 

In Kuwait, Salhia Real Estate Company became the newest corporate to tap the Shariah market for KWD30 million (US$98.77 million). Elsewhere in the GCC, Global Environmental Management Services (GEMS) achieved a SAR300 million (US$79.95 million) Islamic facility; while Qatar’s Barwa Real Estate Company signed a new QAR600 million (US$164.7 million) with Qatar International Islamic Bank. In Bahrain, Aluminium Bahrain (Alba) closed the Kingdom’s largest-ever corporate financing deal — a syndicated financing facility worth US$1.5 billion including a US$618 million Islamic tranche. 

October saw a wave of rights issues announced by Islamic banks, as they seek to boost capital. Emirates Islamic has plans to raise AED1.5 billion (US$408.3 million) while in Indonesia, Bank Panin Dubai Syariah plans to raise up to IDR1 trillion (US$76.47 million) in the first half of 2017 and Oman Bank Dhofar has received approval for the subscriptions of its rights issue worth OMR40 million (US$103.54 million). However, the news is not all good — the awaited merger between Bank Dhofar and Bank Sohar fell through after the banks failed to reach an agreement. 

Collaboration and development
At the start of the month, Indonesia’s Financial Services Authority (OJK) entered into cooperation agreements with Kazakhstan to support the development of a good financial supervision mechanism in both conventional and Islamic financial markets. Malaysia and Qatar have signed an MoU in Islamic finance training and could collaborate on Sukuk. Luxembourg also has plans to collaborate with the UAE in the field of the Islamic economy, it announced at the IMF Meeting. And finally, the Central Bank of the Islamic Republic of Iran has agreed to expand banking ties with Singapore. 

October was a turbulent month for the equity markets, despite the slight uplift in oil price, which saw Brent Crude top US$52 per barrel. The S&P Global BMI Shariah index lost its former optimism to drop by -3.04% over the last month to hit 120.42 as at the 28th October — its lowest level since July. The S&P Developed BMI Shariah fared no better, falling by -3.23% over the same period. Emerging markets fared slightly better, and the S&P Emerging BMI Shariah fell by a less drastic -0.92% to 80.19 — although investors are clearly remaining cautious in their exposure, and the S&P Frontier BMI Shariah reflected this with a decline of -2.23% over the month. 

The Middle East reversed performance to make positive gains in October. The S&P Pan Arab Composite Shariah gained 2.23% over the past month compared to the S&P Pan Asia Shariah Index, which fell by -1.6%. Even Africa, one of the strongest performers over the past quarter, disappointed this month with a drop of -2.83% in the S&P Pan Africa Shariah Index. 

Asset management
Despite the volatile equity markets, interest continues to thrive in new markets. In India, Emirates NBD Asset Management teamed up with UTI International to offer GCC investors exposure to Shariah compliant Indian equities via the Emirates Islamic India Equity Fund. Secura Investment Management (India) also launched its third Shariah compliant investment fund, the Secura Realty AIF 1, investing in private property and development projects. 

Back in the GCC, Al Rajhi Capital closed a private placement subscription for the Al Rahji European Real Estate Fund after raising SAR581 million (US$154.73 million). In Indonesia, the government’s capital-raising activities have drawn attention from institutional investors, spurring Lautandhana Investment Management to launch a new Shariah protected fund with a minimum investment of IDR500 million (US$38,540) targeting sovereign Sukuk securities. In Turkey, Ziraat Portfoy introduced a new Islamic index (the Ziraat Portfolio Participation Index). Finally in Bosnia, the Sarajevo Stock Exchange launched a Shariah compliant stock index in collaboration with Bosna Bank International.

New Islamic index adds depth to Bosnia’s Shariah compliant finance ambition

Bosnia and Herzegovina, a country which is still relatively untapped due to the lack of regulations and a framework for Shariah compliant financial and investment activities, may see its situation gradually evolve as it welcomed a new Shariah compliant stock index in October. DANIAL IDRAKI explores how the new Islamic index — a collaboration between the Sarajevo Stock Exchange (SASE) and Bosna Bank International (BBI) — has opened up more opportunities for Shariah compliant investors who are interested in expanding their footprint to the Balkan nation.

The new Islamic index — titled SASX-BBI — is the fourth index on the SASE and consists of 25 companies from the domestic market, and together with BBI, the stock exchange have put together a list of 117 local companies which operate in compliance with Shariah principles (See Country Feature on Bosnia and Herzegovina: ‘Trends, challenges and opportunities in Islamic finance in Bosnia and Herzegovina’ for a detailed breakdown of Bosnia’s Islamic index). 

“In this way, we put [the] Bosnian capital market on the world investment map and this index is expected to attract flows from both Islamic as well as socially responsible investment funds. These institutions do not need to perform Shariah screening on [the] SASE on their own, [as] we have done this work for them. BBI has created a list of Shariah compliant companies based on the most updated data, but we will continuously review them in the future to ensure that they meet the criteria,” said Amer Bukvic, CEO of BBI

Bukvic explained that the aim of the index is to develop an infrastructure for Islamic investments — BBI publishes a list of Shariah compliant companies for free, and via the SASX-BBI Index, investors can see how these companies are performing. “Our aim is to partner with foreign investors and Islamic investments funds willing to invest in Southeast Europe. [For example], Investment Corporation of Dubai already took over two Bosnian agricultural companies through BBI consultancy services,” Bukvic told IFN exclusively. He further added that the list of Shariah compliant companies on the SASE will serve as a pipeline for future investment projects. “If we see that investors are interested, we will broaden our Shariah screening and investment banking activities in the whole Southeast European region,” he added. 

Tarik Kurbegovic, CEO of the SASE, noted during the official launch that through its channels of distribution, companies and the Islamic index on the SASE will be visible all over the world. “The aim is to attract foreign investors operating in accordance with Islamic principles, and in this way we facilitate access for investing in Bosnia,” Kurbegovic added. 

Bosnia’s legal framework still lacks the proper elements that will allow the implementation of all Islamic banking modes of finance in full capacity, as Islamic banking and financial services in the country are governed under the Law on Banks, which does not recognize Shariah principles. 

“Some legislative provisions aimed at protecting clients actually limit the implementation of certain Islamic finance contracts and that limits our activities, but we are making progress and still working hard to overcome such obstacles,” Bukvic said, adding that Bosnia has recorded significantly increased investments from Gulf countries, especially in tourism and real estate. “As a result, the number of tourists from Gulf countries increased more than 20 times since 2010. Also, one huge investment project valued at US$2.7 billion is on the horizon,” he noted.

While the index may be a narrow focus on the Islamic aspect of business, it will no doubt have a positive rippling effect on the wider Bosnian economy as more global Islamic investment funds searching for attractive yields in compliance with Shariah precepts flow into a country with over 50% of its population professing the Islamic faith.

African Islamic banks re-strategizing amid economic slump

Banks in Africa are in a precarious position: Sub-Saharan Africa is now at risk of experiencing its weakest growth rate in over two decades as the slump in prices of commodities and a soft global demand continue to batter the African economy, once among the world’s fastest-growing economic regions. With little signs of significant improvement over the medium term, Islamic banks in the region are taking stock of the gloomy outlook and tough operating conditions and are, as VINEETA TAN learns from Mamadou Barro, CEO of Tamweel Africa Holding (TAH), in this exclusive interview, re-designing their business strategy. 

TAH’s mandate is simple: to promote Islamic finance in Africa, by establishing, acquiring and managing Shariah compliant institutions in the region. And by many measures, the ICD subsidiary has been successful in doing so: in the last seven years since its creation, TAH has set foot in four different markets with new Islamic banks: Senegal, Niger, Guinea and Mauritania.

“Things are going well for us: we have seen growth in customers, in product diversification, in our bottom line and also in terms of perception — the brand of the banks among the public,” shared Barro.

But simple doesn’t always mean not challenging.

Being tasked with creating and expanding the influence and presence of Islamic finance in new markets, TAH faces the challenge of creating a name for itself in the midst of many established local players. 

“Venturing into new markets means we need to fight for new clients — and usually they tend to stay with their existing banks. And we compete by increasing the quality of our service and also offering new products.”

Then there’s the issue of the economy.

“It has definitely been challenging: the likes of Nigeria and South Africa have suffered, as well as nations in West Africa and countries where Tamweel operates in,” admits Barro. “But we need to remember that TAH is owned by a development bank and our purpose is to promote Islamic finance — so in good times and in bad times, we have to stay firm to support the economy.”

Which is why Barro is continuing with TAH’s expansion strategy despite anemic operating conditions. TAH has identified at least four more countries it intends to set foot in: Ivory Coast, Benin, Mali and Burkina Faso.

“It is a work-in-progress but we see a lot of potential in these markets,” says Barro, who is hopeful that new Islamic finance regulations by the Central Bank of West African States that are expected to be effective in the first quarter of 2017 will ease and facilitate TAH’s expansion plans by levelling the playing field and introducing tax neutrality.

With the new framework in place, Barro intends to pay close attention to supporting the vital SME sector in these new markets. “We are building up a strategy to shore up the SME sector. It is going to be challenging because SMEs represent some 50% of the region’s non-performing loans and that’s why we need to be careful — we need to address the needs of the SMEs but at the same time tackle the sector delicately in terms of monitoring financing and following up with business owners.”

Barro is wary about the economic conditions 2017 will bring, believing that the volatility experienced so far in 2016 will persist until next year but he is maintaining a cautiously optimistic outlook. 

“Before this, Islamic finance was completely unknown in the region but in the last five years or so, we have seen tremendous growth [and] we have also seen many Sukuk issuances.” And this gives Barro hope and motivation to make 2017 the year when TAH will be a global bank in Africa, offering top class Islamic finance products, and advancing the Islamic finance proposition further afield.

Thinking big

By Kavilash Chawla, a partner at boutique management consulting firm Bâton Global and a visiting scholar at Drake University.

With the IFN US Forum occurring earlier this month, and with the Malaysia US Chamber of Commerce hosting their annual Islamic capital markets event in early November, I have been ‘thinking big’ about the potential future of Islamic finance in the US. Firstly, turning to the impediments for the development of Islamic capital markets activity in the US, there are three broad types of barriers that emerge:

  • Type 1: regulatory barriers
  • Type 2: capacity barriers, and
  • Type 3: engagement barriers.

In turning to the regulatory barriers, as Figure 1 illustrates, there are three main regulatory barriers that hinder the development of onshore Islamic capital markets activity in the US. Of these, one of the most pernicious, but also, perhaps, one of the easiest to potentially address and engage around with regulators is the tax treatment of many Sukuk issuances. 

Specifically, the debt-centric orientation of capital markets activity in the US has resulted in a robust body of regulations designed around debt-oriented products, which makes them more economically attractive (lower cost) than asset and equity based transactions. 

By their very structure as being asset-based, under current US tax regulations, Sukuk are economically disadvantaged vis-à-vis conventional instruments. While there are many successful and attractive offshore structures through which issuers can issue Sukuk and access this pool of investors, until and unless tax parity can be achieved between debt-based conventional bonds and asset-based Sukuk, despite whatever other regulatory progress has been made, the growth of Islamic capital markets activity in the US will be severely hampered.

In turning to the capacity barriers, one of the primary barriers is legal. Specifically, there is a dearth of scholars who are both proficient in Shariah to be Shariah scholars and equally proficient in the US capital markets regulatory and legal landscape. 

The scarcity of legal and Shariah expertise creates a significant capacity constraint that translates into very real economic costs for potential issuers. This capacity constraint is magnified by both the limited balance sheets and the relatively small assets under management size of Islamic financial institutions and the Islamic funds industry respectively here in the US. 

Without the balance sheet depth and a robust domestic investor base, the capacity of the industry to successfully offer and execute Islamic capital transactions is limited.

The third, and perhaps the toughest, barrier to address is that of engagement. Political willpower is a necessary element in enabling a regulatory framework and addressing some of the capacity constraints that currently handicap onshore Islamic capital markets activity in the US. If the US election cycle has taught us anything, it is that political willpower is molded and created through consistent, formidable and mutually beneficial engagement. 

The Islamic finance industry as a whole has neither sought to recognize nor fully recognized the value of a political engagement strategy. Given the economic weight of OIC countries, and their expectant role in driving long-term global economic growth, political engagement is necessary. Though necessary, political engagement alone is not sufficient. 

Public, community and individual stakeholder engagement are just as critical as political engagement. This requires a recalibration and reassessment of the value proposition of Islamic financial activity, and an investment in more deeply understanding stakeholders. Let’s ‘think big’ and smart about moving the needle on Islamic finance in the US.

The use of Shariah compliant financing facilities in renewable energy projects

Since 2014, Egypt has been encouraging renewable energy production and investment, with one initiative being the feed-in tariff (FiT) program that would be implemented through power purchase agreements with independent power producers. Once connected to the grid, power producers are promised revenue on the electricity sold to the government through the grid connection. This has encouraged energy investors to produce and sell electricity under the FiT program.

To finance a solar energy project, the Minister of Electricity required 70% of the project’s finance to be procured from international financiers, leaving only 30% from local financing institutions. Financing also requires a minimum of 30% of equity investment, which gives an opportunity to finance the remainder through debt. Introducing Islamic financial facilities, in addition to conventional ones, would open the door to investors who are willing to participate in the FiT program and who require it to be Shariah compliant. 

There are numerous Shariah compliant financing structures with Istisnah being the commonly used Shariah compliant financing facility for infrastructure projects. Istisnah is a purchase contract for an object to be manufactured in the future according to specific requirements at a predetermined price. The object would be delivered at a preset date. As power purchase agreements require a long-term commitment and a product that would not be available at the time of procuring finance, Istisnah would be a suitable financing facility, given the long-term commitment and the unavailability of the product required to produce the renewable energy.

Dr Walid Hegazy is the managing partner at Hegazy & Partners in cooperation with Crowell & Moring. He can be contacted at whegazy@hegazylaw.com.


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