Islamic finance still faces serious issues when it comes to trained human resource capital

By HABHAJAN SINGH

The fast-growing Islamic finance industry faces the threat of lacking qualified human resource capital, an industry expert told a conference in Kazakhstan, which is seen as a potential market for the sector.

“The industry faces a unique threat. We might have quite a few graduates with Islamic finance degrees but they may not be useful to an Islamic bank or financial institution, unless they go through an induction or management trainee programme,” said Mujtaba Khalid from the Bahrain Institute of Banking and Finance (BIBF), the training arm of the Central Bank of Bahrain.

“One of the main reasons for this, even if we look at academia as a whole, is the huge gap between theory and actual practice,” he said in an email to The Malaysian Reserve.

He spoke on two panel sessions at the recent Islamic Finance Week 2017 held in Astana, Kazakhtan. It was organised by Astana International Financial Centre (AIFC) and AIFC Bureau for Continuing Professional Development, in cooperation with Islamic Development Bank, Islamic Research and Training Institute and BIBF’s Islamic Finance Centre.

Mujtaba heads BIBF’s Islamic Finance Centre. Set up in 1999, the centre badges itself as one of the oldest Islamic finance professional training outfits in the world.

The lack of skilled manpower for the industry has been discussed on various platforms. However, industry practitioners are concerned as the issues have not received any satisfactory resolution thus far.

Aside from trained manpower, Islamic finance also faces the unique challenge of integrating Shariah scholars into the day-to-day workings of the industry. Here, Shariah scholars involved in Islamic finance have been urged to walk the talk by translating their ideas and proposed solutions into concrete actions.

In a recent address in Kuala Lumpur, for example, Bank Negara Malaysia (BNM) governor Tan Sri Muhammad Ibrahim said the industry has had enough of polemics and preaching.

“You will likely need to work with others to make this happen. We need to create a culture of greater collaboration and respect between the world of academia, regulators and industry players,” he said when addressing global scholars of Malaysia-based International Shariah Research Academy for Islamic Finance.

Churning Professionals

Addressing the issue of talent, Mujtaba said he had identified that the industry would have to cater for a new type of demographic for education in the 21st century — which are professionals.

“I spoke about the importance of e-learning. Practical hands-on training is the way forward and undergraduates should aim for professional qualifications rather than an MSc (Master of Science), especially when it comes to Islamic finance,” he said.

On this front, his outfit provides the BIBF-AAOIFI an e-learning platform which went live this year.

AAOIFI stands for Accounting and Auditing Organisation for Islamic Financial Institutions. Established in 1991 and based in Bahrain, it is an international non-profit organisation, primarily responsible for development and issuance of standards for the global Islamic finance industry. It has issued some 100 standards in the areas of Shariah, accounting, auditing, ethics and governance for international Islamic finance.

In Malaysia, among the prominent suppliers of talent to the Islamic finance sector are International Centre for Education in Islamic Finance (INCEIF) and International Islamic University Malaysia’s (IIUM) Institute of Islamic Banking and Finance (IIIBF).

INCEIF was set up in 2005 with a RM500 million endowment fund from BNM, while the older IIIBF is an institute at IIUM.

Sukuk Structures

In another session at the Astana event, Mujtaba discussed some of the different sukuk structures developed around the world.

“I especially emphasised cases where sukuks have been used for social initiatives such as the World Bank’s immunisation sukuk and Nigeria’s Osun State’s sukuk offering to build schools. I also high- lighted how Kazakhstan can tap into international liquidity to finance infrastructure projects,” he said.

Kazakhstan is looking at being the Islamic finance hub for Central Asia. The AIFC, a project initiated by Kazakhstan leadership, envisions the creation of a regional financial hub for Central Asia, the Caucasus, Eurasian Economic Union, the Middle East, West China, Mongolia and Europe. It aims to become an important financial platform, interacting with major regional and international financial centres.

One of the top priority strategic directions for the advancement of the AIFC is the development and implementation of Islamic finance programme. Capital markets, asset management, private banking, financial techno- logy and alternative investments are among the various pillars envisioned to be part of the AIFC.

There has been a rapid progression since 2009, the year when Kazakhstan first established legislation for its Islamic finance industry, to become the Islamic hub of Central Asia. By 2020, the country wants its Islamic banking industry to reach 3%-5% of its total banking assets, according to a recent report by the World Financial Review.

Astana has given a clear signal to that direction in 2015 by bringing meaningful amendments to the existing regulations. Capital requirements for chartering a new bank has been brought down by 50%, conversion from conventional to Islamic mode of financing has been stream- lined, and a centralised Shariah board called the Council for Islamic Financing Principles has been activated, the report said.

Mujtaba concurs. He said Kazakhstan definitely has the potential to be the Islamic finance hub for the region and the nation’s announced US$300 million (RM1.27 billion) sukuk issuance for 2018 which is a step in the right direction.

“Currently, AIFC is working hard on regulation, as well as capacity building for Islamic finance and I saw some great initiatives being taken,” he said.