Solution Manual for Financial Accounting, 11th Edition by Robert Libby, Patri...
Benefits of Islamic finance amidst Arab Spring May 2012
1. Opportunities and Challenges for Islamic
Finance Amidst Arab Spring
INCEIF Research Department, Issue #01, May 2012, www.inceif.org
With political upheavals left right and center in the Arab world, much attention has focused on the
incoming regimes in these countries. The political turmoil that hit the Arab region houses majority
Muslims and has led to complete regime changes in Tunisia, Egypt, Yemen and Libya, with major
governmental changes in other parts with Monarchy still holding on.
Country Protest Initiation Current Status of Political Unrest Extent of Impact
Tunisia December 2010 Finished in March 2011 Regime Change
Algeria December 2010 Reduced since April 2011 Widespread Protests
Lebanon February 2011 Limited Protests Widespread Protests
Jordan January 2011 Currently Ongoing Governmental change but Monarchy still in Place
Mauritania January 2011 Currently Ongoing Minor protests
Sudan January 2011 Reduced since April 2011 Minor protests
Oman January 2011 Finished in May 2011 Governmental change but Monarchy still in Place
Saudi Arabia January 2011 Sporadic protests in Eastern Province, women’s rights campaigns ongoing Minor protests
Egypt January 2011 Government kicked out in February 2011 Regime Change
Yemen January 2011 Government kicked out in February 2011 Regime Change
Iraq February 2011 Finished in December 2011 Major protests
Bahrain February 2011 Currently Ongoing Ongoing civil disorder and partial governmental change
Libya February 2011 Civil War ended in October 2011 Regime Change
Kuwait February 2011 Finished in December 2011 Governmental change but Monarchy still in Place
Morocco February 2011 Finished in November 2011 Governmental change but Monarchy still in Place
Western Sahara February 2011 Reduced since May 2011 Minor protests
Syria March 2011 Currently Ongoing Ongoing civil disorder and partial governmental change
With rise of new political systems, focus is shifting towards providing real economic solutions for
addressing the people’s problems and accedes to their wishes of doing it within the limits of Islamic
principles. The potential for Islamic finance to step in and explore opportunities is immense owing to its
nature of basics on “Real Economic Activity” and risk sharing mechanisms. With majority Muslim
populations in the region adhering to their religious norms via Islamic financial instruments for economic
solutions, the time is ripe for Islamic finance to enter the mainstream financial markets in the region.
The region is hardly been penetrated by the banking industry with banking penetration in Egypt standing
at 10%, while in Morocco at 25% and Tunisia at 33%. McKinsey reports North Africa contributing a mere
1% to the trillion dollar Islamic financial assets globally with Egypt being the leader in the region with a
mere 5% of its banking assets in Shariah compliant.
With the dust settling in some parts post prolonged civil unrest, the region is embarking on long term
development initiating from infrastructural development. This is an area where the risk sharing
mechanism and focus on asset and economic development of Islamic finance, raises the potential for
growth of the industry. African Bank of Development has already reported approximately $2.4 billion
worth of Islamic project financing in the region spanning 24 projects.
2. With low penetration of banking sector, and massive need for development sector funding, the timing is
right for addressing some key challenges before we can embark on sustainable growth of Islamic finance.
But the question of how to harness and regulate this is essential and onus on the regulators of the
country. The key challenge that needs to be addressed before embarking is the framework of governance
and human capital development.
• Balanced skillset of Shariah and Finance, Do we have experts?
The current best practice for Shariah compliance is employing a Shariah expert to stamp the activities
and stamp it. But what if the “scholar” does not have the required acumen of finance? How can this be
managed by the industry and the regulator?
• Making Intra IFI -IFI and Inter IFI – Central Bank relationship Shariah Compliant?
The infrastructure and laws at firm level institutions can be replicated from developed Islamic financial
markets, but the transactional and regulatory relationship between Central bank and IFI’s need to be
Shariah Compliant as well.
• Addressing Unique Risks of Islamic Financial Contracts
The risk profile of Islamic financial activities is different from its conventional counterparts. How and Who
would develop and apply governance regulations for this issue for each jurisdiction?
How to address some of these challenges the issue roles down to commitment of the institutions and the
regulators to actively manage and overcome these challenges with support from human capital
development institutes.
• Academic institutions and Knowledge Centres need to play their role in developing curricula and
executive programs providing a balanced skill set of Shariah studies and Business & Finance.
• Governments need to step in and kick-start the Islamic debt market to provide avenue for IFI’s to
legitimately invest capital via short term Sukuk issuance.
• International regulatory bodies in Islamic Finance like IFSB etc. can further dwell into these areas and
develop comprehensive risk frameworks according to specifications of Islamic financial services in this
region.
• The question of Real Economy, boils down to focus on infrastructural financing and
commitment for not mere Shariah compliance, but a Risk Sharing based approach from IFI’s. Instruments
for these activities, are there and available, the question is to customize them for specific needs.