SEEKING THE ETHICAL HIGH GROUND

Dubai 2020 | FINANCE | FOCUS

Dubai is determined to overtake pioneering Islamic finance center Malaysia and become the global market's innovative capital.

Before considering Islamic finance specifically, let's contextualize its meteoric growth in the broader Islamic economy, which globally amounts to roughly USD2.2 trillion according to the DinarStandard State of the Global Islamic Economy Report 2019/20. The big numbers continue, as the period saw 5.2% YoY growth, with the UAE ranked first across several metrics. Meanwhile, investment in the Islamic economy scaled USD1.2 trillion in 2018, up YoY by a vertiginous 399%. Islamic finance accounted for 42% of that across a healthy range of acquisitions, start-ups, and private equity funds.

Dubai's Established Role
Honing our focus, Islamic finance assets are projected to be worth USD3.5 trillion by 2024. Meanwhile, according to the Global Islamic Economy Indicator that monitors 73 countries, Malaysia, the UAE, Bahrain, and Saudi Arabia remain the stars. And while Malaysia has long been the market leader, competition is brisk, and Dubai, already a regional financial hub, aspires to become the capital of the Islamic economy. Back in 2013, DIEDC was launched with just this in mind. Dubai is, after all, home to the world's first commercial Islamic bank, Dubai Islamic Bank (DIB). Indeed, by 2016, official data put the worth of the Islamic economy in the Emirate's GDP at USD8.9 billion out of a total USD102.4 billion. Recently, amid deep scholarly debate around establishing universal standards, DIEDC in November 2019 penned an MoU with the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) to appraise the risks, challenges, and opportunities of Islamic finance to be reaped from harmonization. Already 55% of UAE consumers hold at least one Islamic banking product. Furthermore, the Islamic financial industry continues to see realignments where, for example, DIB intends to buy Noor Bank, which would result in a lender of around USD75 billion in assets. The Emirate is also home to the biggest Islamic financial market, Nasdaq Dubai. Taking stock of market trends, Dubai back in 2017 claimed the world's first sharia-compliant bourse. And in October 2019, that bourse launched a sharia index of 30 UAE companies, plus 10 stocks of dual listing, with none making up over 10% of the index. Separately, shariah-compliant sukuk bonds are cutting a fine pace, where Moody's foresees total issuance gaining 6%, reaching USD130 billion in 2019.

Innovating for Tomorrow…
In a TBY interview, Mohamed Damak, senior director and global head of Islamic finance at S&P Global, observed that, “One of the potential accelerators for the industry going forward is fintech and blockchain." A notable application, he argued, would be the region's expats, who annually remit home approximately USD120 billion. The FinTech Hive at the Dubai International Finance Center (DIFC) is testament to its sheer potential. And elsewhere, Emirates Islamic Bank has pioneered a chat banking service on WhatsApp. The bank has separately partnered with Emirates Development Bank's Credit Guarantee Scheme to extend financing to the UAE's SMEs that account for 94% of all active companies and over 60% of its GDP

Continued Acknowledgement
Out of around 130 Islamic retail lenders ranked worldwide, DIB emerged in 2019 as the strongest Islamic retail bank in the world by think tank Cambridge IFA for the second consecutive year. The award applauds the safest Islamic institutions, both by customers on the liabilities side of the coin and in asset terms. DIB, the world's second-largest Islamic lender by assets, was again dubbed the UAE's Strongest Islamic Retail Bank for the third consecutive year. Its 3Q2019 net profit of USD1.1 billion was up 8% YoY. In the fast lane of this burgeoning financial trade highway, Dubai is more of a driver than a passenger.