The Islamic finance sector in the UAE during 2015 featured a substantial expansion. The nature of growth witnessed throughout the first and second quarter of 2015 was mainly seen in the banking, finance and insurance sectors. There has also been a growing interest in the Shariah compliant structures and products from a number of conventional SMEs and small and specialized government organizations. This is a clear indication as to the expanding path of the Islamic industry as a whole in the GCC and more particularly as a key sector in the UAE economy.
During this year, the UAE government worked on the introduction of a number of regulatory policies aimed at regulating and organizing the sector and implementing international standards with the purpose of putting Dubai among the international Islamic capital markets such as London and Malaysia.
Earlier this year, the Central Bank of the UAE worked closely with industry players on a number of initiatives to strengthen the regulation and supervision of Islamic banking. It has also been announced that the Central Bank will work on new regulatory standards in line with international guidelines, namely standards set by the Basel Committee on Banking Supervision and the IFSB.
In line with this, the Central Bank proposed in June 2015 the creation of a higher Shariah authority to complement and oversee Shariah boards of individual Islamic banks. This will secure the creation of one main and synchronized reference for all institutions offering Islamic financial services. This will also eventually reinforce the public’s confidence in the sector and will apply a minimum level of regulation and supervision over the industry.
Further, a new family business legal framework in line with Shariah was submitted to the GCC governments this year as part of the different measures being taken by different GCC countries with respect to the transition of power and control within large family businesses. The purpose of these regulations is to streamline the transition of power and business to the next generations smoothly. The new laws will be presented under the umbrella of the Family Business Network, a GCC-focused non-profit organization. This is supported by a new trend within the main local and regional family businesses to reshuffle and restructure their operational models based on Sharia compliant models.
On another front, a significant number of Shariah compliant transactions have been announced and completed in the UAE in the past year. The main ones are:
- Emirates Airline announced that it will be purchasing four new A380 aircraft, via a US$913 million Sukuk issuance, which will be guaranteed by the UK’s export credit agency, UK Export Finance (UKEF). This has captured a lot of international interest, as this will be the first time that UKEF has guaranteed a Sukuk issuance.
- Shopping mall operator Majid Al Futtaim (MAF) on the 3rd November completed the issuance of its US$500 million 4.5% trust certificates due in 2025. This was issued through MAF Sukuk under the firm’s US$1.5 billion hybrid (Mudarabah and Wakalah) trust certificate issuance program. They have been admitted to trading on the Irish Stock Exchange and NASDAQ Dubai.
- The Hong Kong Monetary Authority (HKMA) announced the issuance of US$1 billion-worth of Sukuk on NASDAQ Dubai in September. The HKMA stated that the issuance was oversubscribed by 4.7 times.
- Dubai real estate firm SKAI has secured US$300 million in new funding from a range of local and international lenders. The syndicated finance package included a dual Islamic and conventional facility and is backed by seven financial institutions from the UAE and China.
The performance of the Islamic economy is still below expectations this year but this was partially attributed to the decline in oil prices. The growth of the Islamic banking sector in the UAE is, however, on track.
At this stage and to ensure the continued growth of the sector, the UAE government has been urged to consider the introduction of new material resolutions especially to address the following:
- Creation of a national Shariah board: this board will harmonize the principles and views of Shariah scholars on controversial structures. It will also ensure that there is one regulatory body overlooking the activities of the sector and enhancing the compliance culture among the relevant parties.
- Training centers for industry experts: there is a need for qualified experts in the Islamic fields and this should be supported by the creation of education and training centers.
- Introduction of policies to control monopoly: this will fight the monopoly of larger organizations and will give support to other smaller players to introduce new and diversified products. This is a key element to ensure the future growth of the sector and its sustainability.
- Enhancing the level of interaction with industry players: By issuing guidelines and papers with respect to the main risks faced by this industry and increasing the level of interaction with main players in the markets to further understand the challenges they face and how to address competition with conventional institutions.
Rima Mrad is a partner at BSA Ahmad Bin Hezeem & Associates. She can be contacted at [email protected].