The Halal food sector worldwide is estimated to be worth US$2.3 trillion. It is increasing at more than 4% a year reflecting high Muslim population growth and an increase in per capita Halal food consumption. At present most of the finance of the industry is by conventional banks; as in countries such as Australia and New Zealand, where much Halal lamb originates, there is little Islamic banking.
Clearly there is an opportunity for Islamic banks as Shariah compliant finance can make the products more credible. As however producers expect financing on competitive terms and as there are significant costs in entering new markets, Islamic banks would have to conduct detailed feasibility studies to assess profitability. The calculations of costs and benefits are far from being straightforward, hence although the proposition seems promising, caution is needed.
RODNEY WILSON
Emeritus Professor, Durham University UK
Rather than be ‘responsible’ for the funding of the global Halal sector, the Islamic finance industry can be an important contributor and proponent of the global Halal sector. This can be achieved by the mega Islamic finance houses rolling out programs to facilitate funding and promotion of small Halal sector industries. However, it is important to note that while the two industries/sectors can work hand-in-hand, the obvious difference between the two is that the latter is easily implementable compared to the former. The practice of Halal food/lifestyle can be achieved immediately by households whilst the implementation of a conducive Islamic finance industry requires laws and regulations to first be in place.
HANIM HAMZAH
Partner, Roosdiono & Partners, a member of ZICOlaw (Zaid Ibrahim & Co)
Some companies operating in the global Halal sector will be sensible investment propositions. Islamic financial services firms can be expected to invest in such companies out of financial self-interest. Accordingly I assume the question is directed towards laying out money where there is not a good business proposition.
Islamic financial services providers, whether they are banks, Takaful operators, asset managers or real estate fund providers, are normally companies with shareholders. Accordingly their prime responsibility is to maximize shareholder value while conducting their operations in accordance with the requirements of their Shariah supervisory board.
Consequently any expenditure by the Islamic financial services firms must be directed towards building their businesses either directly or indirectly. For example, if a university is a good source of graduates, there can be business benefits in sponsoring a scholarship at that university which bears the name of the Islamic financial services firm.
The only funds firms should expend for non-business purposes should be funds which the firms are required to pay to charity either because they are part of their Zakat liability or because they are being given to charity as part of income purification.
However, even in the case of such charitable funds, the Islamic financial services provider needs to consider whether the global Halal sector is an appropriate recipient. In most cases companies in the global Halal sector will be businesses seeking to make a profit, even if their limited financial track record or weak business plan does not make them good investment propositions. In such cases I can see no reason why charitable funds should be directed towards them as there are many more worthy causes than giving money to weak profit-seeking companies.
MOHAMMED AMIN
Islamic finance consultant and former UK head of Islamic finance at PwC
In general, financing a particular industry is not necessarily the responsibility of one particular part of the financial sector. Having said that, in the particular case of companies promoting Halal products and lifestyles, it could be argued that Islamic financial institutions could potentially be better aligned than conventional finance. However, the Halal industry needs to ensure they obtain the most effective and efficient mode of financing. Equally, financial institutions need to ensure the clients they finance are viable business propositions disregarding their disposition or ethical base.
DR NATALIE SCHOON
Principal consultant, Formabb
There is a definite need to create a link between the Halal industry and Islamic finance. It is true that Halal products cannot be deemed fully Halal if they are produced through a process that is not entirely Shariah compliant. As it happens, many Halal manufacturers use interest-based borrowing or other Shariah-repugnant methods of finance, therefore their products cannot be considered 100% Halal. Although from a strict Shariah viewpoint, sale and consumption of such products is not considered impermissible, there is little doubt that such products are not produced through a Shariah compliant process.
One way of promoting the link between the Halal industry and Islamic finance is to ensure Islamic banks and financial institutions only finance Halal manufacturers. This can be done by requiring all those seeking finance from Islamic banks to provide a Halal certificate before the final approval of their financing application.
A similar kind of requirement should be introduced for investing in stocks of listed companies. Although it will be difficult to make this a strict general requirement for investing in global equities (because there are not very many Halal businesses listed on stock exchanges around the world), it is feasible to construct global, regional and national Halal indices. There have been some attempts in this direction in the past, but there is a need to give it an industry level push to promote investment-level linkages between Islamic finance and the global Halal sector.
HUMAYON DAR
Chairman, Edbiz Consulting
It is only natural that in the next stage of evolution for the Halal industry, it uses Islamic finance for funding needs. This should be of priority for both Islamic finance and the Halal industry. There are many examples in the life of the Prophet Muhammad where it shows that the entire supply chain of a product for a Muslim should be Halal. Not doing so will not make the product haram, but doing so will make it better. As the Halal industry is made up of both, local and regional as well as multinational companies, this opens up a huge potential market for Islamic finance.
MONEM SALAM
Director of Islamic investing/deputy portfolio manager, Saturna Capital