Sharia Education: What’s on the Curriculum?

Roshan Madawela – www.riunti.com


Still the standard bearer

The British have tended to enjoy a reputation of excellence in the realm of conventional higher education and academia, at least since the 20th century. This strength is one of the leverage mechanisms that is being applied as a point of entry into the Islamic finance sector by the UK, consolidating the foothold in the banking and financial services areas in the process. In a recent Research Intelligence Unit survey ( November 2006), it was found that the UK far exceeded all other countries in the number of educational establishments that directly provide courses on Islamic finance or were found to be involved in research and training activities in the sector. The graph gives the number at 55, more than twice the UK’s nearest rival.

London also recently claimed to be the first to launch a formal qualification covering all aspects of Islamic finance with the unveiling of a joint British – Lebanese initiative. The Islamic Finance Qualification (IFC) was developed by the British industry body the Securities and Investments Institute (SII) and the Lebanese Business Ecole Superieure des Affaires with the backing of the Lebanese Central Bank and the British Government. Consequently, a computer based training and qualification is expected to be rolled out by March 2007. The latest move will further boost the UK’s reputation as a leading knowledge center on Islamic finance.

Whilst also catering to its minority Muslim community by have ‘Sharia compatible ‘ windows within parts of the mainstream banking system, the UK government is clearly hoping to get a larger slice of the global business that can bring in billions of dollars more to its finance sector. Most senior government officials have been spearheading the campaign. As the UK finance sector is a respected standard bearer for conventional financial products, the SII is set to play a leading role in examinations development and introducing professional standards in Islamic finance.

Tiger gathering momentum

Leading light in Islamic finance Malaysia, whilst coming second in the research findings is expected to consolidate its position as a regional educational hub and make a serious challenge to the UK in the international arena. The currently observed number of 24 Islamic educational institutes is set to double by end of 2007 and their influence over the curriculums and training programs of other institutes in the region will grow.

A case in point, Malaysia’s Monash University recently said it would double the number of Islamic Scholarships that will be available to postgraduate students this year, taking the total to eight. The money raised from revenue generated from the fourth Islamic Banking and Finance Conference, an estimated RM400, 000 has been used for the purpose in recognition of the urgency of the situation. The main focus is expected to be on supporting ongoing research that will drive and shape the development of Islamic finance and banking courses at Monash’s seven other campuses in Australia and South Africa.

Currently prohibitive regulatory hurdles and hassles that foreign students face are also expected to be removed in order to smooth-out the process. Making entry easier and providing better welfare services to international students are also some of the new policy measures that are expected in a package that is designed to make Malaysia a regional education hub. Up to now, foreign students have had restrictions on part-time work, lack of recognition of their student cards amongst government agencies and have had to put up with immigration official that are not fluent in English.

Thinking out-of-the-box

Malaysia Islamic education institutes have also been busy entering into agreements with other interested parties in the region. The latest MoU involving collaboration to further Islamic finance education and training was entered into in Sri Lanka. With an estimated Islamic finance sector worth around $50 million out of an estimated $1 billion Muslim assets in the $25 billion island economy the scope of expansion within Sri Lanka is somewhat limited by comparison. However, some ‘thinking out of the box’ is evident in such agreements as an estimated 5000 additional professionals will be needed in the sector during the next four years. Clearly, the MoU is designed to churn out locally talented professionals to meet global demand in addition to the more limited local needs. Sri Lanka already has around one million migrants workers, mainly in the Middle East who contribute over a billion dollars each year to the economy and Malaysia has recently overtaken the US as Sri Lanka’s largest foreign investor.

The initial certificate program is set to extend insight into Islamic law, economics, ethics, financial management, regulation and wealth management. The appearance of the Deputy Governor of the Malaysia Central Bank on the occasion of signing the MoU at the Colombo Hilton gives some indication of the level of seriousness involved in the deal. The International Center for Education in Islamic Finance (INCEIF) was set up by the Central Bank of Malaysia and is backed by a 500 million RMB fund whilst the Ceylinco Sussex Business School (CSBC), part of the Ceylico Group is well respected in the island for its business activities in finance, education and numerous other areas.

Malaysian education institutes have also been active in the Gulf region. October witnessed the signing of a MoU between the Dubai International Financial Exchange (DIFX) Academy and the Kula Lumpur based International Institute of Islamic Finance (IIIF) on greater collaboration for extending courses and training. With the focus on product development and financial engineering from a Sharia perspective, the two leading institutes are starting to addressing the short-fall in high quality practitioners,

Much competition ahead

Singapore, also with a strong conventional finance background and a regional hub for many services has also been making contributions to the Islamic finance sector in various areas like Islamic fund monitoring. In a latest initiative, it was announced that following the June 2006 International Islamic Finance Forum (IIFF) a Scholarship Fund was initiated in order to address the shortage in financially literate Islamic scholars. Christiana Tsiterou, Forum Director is quoted to have said that in order “to maintain the current levels of growth, there are simply not enough Islamic Scholars who command the necessary respect to issue fatwa’s in addition to being recognized and respected throughout the Muslim World.’

Meanwhile, the National Australian Bank also announced plans to introduce Islamic financing into its product range. As part of its drive to enter the sector, the bank is offering an Australian $25,000 post-graduate scholarship to a member of the local Muslim community, estimated to be 300,000 strong. The scholarship winner will be required to work at the bank whilst studying.

Some players in India seem to be following a similar logic. Despite Islamic finance being a virtual non-starter in India, the Hyderabad based Institute of Islamic Banking and Finance is also attempting to churn out students in order to meet the supply gaps in the Gulf labor market. The Institute is said to have enrolled some 200 students already, both locally and from Guyana, Tunisia and the Gulf. The course fee is claimed to be around US$100, incomparably cheaper than anywhere else and those that graduate can expect to gain lucrative employment overseas. Thus competing on course fee pricing to woo students from the developing world is expected to be a growing trend in the sector that will serve to enlarge the pool of educated professionals.


Weight pulling needed from the Gulf

Middle East nations have traditionally had a strong emphasis on trade and less so on education as compared to Malaysia or Singapore who have always focused on finance markets according to some analysts. Dr. Sharik argues that the reason behind the lower levels of activity on education in the Middle East could be due to the authorities desire to play-down the lack of Sharia compliance of much of the financial activity that takes place in the region. Perhaps it is feared that the level of inconsistencies of the prevailing system will be exposed through better education leading to an erosion of public confidence in the political and economics systems that are already facing various pressures.

Whilst the Research Intelligence Unit survey show that the combined number of Islamic education establishments of the top five Gulf states are 62, it does not reflect the strength of the regions financial weight as given in the chart below. With reference to the spread of Islamic banks around the globe, the Gulf has a 53 per cent market share concentrated in the comparatively small geographic space. Yet it is not investing proportionately into research, education and training. Taking wealth estimates, there are no accurate or reliable sources of information. A now outdated Meryl Lynch report (1996) estimated Middle East private investment at $800 billion.

Whilst investment into education is taking place, it has failed to keep pace with the rapid growth enjoyed by the sector. In a very recent move, the Bahrain Monetary Agency (BMA) set up a US$4.6 million fund to support research and education on Islamic Finance. The founding members of the ‘Waqf’ Fund include eight of the countries leading banks - Unicorn Investment Bank, Bahrain Islamic Bank, Kuwait Finance House (Bahrain), AlBaraka Banking Group, Arcapita Bank, ABC Islamic Bank, Shamil Bank and Gulf Finance House.

This type of Fund, the first of its kind in the region, is expected to play an increasingly important and flexible role to facilitate the development of the sector in a supporting role to the financial sector. The emphasis on research will lead to greater exploration of service options and address specific needs of the industry as it pursues sustainable growth.

Research, the urgent need

The merger or inclusion of conventional banking entities into the sector, whiles positive and welcome, has many concerns that could be addressed through better research and policy formulation. One significant danger is that the conventional banking system is only interested in profits and will therefore continue to pursue this objective. Sharia compliance could then becomes a secondary objective, a means by which to generate capital and profit, leveraging on the Muslim masses.

Further research also needs to be conducted into identifying the link between Sharia compliant project areas with reference to environmental impacts and rights of access with the application of Sharia compliant financial instruments like Sukuk that can be used to fund such projects. For instance, is denying universal access to water by privatization of the resource halal?.

It can also be noted that the IMF has set up the IFSB in order to regulate the Islamic finance sector. Again the benefits of having the backing of the IMF needs to be weighed against the possible conflicts of interest on the wider political economy considerations. Only the weight and quality of research can help guide the sector with appropriate policy frameworks, based on halal practices with a true and just spirit.

Moreover, care needs to be taken to safeguard the sector from any public relations disasters that can arise from controversial mega-projects connected to pollution, environmental damage, public outcry or lobby from environmental NGO’s. In such an event, it may be difficult to penetrate the wider market and the non-Muslim clients under the banner of ‘ethical banking’. Moreover, any loss of credibility will also hamper the anticipated market penetration of the Muslim businesses, where an estimated 80 per cent of capital remains outside the Sharia adhering financial sector.


Forward thinking

Comments from former Director of IIFF, Christiana Tsiterou and head of Dubai’s DFIX who is reported to have remarked that ‘the growth of the sector in the past few years has led to an acute shortage of professionals expertise in banks and other institutions’ has raised alarm bells in some quarters. According to Dr. Sharik, we are already in the danger zone. He points to the lack of investment into education as one of the key reasons why the Islamic finance sector is being swamped by a large number of conventional international players, seeking to cash in on the ‘band-wagon’. Whilst recognizing the many positive aspects of the entry of global bankers into the sector, particularly in the human resource, technology and product innovation areas, he is also alert to the possible hidden dangers.

One point to keep in view is that not so long ago, the Western financial circles regarded the then budding Islamic Finance sector with a certain degree of mockery. ‘Banking on God’, ‘Holy Banking’ and ‘Profit of Profits’ were just some of the headlines carried in the leading publications such as the Economist and the Financial Times during the late 1990’s. The US too was very suspicious of Islamic Banks and Financial Institutes following September 11 and made many attempts to obstruct the sectors growth.

Already, the conventional banking giants are enjoying considerable benefits over the smaller, indigenous entities that cannot compete on many levels due to the economies of scale enjoyed by their much larger multinational counterparts. Research, education and training will therefore need to play a critical role in supporting these financial houses in order to maintain competitiveness, productivity and efficiency. Only in this way can the unique identity of the Islamic Finance sector be maintained.

In order for the sector to genuinely have a positive impact on the wider community, the advancement of Islamic economics also needs to be included in the curriculum. Here I make reference to the much broader range of practices going beyond finance to cover quality of life measurement tools, welfare programs, macro-economic management practices, the role of the public sector, treasury management and private sector regulation. Making these areas Sharia compatible would be a remarkable achievement and calls on great scholarly contributions from future generations.

However, in the rush to channel the billions of dollars of funds, largely generated from oil revenues, into mega-projects and investment through Sharia compatible instruments, an important consideration may be missed. The underlying truth is that oil revenues are not bankable for any period of time beyond the medium term. Moreover, some analysts have also described that this present time as one where ‘peak-oil’. In the final analysis, if sufficient funds are not invested into research, education and Islamic finance literacy in order to achieve wider growth and development objectives, the benefits of the boom may be limited in scope and time. Foresight and forward thinking is therefore the need of the hour.

The Research Intelligence Unit is a lading source of information on Islamic Finance and banking. This article appears with the permission of Islamic Finance Toaday.

Comments: roshan@riunti.com