Financial markets are witnessing the growing success story of Islamic Finance. According to the Global Economic Finance Report 2017, the global Islamic Finance asset has reached USD 2.293 trillion at year-end 2016. With ASEAN countries such as Malaysia, Indonesia, Brunei and Thailand leading the Top 20 Countries in Islamic Finance Asset, this dynamic industry has a lot to offer to both the region’s growth and its human capital development.
What is Islamic Finance?
Islamic Finance works on the philosophy of prohibiting transactions considered immoral and promoting greater social justice by sharing risks and rewards. The emphasis on Sale & Partnership contract, as opposed to interest/usury simultaneously encourages justice and social welfare as Islamic Finance aims to protect society from trickery, fraud and social tension. The elements below clearly illustrate the Islamic Finance equation.
Related: The Rise of Finance in ASEAN
What’s there for Southeast Asia?
There are multiple reasons to be optimistic about Islamic Finance in Southeast Asia. From soaring spending power to increase capital needs for infrastructure, Islamic Finance provides significant opportunities not only for governments but more importantly, entrepreneurs and aspiring professionals!
We have identified three ways in which Islamic Finance can facilitate the growth of the ASEAN region.
1. Enabling Entrepreneurs
While the “big boys” dominate the large and medium-sized banks, there are some lucrative sectors in Islamic Finance that entrepreneurs can tap into. Early stage venture capital, waqf finance, microfinance, research, training, advisory, and media are among the many underserved areas that offer substantial opportunity for entrepreneurs.
On the other hand, when considering sources of business funding, applying for Islamic Finance is something worth thinking about. More specifically, when you obtain a loan from a conventional bank, the lender’s main priority is to recover its money, even if that means leaving the entrepreneurs high and dry. However, Islamic Finance products and banks have the responsibility to share both the risks and rewards when participating in a business transaction ensuring you remain supported in the partnership.
2. Financing Infrastructure
The World Bank estimated a total global value of infrastructure investments at USD17 trillion (2013). Sukuk has played a vital role in financing infrastructure across the globe including ASEAN. With development on the agenda, Sukuk is a competitive and viable fundraising tool to finance working capital and other financial needs.
Sukuk has emerged as an increasingly important asset class, as they have multiple objectives: They enable organisations to raise capital in a shariah-compliant fashion, while at the same time expanding the investor base and offering investment opportunities to new groups. Young professionals and investment enthusiasts should explore the prospects of Shariah investments and its benefits given the hand-in-hand growth of both the region and the Islamic Finance industy.
3. Facilitating Financial Inclusion
There are a number of factors that supported the projected growth of the Islamic Finance Industry.
Firstly, the rise in the Muslim population in ASEAN sparks interest for depositors and investors to choose an Islamic alternative to banking and finance. The popularity of Islamic Finance products such as Murabaha (cost-plus financing), Salam and Istisna (forward sales), Wakalah (agency-based contract), Musawamah (bargain sale) and Musharakah (partnership contract) heightened with the rise of awareness of the industry and the benefits it brings.
Additionally, a report from the Pew Research Centre sheds some light on ongoing trends in religious demographics. The report, The Future of World Religions: Population Growth Projections, 2010-2050 highlights that 1.5 billion Muslims may live in Asia in 2050, suggesting a rise in Muslim population in Southeast Asia. As such, provision of Islamic Finance services would widen financial inclusion in the region particularly among those who subscribe to Islam as a religion.
In summary, Islamic Finance is an unprecedented opportunity that should be grabbed! From young professionals to policymakers and corporate institutions, this industry has a lot to offer to everyone. It is time Islamic Finance is given the attention it deserves! Remember, you don’t have to be a Muslim to participate, you just have to be interested.
Written by: Fatihahtul Hanan Binti Md Nor
Hanan is an Associate at Aseanite and an undergraduate at the London School of Economics pursuing BSc in International Relations. An advocate for women and children’s rights, Hanan dedicates her time to volunteering for charities catering to these causes in London.
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