Can Dubai Become The World’s Leading Islamic Business Hub?

Maintaining its characteristic approach of always being number one, Dubai recently announced that its latest aspiration was to become the leading Islamic business hub in the world.

“We follow international standards of Islamic economies and will be the world’s number one centre for Islamic finance,” Dubai’s ruler and UAE Vice President and Prime Minister Sheikh Mohammed bin Rashid al-Maktoum announced earlier this year.

Under the umbrella of Islamic finance, the emirate is hoping to provide the best facilities for Islamic finance instruments, Islamic insurance, the halal food industry and Islamic trade and quality-management standards.

Islamic finance has become a buzzword in recent times, with the industry growing considerably over the past five years. It is expected to exceed $2 trillion in 2014, according to industry estimates.

“A direct consequence of this growth is also fuelling the wider Islamic economy with banks required to invest money into Shariah compliant activities,” explained Abid Shakeel, director, Global Islamic Banking Centre of Excellence at Ernst & Young.

And with its existing strong business framework and infrastructure, Dubai is “well positioned” to lead an expanding Islamic economy, he said.

“This new goal should further strengthen Dubai’s global positioning as a financial hub, enhance its economic diversification and generate increased employment and auxiliary business opportunities.”

As part of achieving its target, the emirate announced plans to set up a central Shariah board to supervise all Islamic financial products used in Dubai.

Eissa Kazim, secretary-general of the committee heading Dubai’s Islamic economy initiative, said: “We will harmonise all standards, structures and regulations through having a unified Shariah board at a government level to oversee the industry.” In February, Sheikh Mohammed also announced an initiative to transform Dubai into a global centre for Islamic bonds (sukuks), in line with the sector’s growth.

Sukuk issuances dominated the GCC bonds and sukuk market last year, with the $21.9 billion raised representing 48.6 per cent of the total amount raised, Markaz said in a recent report.

The amount raised through Islamic issuances marked a 127.1 per cent increase compared to 2011, and the number of issuances also rose from 20 to 31 last year.

Dubai is poised to benefit from the move, said industry experts.

Afaq Khan, CEO of Standard Chartered Saadiq, said: “The initiative will provide further impetus for Dubai to raise its prominence as a centre of Islamic finance.

“The need for improved infrastructure in Africa and the Arab Spring countries will create greater demand for capital raising in the future, including through use of the sukuk. Dubai is in a strong position to capitalise on this demand as a global capital markets hub.”

Dubai has numerous advantages as an Islamic finance hub, agreed E&Y’s Shakeel.

“The emirate has repeatedly demonstrated a successful track record of delivering innovative economic programmes over the past decade. By doing so, it has been able to attract a large multi-skilled talent pool, with numerous regional businesses headquartered in Dubai, while positioning itself as an international hub bridging markets in the East and West.

“It also has a well-established business and financial infrastructure, an established regulatory framework and political and socio-economic stability which is vital for business.”

But the emirate has a challenging task ahead: it needs to integrate a Shariah- compliant business framework with the already established conventional framework.

Speaking at the recent Islamic finance conference, Dr. Sayd Farook, global head, Islamic Capital Markets at Thomson Reuters said: “Dubai is in a leading position to capitalise on its existing strengths as the third most popular travel destination for global Muslims, one of the top three primary sukuk issuance sources and immense logistical influence over the halal food processing and logistics market via DP World that commands 60 cargo terminals across six continents.

“Yet, the Islamic finance industry has not fully capitalised on the links between the various Islamic economy sectors and Shari’a compliant capital.

“The Islamic finance industry has immense potential to capitalize on the value that could be generated by identifying the full value chain in areas such as Halal food processing through a structured and well executed strategy”, he added.

In addition, the faces stiff competition from established centres such as Malaysia, which saw the size of its Islamic capital market increasing 22.6 per cent year-on-year to RM1.4 trillion ($460.4 billion) in 2012.

The Southeast Asian nation also maintained its position as the world’s leading sukuk market, capturing 76.9 per cent of global sukuk issuances, with foreign issuers coming from Singapore, Bahrain, Kazakhstan and even the UAE.

Dubai also faces rivalry from the other GCC nations, stated Shakeel.

“But one thing Dubai can claim to have achieved above everyone else is to develop at an unprecedented pace… So if Dubai now has a new vision, we should all expect to see it at some point in the future,” he added.