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What Financial products do Muslim adults want?

Published: Sep 28, 2014 by admin Filed under: Artist Biographies Islamic Finance News

What Financial products do Muslim adults want?


18th October 2013

"Islamic finance" is a phrase that you hear a lot in development circles these days. Indeed, many policymakers are interested in the potential of Sharia-compliant financial services to expand financial inclusion among Muslims adults. Our colleagues down the street are no exception:  earlier this year the International Finance Corporation (IFC) announced its first partnership with an Islamic finance institution in Sub-Saharan Africa, a $5 million equity investment with Gulf African Bank in Kenya with the explicit goal of expanding Sharia-compliant banking products and services to small and medium businesses.

Yet little is actually known about the degree to which individual Muslims are not accessing conventional financial institutions, and even less about how much they demand and use Sharia-compliant financial products, particularly within the realm of household finance. In an attempt to add some empirical rigor to the Islamic finance conversation, we recently published a Working Paper and Findex Note that explore these questions using Findex and Gallup World Poll data.

To separate out religious identification from other individual- and country-level attributes, we explore differences in financial behaviors between Muslims and non-Muslims within countries, that is, using country fixed effects. And to ensure meaningful variation, we limit our sample to countries where more than 1 percent and less than 99 percent of respondents self-identify as Muslim. According to this data — which covers 64 countries and represents approximately 75 percent of the world’s adult Muslim population — 24 percent of Muslim adults report having an account at a bank or formal financial institution, compared with 44 percent of non-Muslims. Multivariate regression analysis confirms that self-identified Muslims are significantly less likely that non-Muslims to own a formal account, after controlling for other individual and country characteristics.

With respect to borrowing, we find that 9 percent of non-Muslims and 7 percent of Muslims report having borrowed money from a bank or another formal financial institution in the past 12 months, a difference that is not statistically significant after controlling for other individual- and country-level characteristics.  An important caveat to the above findings is that Global Findex data does not distinguish between conventional and Sharia-compliant financial products. It is possible that the absence of a gap in borrowing behavior is the result of widespread availability and use of Sharia-compliant products, however given what we know about the relatively small size of the Islamic finance industry, it seems more plausible that a vast majority of financially included Muslims use conventional banking products and services.

The significant differences in account ownership compared to the absence of differences in formal borrowing behavior is somewhat surprising given the asset finance focus of Islamic finance, which seems to suggest that this area has the largest demand for Sharia-compliant products. One explanation is that Sharia-compliant loans are sufficiently available that religion is no longer a constraint in access to or use of credit, which could be in contrast to the relative lack of availability of Sharia-compliant savings products. Another possibility is that because credit pressures are often greater than savings pressures, Muslims are more likely to use conventional credit products than they are for savings products.  A Muslim adult may be willing to procure a conventional credit product in the case of an emergency or to make an important investment. In contrast, there is generally less urgency when it comes to acquiring conventional savings product thus it may be easier to adhere to religious standards prohibiting their use. Unfortunately, we are not able directly to test these hypotheses with the currently available data.

We also analyze data from an additional questionnaire on the awareness, use, and preference for Islamic financial products, which was included in the 2012 Gallup World Poll in Algeria, Egypt, Morocco, Tunisia, and Yemen. An important caveat is that these results are not representative of Islamic banking globally; in many countries, use of and attitudes towards Islamic finance are likely markedly different.

Across the five countries, 48 percent of respondents report having heard of Sharia-compliant products in their country that offered services to people like them. However, just 2 percent of respondents report currently using a Sharia-compliant banking service. This is consistent with supply-side data which finds low overall concentration of Islamic banking in these countries (with Yemen as a possible exception).

The third and final question in the module examines the robustness of demand for Islamic banking services. The question puts forth a hypothetical scenario, in which the respondent has been approved for a one-year loan from a conventional bank and an Islamic bank. The value of the hypothetical loan is equivalent to 15 percent of the GDP per capita of the respondent’s home country. However, the loan from the Islamic bank comes with an effective 20 percent interest rate, while the loan from the conventional bank comes with an effective 15 percent interest rate. The price difference is meant to test the price sensitivity of respondent’s potential preference for Sharia-compliant products. (In reality, the price difference between conventional and Islamic loans is often less than 5 percentage points.) The interest rate is presented in terms of the value of the monthly payment, since explicit rates are not Sharia-compliant. The respondent is asked to choose which loan he/she preferred.

In the sample, 45 percent of respondents reported a preference for the more expensive Islamic bank loan, while 27 percent of respondents reported a preference for the cheaper conventional bank loan. This suggests that there is likely to be demand for both conventional and Islamic banking services, and that preferences for Sharia-compliant products are influenced by price.  Respondents in Morocco were most likely to opt for the Islamic bank loan (54 percent), while respondents in Tunisia were most likely to choose the conventional loan (40 percent). Men were significantly more likely than women to choose the Islamic option (48 percent vs. 43 percent), with the largest gender gap in Egypt.

There is wide scope for future research on this topic. To begin, additional research is needed to investigate whether the differences that exist between Muslims and non-Muslims in the usage of financial products are demand- or supply-driven.  Additional cross-country, demand-side data (particularly in countries where the Islamic finance industry is more developed) on the use of and preferences for Sharia-compliant finance products would also be valuable in better understanding the variation in the demand for Sharia-compliant finance products among Muslim adults. Survey instruments that can vary price and other hypothetical product features would allow researchers to determine elasticities of demand for certain financial products, Sharia-compliant and otherwise. Finally, time-series data that can track the development of Islamic finance industries across countries and the accompanying shifts in demand-side usage of and attitudes towards Sharia-compliant financial products would provide insight into the relationship between Islamic finance and the broader financial inclusion agenda.

Source: World Bank

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Developing entrepreneurial culture in Islamic world

Published: Oct 8, 2012 by admin Filed under: Editorial WikiPedia Islamic Finance News


Thursday 16 June 2011

JEDDAH: The Muslim World is going through challenging times. Despite having a population of about two billion and possessing enormous natural resources, our contribution to global economy and world polity remains minimal.

The Islamic world held a prominent position on the global stage in early centuries and Muslims were at the forefront of discoveries, inventions and governance.
The social sectors of Muslim societies also played a self-sustaining and impressive role.
Also, entrepreneurial culture was a key factor in the rise and fall of many economies in the past 100 years.
A close analysis of any leading economy in the world would show us the great contribution of their pioneers, inventors, innovators and great business leaders, who not only commercialized different ideas but, in that process, created massive wealth, employment opportunities and led their countries into industrial and, later, knowledge revolution.
There is a need to provide a solution to the dreams and inspirations of the youth in the Islamic world, who are struggling to cope with the economy as they strive to use their skills to design their destiny as best as they can.
Unfortunately, the Islamic world has not taken off to be a true entrepreneurial society due to various reasons such as lack of creative thinking in the education system, social fabric, easy access to wealth and natural resources and many more.
The Muslim world has a lot of liquidity that now moves outside because it lacks new venture creation and a developed SME sector that is the backbone of any economy.
Wealth creation, mostly in the last 100 years, came from the real estate sector and from general trading by traditional leading business houses in the region that ignored the whole process of innovation and production.
However, the growing role of the World Trade Organization is now changing the landscape.
A stronger entrepreneurial culture, while addressing the burning issue of unemployment, would also build a society that is capable to fish for itself under any situation, driven by innovation and creativity.
The success of the US economy is attributed to the entrepreneurial culture that has thrived in the country in the past 100 years in the form of American dreams, which resulted in a total of $14 trillion GDP annually. This is almost double the collective GDP of Islamic world (57 countries), which is between $7 trillion - $8 trillion annually.
Every nation is thriving hard to gain market share in global trade by producing value-added goods and services, and it is only possible through entrepreneurial culture in an economy.
The Muslim world has brilliant people and great talent but at times they are constrained by the fear of failure, which stops them from acting with an entrepreneurial mindset and take risks.
Their culture does not allow for failure and a fresh start whereas failure is considered as an experience in the US economy, driving the people to make things better next time.
To develop the required eco-system of entrepreneurship, the governments should review their legal structures and ensure that they are creating the right conducive environment.
Also, universities and colleges should ensure that they are grooming the required talents and the private sector has to come up with enough risk capital to fuel innovative ideas in those human resources.
According to the Arab Human Development report released by the UNDP, the Arab world needs to create 50 million new jobs by 2020 to sustain the economy.
This is a huge challenge which can only be possible by providing youngsters with proper educational tools that can make them competitive in a flat world and produce future leaders and champions of the region, who can take their economies to the next level and build their nations into a developed nation in the 21st century.

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Published: Sep 23, 2012 by admin Filed under: Artist Biographies Editorial Islamic Finance News

19th September 2012

Kuala Lumpur, 19 Sep 2012 – INCEIF today signed a Memorandum of Understanding with the Islamic Corporation for the Development of the Private Sector (ICD) and The Centre Africain D’Etude Supérieure en Gestion (CESAG) to impart training and education in Islamic finance to West African French speaking countries with the establishment of an Islamic Finance Academy in the region.

ICD is the private sector arm of the Islamic Development Bank Group (IDB) while CESAG is the training institute of the Central Bank of the West African States which comprises eight countries namely Côte d'Ivoire, Benin, Mali, Bissau Guinea, Niger, Senegal, Burkina Faso and Togo. CESAG provides management training, research and consultancy services.

INCEIF President & CEO Mr Daud Vicary Abdullah signed the MoU on behalf of INCEIF and ICD Chief Executive Officer Mr. Khaled Al-Aboodi for ICD. The signing ceremony was also attended by Dr. Abdulaziz al-Hinai, the IDB Group Vice President (Finance).

Chief Executive Officer Mr. Khaled Al-Aboodi(Left) and INCEIF President & CEO Mr. Daud Vicary Abdullah signing the MoU.

Following the collaboration, the partners hope to create awareness and interest among policy makers and captains of industry on the need to nurture qualified talent to develop and sustain the Islamic finance services in the West African region. In the long term, there are plans to set up an academy that offers Islamic finance education for the region.

ICD has been taking a proactive role in promoting Islamic finance across its 56- member countries including a substantial number of West African states. In recent years, in co-operation with Turkey's Bank Asya, ICD has established Tamweel Africa which owns and manages several Islamic banks in Guinea, Mauritania, Niger and Senegal.

This is the second collaboration between INCEIF and ICD. In November last year, INCEIF signed a Memorandum of Agreement with ICD on its talent management programme. Following the MoA, INCEIF has delivered postgraduate Islamic finance programme through its Chartered Islamic Finance Professional (CIFP) programme to selected participants from ICD member countries. ICD complemented the participants learning experience through corporate attachments within ICD and the IDB group as well as ICD’s investee companies globally.

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Islamic Finance Talent Development Program (IFTDP)

Published: Sep 23, 2012 by admin Filed under: Artist Biographies Islamic Finance News

In fact, there have been some important developments in industrial placements in recent weeks. The Kuala Lumpur-based International Centre for Education in Islamic Finance (INCEIF), the Global University for Islamic Finance, the Islamic finance education arm of Bank Negara Malaysia, last month signed a landmark agreement with the Islamic Corporation for the Development of the Private Sector (ICD), the private sector funding arm of the Islamic Development Bank, whereby the latter will finance a capacity building programme, the Islamic Finance Talent Development Program (IFTDP), for selected participants to be delivered by INCEIF.
The agreement was signed by Daud Vicary Abdullah, the new president and CEO of INCEIF and Khaled Al-Aboodi, CEO of ICD, in the presence of Zeti Akhtar Aziz, the chancellor of INCEIF. According to the two parties, the IFTDP aims to address the global shortage of Islamic finance professionals. INCEIF will educate postgraduates students selected by ICD from its 46 member countries through its Chartered Islamic Finance Professional (CIFP) program. In return ICD will offer corporate attachments to the participants within the ICD and IDB Group as well as ICD's investee companies globally. The 2-year work-and-study programme will commence in first quarter 2012.
According to Daud Vicary, the ICD is a perfect fit to INCEIF as both share a vision to develop talent for the Islamic finance industry. Al-Aboodi is confident that this strategic collaboration will be the catalyst in laying the foundation in addressing the talent shortage of Islamic finance professionals and serve as "building in the knowledge in-roads" to the growing interest in Islamic finance in Central Asia, Sub-Saharan Africa, Middle East and North Africa and other parts of the world.

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Published: Jul 21, 2010 by admin Filed under: Exclusives Islamic Finance News


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