KUALA LUMPUR: The swift rise of the Islamic finance industry could hit a wall in the coming years as the sector struggles to find enough experts to do the job, an industry official said on Tuesday.
Sharia banking’s sudden popularity has created a scramble for bankers, scholars and lawyers conversant in both conventional finance and Islamic economics, and produced a shortage that sometimes compromises the quality of products, experts say.
Many Islamic bankers are drawn from the conventional finance sector and have structured products which have drawn criticism that Sharia banking is little more than usury-based financing cloaked in Islamic dress.
The Islamic industry’s rapid growth has outpaced the rate at which the sector is able to churn out workers, said Agil Natt, chief executive of Kuala Lumpur-based INCEIF, which says it is the world’s only dedicated Islamic finance university.
The fast growing Sharia financial system may receive a further boost as an alternative to capitalism amid the credit crunch and banking crisis, Islamic academics and clerics believe.
Already said to be worth $300 billion and expanding at 15 percent a year, the Islamic system forbids the levying or payment of interest, preferring shared ownership and splitting of profits.
The global economic meltdown shows “the need for a radical and structural reform of the global financial system. The system based on the principles of Islam offers an alternative which could reduce risks, Hatem Al-Naqrashawi, head of theological studies at Doha University, told AFP.
“Islamic banks don’t buy credit but manage concrete assets … which shelters them from the difficulties that American and European banks are experiencing, explained Abdel Bassat Al-Shibi, managing director of Qatar International Islamic Bank.
“We want to bring the Islamic finance professionals closer to understanding Sharia principles and we want the Sharia advisers to be able to understand some of the problems of practitioners, Natt said in an interview.
“If you do not train the right kind of human capital, there is a risk that the growth of the industry can be stymied.
In the past three decades, the number of Islamic financial institutions has risen above 300, spread among 75 countries. Their total assets are more than $300 billion and are growing at average rate of 15 percent a year, according to studies.
About 30,000 Islamic finance professionals will be needed in the Middle East in the next 10 years, he said, citing figures from consultancy AT Kearney.
In Malaysia, another leading center of Islamic finance, an estimated 8,600 Sharia bankers would be needed by 2012, almost double the 4,800 available now, according to the central bank.
The Islamic insurance, or takaful, industry would require just over 2,000 professionals by 2012, up from 1,250 now.
The industry’s lack is especially glaring in commercial banking and takaful in the Middle East, retail banking in the United States and fund management and investment banking in Malaysia, Natt said. Modern Islamic banking, which has its roots in the 1970s oil boom, has been growing about 20 percent annually, driven mainly by a surge in Middle East oil revenues.
“The collapse of capitalism based on usury and paper and not on the trading of goods on the market is proof that it is in crisis and shows the Islamic economic philosophy is holding up, prominent Egyptian-born Qatar-based cleric Sheikh Yussef Al-Qaradawi told a recent conference in Doha.
Suleiman Al-Audah, an influential Saudi cleric, called for an “international Islamic summit to define the framework and the stages of an Islamic economic alternative.
The shortage of talent in the industry is creating a fierce competition for workers. Middle East institutions, in particular, are trying to draw in professionals by offering top dollar.
It has also driven up wages, with it not uncommon for Sharia bankers to draw higher pay than their conventional peers.
The Islamic industry’s growth was not expected to stall despite easing energy prices, as the global financial meltdown and US housing crisis have put the spotlight on ethical investing, Natt said.
“There would be no drop in momentum simply because Islamic banking and finance has features which makes it appealing for even non-Muslims, said Natt, formerly a top official of Malayan Banking Bhd, Malaysia’s largest lender.
Some Islamists admit, however, that this alternative is not yet operational.
“Theoretically, the Islamic economic system offers a complete and solid mechanism … but in practice, the Islamic banking experience is not yet mature, because it offers limited products like ‘Murabaha’, Audah, a moderate Islamist, told AFP.
His caution is shared by Egyptian Islamist intellectual Fahmi Howaidi, for whom the Islamic system “could bring solutions to certain banking problems but cannot be a magic wand to end the financial upheaval which is shaking the world.
The industry also faces a shortage of Sharia scholars, he said, estimating that there are about 200 such scholars worldwide.
All financial institutions that offer Islamic products must have a board of Sharia advisers who decide if instruments comply with Islamic law’s standards.
INCEIF, which was set up in 2006, is funded by Malaysia’s central bank and has over 1,800 students from 52 countries. -With additional reporting by AFP.