Postgraduate prospects in Islamic finance

Assoc Professor Dr Syed Musa Syed Jaafar Alhabshi of Universiti Tun Abdul Razak explains how advanced studies in Islamic finance can benefit one’s career.

 

Islamic finance is a niche financial sub-sector for those who seek financial activities that are compliant with Islamic law (Shariah) ie in terms of the flow of funds from surplus units (such as savings and investors) to deficit units (financing, issuers) and avoiding any excessive risk and aleatory or usurious transactions, as well as channelling funds to permissible (halal) activities according to Shariah.

 

There has been a growing interest in Islamic finance worldwide in the past 10 years or so, mainly because Muslim investors and financial institutions − that were previously rather complacent with the Western financial institutions − suddenly felt that they should switch to Islamic financial institutions for their savings and investment needs. Islamic finance and banking are seen to be more robust in terms of rules and regulations,  and are always seen to be fairer to the consumers. 

 

The Banker’s third annual survey of the world’s Top 500 Islamic Financial Institutions (IFI) released in October 2010 suggests that not only has the industry avoided the calamities of conventional banks that led to the current global banking crisis, it has also managed to maintain strong asset growth in turbulent economic conditions.

 

The 2009 survey shows that the volume of Shariah-compliant assets of the Top 500 IFI grew by an extremely healthy 28.6%, rising to $822bn from $639bn in 2008. At a time when asset growth in the Top 1000 World Banks slumped to 6.8% from 21.6% the previous year, Islamic institutions were able to maintain the 28% annual compound growth achieved in the past three years.

 

The industry also continued to expand globally, with 20 new entrants bringing the number of Shariah-compliant institutions to 435, with a further 191 conventional banks having Shariah windows. The Islamic banking geography is stretching beyond the existing strongholds of Iran, Saudi Arabia, Bahrain, Malaysia and the UAE to Europe, South Africa, Kenya and Indonesia.

 

 The Malaysia International Islamic Financial Centre (MIFC) initiative − introduced by the Malaysian government to promote the sector’s growth − provides a level playing field for the Islamic financial sector alongside the conventional financial sector. Steps include exemption from stamp duties for multiple contracts financing as well as treating profit dividend payouts like interest in terms of deductible expenses.

 

The MIFC initiative will introduce measures and incentives to promote the centre in the offering of Islamic financial products and services by a diverse range of financial institutions in international currencies to the international and domestic financial community. Among the key measures and incentives are commitments by the government to develop Malaysia as a centre of education of excellence in Islamic finance to meet the demand for a talented Islamic finance workforce that fulfil the expectations of the industry. 

 

A postgraduate course focusing on Islamic finance would typically involve a detailed study on Shariah and its application to economic problems and financial transactions. The Islamic finance principles and practices which are different from the conventional principles will be highlighted and compared to the conventional. 

 

Specialised courses taught in Islamic finance include Islamic commercial law, Islamic economics and financial systems, Islamic banking and finance, Islamic financial instruments, governance, financial reporting and risk management of Islamic financial institutions.

 

Knowledge of Arabic or Islamic theology is not required as the focus is on the principles and practices rather than the theory of Islamic finance.

 

An Islamic finance qualification will automatically make one more versatile in the industry as well as expose students to both conventional and Islamic banking system and practices. Most conventional local and global banks today embrace the dual banking approach to penetrate the Islamic financial services industry. This implies a broader spectrum of the industry that will recruit graduates with qualifications in Islamic finance.

 

In addition to banking, postgraduate qualifications in Islamic finance will be in demand in the capital markets, insurance and wealth management industries.

 

Gaining qualifications in Islamic finance can help to increase one’s mobility in the Islamic finance sector as well as broaden one’s perspective on both conventional and Islamic financial activities.

 

For students embarking on postgraduate studies in Islamic finance, some exposure to both Islamic and conventional financial products and services through direct or indirect participation will be beneficial. An open attitude towards cross-cultural learning experience is essential. The willingness to learn and especially to always compare the Islamic and the conventional financial practices will be useful.

 

Prospective students must cultivate interest in studying financial and banking practices and at the same time be innovative to introduce new approaches to banking, finance and insurance that appeal to a broader global Islamic finance community.

Assoc Professor Dr Syed Musa Syed Jaafar Alhabshi is the Deputy Dean of Graduate School of Business at Universiti Tun Abdul Razak (UNIRAZAK). He holds a BBA (Hons) from International Islamic University Malaysia, and earned his DBA in Accounting & Finance from the University of Strathclyde, Glasgow, UK. He has previously conducted research, design and development of Islamic contract parameters for Bank Negara Malaysia, as well as Islamic banking and capital market product development approved by Bank Negara and the Securities Commission.
 

This article first appeared in postgradasia supplement 2010.