Commodities: the cornerstone of the Islamic economy going global
By Ahmed Sultan bin Sulayem, executive chairman of DMCC, the UAE’s largest and fastest-growing free zone
January 23, 2014 5:17 by kippreport
Last week, the UAE’s Minister of Economy, His Excellency Sultan Bin Saeed Al Mansoori, presented me with the Outstanding Contribution to Islamic Finance Award at the annual MENA Fund Manager Performance Awards gala dinner Video Article an award I dedicated to His Highness Sheikh Mohammed Bin Rashid Al Maktoum Vice President, Prime Minister of the UAE and Ruler of Dubai.
Islamic Finance is a topic we are passionate about at DMCC, so, this week I would like to highlight the meaning of developing an Islamic Economy and look into the various current Islamic Banking products available in the market. It is the vision of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister of UAE and Ruler of Dubai to develop the Emirate into the global capital for the Islamic Economy. This initiative, launched in 2013, will further support the mainstream economy of Dubai. Therefore, it’s important to understand the meaning, implication and benefits of developing an Islamic Economy.
A recent report by Thomson Reuters estimated the value of the global Islamic economy at US $6.7 trillion; this would be made up by consumption and use of Halal (Islamic permitted) products and services (inclusive of financial assets and services). The growth potential is equally impressive. Currently, projected annual growth for Islamic economies sits in-between 15-20% in core markets; products such as Islamic pension funds are leading the way in growth of global demand.
At the core of His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister of UAE and Ruler of Dubai’s initiative there are six platforms, they are: Islamic finance, Islamic insurance, Islamic contracts arbitration, Islamic food trading standards, Islamic commerce and industry standards and Islamic quality management systems.
Rigorous steps have been taken towards the creation of the legal set-up that will position Dubai at the centre of the Islamic economy. The ‘Dubai Islamic Economy Development Centre’ was recently established, by law 13/2013, with the main objective of promoting Dubai to become such a centre; promoting economic activities compatible with Shariah (Islamic law) in goods, financial and non-financial services, and promoting Dubai regionally and globally as THE centre for Islamic economic activities.
An Islamic economy refers to an economic system that conforms to the Muslim principles of trade and business practices. The central features of an Islamic economy are; behavioural norms and moral foundations derived from Sharia’a; Zakat (obligatory charitable giving based on wealth accumulated through the lunar year) (above one’s Nisab) ; Ribba ((surplus value or interest). In commercial terms it refers to any net increase (ie interest) on a loan and Ghirar ((excessive and undue risks) Ghirar fails to promote just and equitable relationships among parties.
Available Islamic Finance products include:
- Musharakah: a co-mingling of money, work and obligation equally among at least two parties, sharing profit and loss
- Murabaha: the sale of goods at cost plus an agreed profit mark-up
- Mudarabah: a partnership agreement under which one party invests capital only and another manages the business at a fixed pay
- Ijarah: a rent contract
- Salam: it’s an undertaking of a seller of a specific good to the buyer at a future date in exchange for immediate payment
- Istisna: a sale transaction where a commodity is transacted before it comes into existence
- Sukuk (Asset based and asset backed): certificates representing undivided shares in ownership of a tangible asset (asset backed), or the benefit of a project or an investment (asset based).
- Takaful: financial risk management a form of Sharia’a compliant insurance
It’s also worth noting that Islamic economy and more specifically Islamic finance is a growing economic concept that is not exclusive to the Muslim world. The global appetite for Islamic finance is growing at an exponential rate. The Kingdom of Saudi Arabia and Malaysia are considered to be the largest Islamic finance centres within the Muslim world and London is the biggest within the non-Muslim sphere.
DMCC also has a deep heritage in Islamic finance and a longstanding track record in supporting the Islamic economy. In fact, DMCC’s success was built on Islamic foundations. Almas Tower as well the Gold and Silver Towers were funded through the US$200 million Sukuk we issued back in 2005 and the Sukuk was regarded as a pioneering product at the time as it allowed the option of repayment in gold. It was also repaid in full and on time, demonstrating our commitment to delivery and financial strength.
Together with Sharia Capital and global partners, Tocqueville and Blackrock, we created the world’s first Sharia-compliant gold and commodity funds. These funds have since won several asset management and Islamic Finance awards for their performance.
We also launched the world’s first Sharia compliant Gold ETF in 2009 (the first physically-backed gold product to be listed on Nasdaq Dubai and in the Middle East). More recently, in 2012, we launched DMCC Tradeflow and decided to enhance this platform to address the local demand for commodity Murabaha. Today, the DMCC Tradeflow platform is becoming an indispensable tool for Islamic banks to trade commodities for Murabaha financing and thus growing the scope of activities that Islamic banks can perform within Dubai.
With our dedicated Murabaha trading platform in place, we will continue to innovate and deliver to market needs and to His Highness Sheikh Mohammed Bin Rashid Al Maktoum Vice President, Prime Minister of the UAE and Ruler of Dubai’s vision to see Dubai become a global Islamic finance centre.
Commodities are the cornerstone of the Islamic economy due to the transparent and secure way stakeholders can exchange physical goods to guarantee transactions. While obviously based on the tenants of Islam, the opportunities to capitalise on this growing segment are not exclusive to Islamic companies. In fact, it appeals to the broader business and international community more so now than ever – and as a global centre for commodities, DMCC is well equipped to facilitate the growth of this thriving and rapidly expanding sector.
Overview of DMCC Awards and Achievements
The Outstanding Contribution to Islamic Finance Award follows a string of DMCC’s previous awards across the Islamic finance sector stretching back to 2009 when Barclays Hedge ranked DSAM Kauthar Gold Fund, part of a joint venture between DMCC and finance provider Shariah Capital, in its top 10 funds based on performance for four consecutive years. In 2010 I received the Middle East Investor Award by the Hedge Funds World Middle East Conference 2010 for DMCC’s exceptional performance during 2009; an award which I dedicated to His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Vice President, Prime Minister of the UAE and Ruler of Dubai. In addition, DMCC also scooped Best Fund-of-Fund, Failaka, Islamic Fund Award in 2010; while 2011 and 2012 saw consecutive Mena Fund Managers Outstanding Contribution to Islamic Finance Awards.
Facilitating Most Innovative Structured Transaction Award in 2007, Deal of the Year Award
Deal of the Year 2008, Euromoney’s Trade Finance Magazine (Global Multi Commodity Receipt (GMR)-facilitated financing by Standard Chartered Bank to Mohsen Line Trading)
Middle East Investor Award 2010, Dubai Shariah Asset Management awarded as Best Shariah Compliant product provider 2010; and DSAM Kauthar Commodity Fund received Best Funds of Funds Award 2010; at the Hedge Funds World Middle East Conference 2010
- Best Fund-of-Funds, Failaka Islamic Fund Award, April 21, 2010
- Outstanding Performance & Innovation Award, MENA Fund Manager Awards 2011
- Outstanding Performance & Innovation Award, MENA Fund Manager Awards 2012
- Outstanding Contribution to Islamic Finance Award, Mena Fund Manager Performance Award – January 2014