Future of Islamic finance

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Observer Report

Islamic finance has seen significant geographical expansion in the past few years, with new countries drafting up legislation to facilitate it.
Islamic finance is an ever-changing field, full of innovation and growth in equal measure. There are now around 15 Islamic banks and finance companies operating in the UAE. Across the world, Islamic finance has seen rapid growth, with assets reaching $2trn with expectations to cross the $3trn mark by 2018. This development has been driven by a growing Muslim population eager to find institutions that suit its needs.
While a boon for the industry, this growth has also posed challenges relating to how it can be successfully managed in the future. One bank that is working to manage this growth while creating new products is Union National Bank (UNB) located in Abu Dhabi, United Arab Emirates. Since it was founded in 1982, UNB has established itself as a leader in the field and a company that focuses on the future.
The bank and its subsidiaries now boast an international presence, through which UNB embodies the ‘we care’ ethos adopted upon its establishment. World Finance had the opportunity to speak to the CEO of UNB, Mohammad Nasr Abdeen, about the bank’s successes and the future of Islamic banking.
In the past three decades, Islamic banking has emerged as a competitive framework and a possible substitute for the conventional banking system. Islamic banking is no longer limited to specialised institutions and has expanded both geographically and in product richness, with structured credit finance receiving most of the attention.
The rapid growth of Islamic banking over the years has resulted in the introduction of complex banking products and structures. Taking note of the demand, a number of western countries have recently started allowing Islamic banks to operate in their respective jurisdictions. The UK became the first leading western country to issue a government sukuk (Islamic bond). The first fully fledged Islamic bank in Germany was launched in 2016, while Japanese lawmakers are now considering issuing regulations that will allow Japanese banks to provide Islamic finance products.
Al Wifaq Finance Company was established in 2006 as a subsidiary of UNB, offering Sharia-compliant products for the growing Islamic banking market. Al Wifaq is led by a highly qualified management team and a Sharia supervisory board comprising distinguished and eminent Sharia scholars.
The vision of Al Wifaq Finance Company is to be a premier Sharia-compliant finance brand in the UAE. It has acquired a leading role in the Islamic financial sector, offering innovative products and services across the retail, SME and corporate sectors through a growing network of seven branches in the UAE.
Despite turbulent and challenging market conditions, Al Wifaq and Islamic Banking have achieved an asset growth rate of 25 percent, from AED 6.2bn ($1.69bn) in December 2014 to AED 7.8bn ($2.12bn) in September 2016. Furthermore, Al Wifaq continues to play an active role in supporting the local community through its corporate social responsibility (CSR) policy and initiatives.
In the third quarter of 2016, the group recorded balance sheet growth across all key business segments as it pursued its prudent strategy of growing its business in a sustainable and selective manner. Loans and advances increased by seven percent on a year-on-year basis, reaching AED 73.6bn ($20bn) by 30 September 2016, while customer deposits grew marginally by two percent to AED 74.8bn ($20.4bn). Furthermore, consolidated total assets were up by four percent to AED 105.4bn ($28.7bn) over the same period.
The bank also concluded a five-year senior unsecured bond issuance of $600m under a Euro medium-term note programme. The order book was oversubscribed three times, demonstrating the strong investor appetite for UNB credit. The UNB Group’s focus remains on managing its cost structure efficiently and continuing to invest in future growth areas and technology upgrades to enhance the overall customer experience.