Qatar: The Ruler of Islamic Finance in The Middle East Region and Almost Globally

 

             During the last few years, Islamic finance has grown rapidly, especially in the Middle East and Asia, and this growth is expected to continue to increase year after year. This development has made the sharia-based sector even wider. Although currently the largest and most popular Islamic financial sector is held by Islamic banking, which is 70 percent of global Islamic banking services in 2019, other Islamic financial services such as sukuk, Islamic funds and takaful have also increased.

            Over the past decade, Islamic finance grew at an exponential yearly pace of 10%–12% and it is not limited to Muslim countries, it has shown growth globally including in Europe. Total Islamic finance asset worldwide are projected to grow to $3.5 trillion by 2021 from $2 trillion currently, depends on the economic well-being of these 10 markets, according to Arab News’ 2019 State of Global Islamic Economic report.

            Domat (2020) reported that Islamic finance in 2020 is a $2.5 trillion industry spread over more than 80 countries with the bulk of it concentrated in very few markets. Data compiled by the Union of Arab Banks’ research department shows that just 10 countries account for almost 95% of the world’s sharia-compliant assets. Iran leads the way with 29% of the global total followed by Saudi Arabia (25%), Malaysia (11%), the United Arab Emirates (8%), Kuwait (6%), Qatar (6%), Turkey (2.6%), Bangladesh (2.1%), Indonesia (2%) and Bahrain (1.8%).

            Islamic finance has an important role for the Qatar economy, even though it is in a competitive area, but Islamic financial assets in this country are growing rapidly as infrastructure development and the economy in general, even the growth rate of Islamic finance exceeds conventional finance. Qatar has a growing market with many positive social and cultural aspects, and its also has a wide range of well-established products with sharia principles that make it a leading Islamic financial base for institutions and investors.

            According to Qatar Financial Services which reported that as of January 2019 a total of four Islamic banks were licensed by the Qatar Central Bank (QCB), between them accounting for around 25% of Qatar’s banking sector assets, according to the Ministry of Finance. They have driven the development of the IFS industry and hold the largest share of its assets, worth around QR348bn ($95.6bn) as of September 2018. Takaful (Islamic insurance) and non-bank financial institutions accounted for around 1.3% of total IFS assets in 2017. A total of five takaful and re-takaful companies are licensed by the QCB, and their activities have established the country as the second-largest sharia-compliant insurance sector in the GCC, behind the UAE (and excluding Saudi Arabia, which has adopted a cooperative model rather than takaful). Sukuk (Islamic bonds) accounted for around 18% of total IFS assets in 2017, thanks in large part to the government’s issuance of sovereign sukuk, which dominate the market with just over 71% of total issuances.

            The sharia-compliant asset management segment, in which sukuk play a vital role, is where IFS has made the greatest proportional advance, with sharia-compliant funds accounting for $224m by the end-2017, or over 50% of the Qatari asset management segment, according to the Qatar Financial Centre (QFC). Together, Qatar’s IFS institutions establish the country as one of the most vibrant sharia-compliant markets in the region. With 100% foreign ownership laws in place, an attractive tax environment and ease of business start-up, the nation is also a competitive hub for IFS firms looking to conduct business in untapped global markets.

            The development of Islamic finance in Qatar is also assisted by the role of the government through the establishment of regulations, one of the most influential is The Law No 13 of 2012 which clearly dictated the scope of Shari’a-compliant banking and states that Islamic banks are governed by QCB and shall be subject to the same regulatory regime as their conventional counterparts. The Law also called for the formation of a Shari’a Supervisory Authority by each Islamic financial institution. Islamic banks operate under two regulatory regimes: the QCB and the Qatar Financial Centre Regulatory Authority (QFCRA). Islamic banks that are listed on the Qatar Stock Exchange (QSE) are subjected to Qatar Financial Markets Authority (QFMA).

            Previously in 2007, there was the Islamic Finance Rule Book 2007 issued by Qatar Financial Centre Regulatory Authority (QFCRA) which provides rules and regulations related to Islamic finance. QFCRA also introduced a new Islamic Banking Business Prudential Rules 2015 and a revised version of the Conduct of Business Rules 2007.

            Global Islamic Finance Report (2017) explained that there are two regulatory frameworks of Shari’a governance system in Qatar: one for Islamic financial institutions under the auspices of Qatar Central Bank (QCB), and the other under Qatar Finance Centre (QFC). In 2008, the QCB issued the prudential regulation for banking supervision - Instructions to Banks (the Instructions), and Part Seven of the Banking Supervision Instructions. The QFC, on the other hand, has its own rules and regulations pertaining to Shari’a governance system as stipulated in the ISFI. As per the Shari’a governance framework of the QCB, Islamic financial institutions are required to establish their own Shari’a board, which must consist of not less than two qualified Muslim members appointed by BOD and approved by the general assembly.

            It further stipulates that Islamic financial institutions are required to implement the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) governance standards. In order to ensure independence of the Shari’a Board and avoid any conflict of interest, Shari’a board members are prohibited from receiving credit facilities for both personal and commercial purpose. The Shari’a governance framework also specifies the requirement for Islamic financial institutions to appoint their directors and senior management who are highly-qualified, experienced and trained in the field of Islamic financial services.

            The increase in Islamic finance in Qatar will present new problems such as increasing liquidity, expanding secondary and interbank markets, risk management and asset liability, development of microfinance and further sophistication of securitization and improving human capital. Especially in the last few years, growth has been mainly driven by large-scale projects set by the government as part of the Qatar National Vision (QNV) 2030 included major infrastructure projects to meet Qatar’s hosting requirements for the 2022 FIFA World Cup.

References

Domat, Chloe. Global Finance: https://www.gfmag.com/topics/blogs/islamic-finance-just-muslim-majority-nations

Oxford Business Group: https://oxfordbusinessgroup.com/overview/strong-government-support-sector-continues-expand-competitive-environment-steady-progress

Global Islamic Finance Report. 2017. Qatar: A Growing Reputation In Islamic Finance. Dubai Islamic Bank