Catalysing The Growth Of Halal Industry With Islamic Finance - Dato’ Mohamed Rafique Merican (Maybank Islamic CEO)

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1. Leadership Series Monday - 28 September 2020 Catalysing The Growth Of Halal Industry With Islamic Finance DATO ’ MOHAMED RAFIQUE MERICAN BIN MOHD WAHIDUDDIN MERICAN Group CEO, Islamic Banking Maybank Interviewed by: Daud Vicary, Chairman of Advisory Board, IslamicMarkets.com Halal industry’s growth was driven primarily by Shariah compliance certification, whilst Islamic finance’s development was driven by the need to provide a riba-free alternative finance. Collaboration between IFIs and the Halal industry is vital to provide support beyond pure financing deals. Establishing relationships with Islamic banks, before applying for financial facilities, increases Halal MSMEs’ chance in securing financing. C urrent Landscape: Starting off the discussion, Dato’ Mohamed Rafique Merican noted that though both of these concepts have been in existence for quite some time, the Halal and Islamic finance industries have grown rather independently of each other. This is largely due to the core reasons behind the development of each industry. According to Merican, the Halal industry was driven primarily by Shariah compliance certification and the production process, whilst the Islamic finance industry saw its growth through the need to provide an alternative to conventional financing instruments. Merican stated that in the current context, there have been some developments in terms of integrating the two industries, quoting the Halal Development Corporation’s “Halal Industry Master Plan 2030”, which seeks to link Islamic finance to the Halal economy. This has been facilitated by the common objective of the two industries which is to ensure compliance with Shariah principles. Bridging the Gap: Daud Vicary then went on to ask Merican about the ways in which these four key stakeholder groups could align their objectives to catalyse the growth of the Halal and Islamic finance industries simultaneously. Whilst the Halal economy has been in existence for much longer compared to the Islamic finance industry that started in 1975, Merican noted that the asset bases of the two industries were almost at par, with total Halal spending in 2018 at USD2.2 trillion and assets in the Islamic finance industry currently at USD2.5 trillion. Merican’s view was that a synergy between the two industries is crucial. The second area of focus would be to increase awareness, where Merican suggested Islamic financial institutions to engage with Halal players through training and education programs, and also to increase demand from both Muslim majority and non-Muslim majority countries. Merican said that although the industry is aware of these requirements for further development, these measures were still at a very transactional level, and there is a need for this to be converted into industry and policy-level measures to have a bigger impact. However, Merican recognised the fact that the inroads made for the convergence of the Halal industry with the Islamic finance industry are still in their very early stages, citing statistics that Islamic trade finance accounted for just 1.5% of total global trade finance facilities which stood at USD12 trillion in 2016. The key reasons for this low take-up rate according to Merican were the lack of visibility and awareness created with regards to the acceptance of trade finance, for example. According to Merican, an important factor in closing these gaps is a clear understanding of the Halal industry and the Islamic economy from a broader perspective than just the knowledge provided by subject matter experts on financial products and services. Further, there is a pressing need to understand the players (small businesses versus multinational companies, for example) within the ecosystem and their financing requirements, in order to be able to deliver more tailored products to the Halal industry. Merican explained that incorporating the requirement for use of Islamic financing into the Halal certification process overnight, was not possible as it could cause significant disruptions to global supply chains, but that these conversations are imperative for the two industries to further prosper. Added to that, Merican stated that it was imperative that Islamic finance institutions engage with not only the regulators and customers, but also with the players in the Halal industry to get a better understanding of how greater support could be provided, aside from providing a purely financial support. The collaboration of these four stakeholder groups would be vital to the success of bridging the gap between the Halal industry and Islamic finance. It is also important to encourage the Islamic financing institutions to take initiatives and develop financing products that are adding value to the economy as a whole. Speaking on how Maybank approached its markets in this regard, Merican stated that getting to know the customer was key. Given that the Halal economy is diverse, Merican viewed it as necessary to have detailed conversations with customers in the industry, along with respective certification bodies and other key stakeholders to get a first-hand understanding of the way in which their businesses worked within the Halal industry space. Through these discussions, Maybank sought to develop closer relationships with its customers as well, particularly the underserved micro, small and medium enterprises (MSMEs) segment. Merican noted that building these relationships is pivotal to pave the way for Islamic financial institutions to design value-adding financing propositions which will be in line with the specific needs of customers within the Halal economy. Merican also highlighted the role of Shariah scholars and Shariah advisory boards in this process. The COVID-19 Opportunity: The latter part of the discussion looked at how the current pandemic has impacted the synergy between the Halal industry and Islamic finance. Merican noted that there was a shift, particularly with regards to the role of digital banking platforms and the way in which these were used to connect customers with vendors particularly during the lockdown periods imposed in Malaysia. Speaking on Maybank’s experience, Merican stated that what initially started out as a simple payment platform, became an engine of growth for more types of transactions. Maybank was also able to facilitate Zakat payments through its digital platforms, thereby opening up avenues for social financing initiatives. Merican said that banking services evolved significantly during the lockdown period, with banks being able to connect communities through their platforms. Concluding his views, Merican stated that currently, both the Halal economy and Islamic finance industries are outperforming growth projections, with demand largely coming in from Muslims around the world, accounting for roughly 25% of the global population. With over 76% of Muslims stating that they want to strengthen their faith and adopt more Shariah-compliant guidelines in their daily lifestyles, this presents opportunities for the players in the Islamic finance industry to capitalise on. Merican stressed that collaboration between key industry participants and leveraging on strategic partnerships are essential, and it is up to the financial institutions to see how to best position their businesses to ride this growth wave. Watch again on IslamicMarkets.com
2. Global Halal Market by 2030 Europe & Eurasia North America Middle East & North Africa USD 0.2 Tn USD 0.3 Tn USD 0.3 Tn USD 0.5 Tn USD 0.8 Tn USD 1.2 Tn Asia Pacific USD 1.6 Tn USD 2.8 Tn Global Market Sub-Saharan Africa USD 3.1 Tn USD 0.2 Tn USD 5.0 Tn USD 0.4 Tn Source: Halal Industry Master Plan 2030, Halal Development Corporation (HDC) Berhad Halal Industries & Islamic Finance: 2024 Outlook USD Billion 2,524B 1,972B 1,369B 3,472B 2024 2018 1000 800 600 402B 400 309B 283B 220B 274B 189B 200 92B Halal Food Modest Fashion Media & Recreation 134B Halal Muslim-Friendly Pharmaceuticals Travel 64B 95B Halal Cosmetics Islamic Finance Source: State of the Global Islamic Economy Report 2019/20, DinarStandard Bridging the Gap between Islamic Finance and Halal Industries Understand the Halal ecosystem beyond Islamic financial products and services Identify and understand the pain points of active players in the Halal economy Engage with standard setters and certification bodies Connect with customers operating Halal businesses and understand their specific needs Assist Halal businesses in marketing their products in new markets where they don't have penetration reach Customise financial solutions depending on the size of Halal businesses Encourage Islamic finance to be included in Halal certifications