Shariah Investing Dialogue 2020 Series 2 - Shariah Fraternity: Setting the Pace of Innovative Thinking

Transcription

1. Shariah Investing Dialogue Series 2020 Thursday - 26 November 2020 Series 2 - Shariah Fraternity : Setting the Pace of Innovative Thinking A further scrutiny of the practice of Islamic capital market (ICM) shows that tremendous developments have taken place, in almost all aspects. Whenever we want to produce a product for the market, we need to ensure that the product is in line with Shariah principles and benefits the society. The new generation of the Shariah fraternity needs to be trained to be flexible, nimble, and courageous enough to break barriers, look into new meanings of the teachings of the Quran and the Sunnah and use this to innovate within the industry. Shariah fraternity needs to move faster, embrace new technologies, and constantly keep abreast of the developments and changes in the industry. I nnovative Solutions in ICM: Assoc. Prof. Dr Aznan Hasan started the session with a presentation where he shared his views on innovation within the Islamic capital market (ICM) space and the critical success factors needed to further spur this innovation. At the outset, Dr Hasan noted that a strong Islamic economy requires a vibrant ICM without which, fundraising, employment of the capital raised, and facilitation of business would not be practical. Dr Hasan explained that ICM has witnessed a lot of innovation across various areas such as regulation, product development, and intermediary services. First and foremost, Dr Hasan noted that the main purposes of ICM are mobilisation of capital from surplus units to deficit units and assisting with the capital formation in a Shariah-compliant manner to channel these funds towards the growth and development of businesses and economies. ASSOC. PROF. DR. AZNAN HASAN Deputy Chairman of Shariah Advisory Council Securities Commission Malaysia Shariah-compliant. Delving deeper, Dr Hasan then detailed the various fintech regulations applicable to specific fintech products, such as e-money, property crowdfunding, digital currency and P2P lending. The fact that Malaysia now has ten equity crowdfunding operators, eleven P2P financing operators, three digital asset exchanges and one property crowdfunding platform, are testaments to the development of regulatory innovations over the years. In the ICM context, Dr Hasan discussed the regulatory developments for Green Sukuk and SRI funds. The world’s first Green Sukuk by Tadau Energy was issued in 2016, and this issuance was problem-free due to the regulatory framework already in place. Dr Hasan spoke further about the developments in the Socially Responsible Investment (SRI) space, citing Malaysia as the largest SRI Funds and Sukuk market globally. With SRI projects covering natural resources, renewable energy and energy efficiency, community and economic development, as well as Waqf properties/assets, Dr Hasan touched on some of the SC’s guidelines for SRI Funds in Malaysia where the most recent regulatory update was in early November 2020 when SC added a framework that embeds Waqf in ICM. This new framework seeks to widen the range of Islamic capital market products and provides public access to Islamic funds that can contribute towards social causes via Waqf. Dr Hasan described the four core building blocks required to make an efficient capital market, starting off with law, rules and regulations to ensure that the markets work smoothly. Apart from this, other key elements include the infrastructure (such as the Exchanges, clearing houses and Bursa Malaysia), ICM products Building Blocks for Capital Market (primary products such as equities, bonds and derivatives, and secondary products such as ETFs, unit trust, REITS and other structured products), and the participating organisations (stockbrokers, investment managers, investment bankers and fund managers). Next, he INTERMEDIARIES - Equity shared the different examples of - Bonds innovation pertaining to each of these - Derivatives key areas. Activities Products In the regulatory space, Dr Hasan stated that there is a lot of development around fintech. Citing examples of fintech regulation from Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC), Dr Hasan shared a timeline of the development of these - Exchanges regulations from the introduction of a - Clearing house regulatory framework for Peer-to-Peer - Depository (P2P) financing in April 2016, all the way to July 2020 when SC’s Shariah Advisory Council (SAC) recognised Digital Assets as Capital Market Infrastructure INVESTORS INSTITUTIONS Rules DATUK DR. MOHD DAUD BAKAR Chairman, Amanie Group Chairman, Shariah Advisory Council PROF. DR. MOHAMAD AKRAM LALDIN Executive Director International Shari’ah Research Academy for Islamic Finance (ISRA) With respect to the market’s infrastructure, Dr Hasan spoke of the launch of Bursa Malaysia-i in 2016, describing it as the first end-to-end Shariah investing platform. This allows investors to experience a holistic Shariah-compliant investment experience, right from the purchase of shares to the settlement of trades. Finally, the participating organisations have transformed in such a way that now investors can benefit from robo-advisory and algorithm-based investing systems. Dr Hasan also explained the emergence of digital wealth management, from online questionnaires (digital wealth management 1.0) all the way to fully automated investments (digital wealth management 4.0). These platforms are able to assist the investor to match his investment with his desired risk appetite. Given all these developments, Dr Hasan reinforced that ICM does not lack innovation and that the industry is wide-spread, vibrant and constantly evolving. In instances where Islamic capital markets are yet to have a solution for certain product instruments, Dr Hasan attributed it to the lack of ability to structure the product based on Shariah-compliant principles, rather than the inability to innovate. Dr Hasan stressed on the need for innovation and for Shariah advisors and practitioners to have a deep understanding of all areas within the industry, particularly the needs of the market which can be done via extensive product and market research. Dr Hasan also stressed the importance of understanding the various legal and Shariah frameworks, taxation frameworks, and facilitating an efficient and smooth ‘time to market’. In the end, Dr Hasan pointed - Trading - Investment that it is critical for all stakeholders in the Management industry to ensure that the innovation - Corporate Finance created within the industry is in line - Investment Advisory with the ultimate purpose of Maqasid-al-Shariah and to constantly keep abreast of the developments and changes in the industry to ensure that the spirit of innovation continues. Shariah Fraternity Driving Innovation: Dr Hasan invited both Datuk Dr Mohd Daud - Securities laws Bakar and Prof. Dr Mohamad Akram Laldin - Guidelines - Rules of Exchanges to share their initial thoughts on the role of the Shariah fraternity (comprising scholars, regulators, practitioners and professors) in championing the development of innovation within ICM.
2. embrace the idea of Tayyeb investments . When it comes to attracting investors, Prof. Dr Laldin highlighted the importance of creating awareness in the market of the unique features of investments embodying Maqasid-al-Shariah. The core differences between conventional products and the inclusiveness of Shariah products need to be emphasised to investors, to highlight the fact that Shariah-compliant products go beyond merely the core elements of Halal. Understanding the real market needs Understanding product features Critical Success Factors for Innovation in ICM Product and market research Understanding the framework (legal and Shariah) Time to market Distribution Datuk Dr Bakar initiated the discussion stating the importance of the Shariah fraternity in looking ahead and planning for the next industrial revolution, rather than looking back into the past. Citing his own illustrious career spanning over twenty-six years in the ICM industry, Datuk Dr Bakar stressed the need for the Shariah fraternity to play the role of a game changer, using the Shariah mind as a key enabler. Whilst the industry has the data and the technology, a new generation of the Shariah fraternity needs to be trained to be flexible, nimble, and courageous enough to break barriers, look into new meanings of the teachings of the Quran and the Sunnah and use this to innovate within the industry. Datuk Dr Bakar reiterated the need to keep innovating and to stay ahead of the time in this competitive marketplace in order to be successful. Expanding on these views, Datuk Dr Bakar commented that it is crucial for the Shariah fraternity to be honest and true to their capabilities and to not underestimate these at any cost. Datuk Dr Bakar stressed that knowledge is power and that the new generation of Shariah scholars needs to develop its own design thinking with regards to Islamic Fiqh and jurisprudence. ICM Stakeholders: To gain credibility amongst sceptical investors, Prof. Dr Laldin explained the importance of interaction between investors and the Shariah fraternity to promote a better understanding of the services offered within the ICM space. In response to this, Datuk Dr Bakar added that it Dr Hasan then invited Prof. Dr Laldin to share his views on how the Shariah fraternity could move beyond the mere box-ticking approach to selecting investments in a more inclusive approach that integrates contemporary concerns showed by investors with regards to sustainability and impact. Prof. Dr Laldin emphasised that innovation is key and that it is no longer sufficient to just seek Halal solutions in the Islamic capital markets. Focus should be on ensuring that the dimensions of Maqasid-al-Shariah are in place. According to Prof. Dr Laldin, this has become an even more important requirement post-pandemic as investors are seeking the value proposition that embraces the true essence of Shariah (including the legal, ethical and moral dimensions of an investment). The move is now from a Halal concept (what is permissible) towards embracing the concept of Tayyeb (what is good and pure) which encompasses elements of SRI, Environmental, Social and Governance (ESG) factors, as well as ethical principles. Prof. Dr Laldin highlighted the need to increase awareness amongst the Shariah fraternity in this regard by having more discussions, more engagement and changing the mindset to is imperative to engage and change the mindset of the investors and emphasise creativity and innovation. According to Datuk Dr Bakar, Islam and Shariah have never been merely black and white. With regards to Fiqh, a single issue may have up to ten opinions, proving that a one-solution-fits-all approach is not the way Shariah works. Brought To You By Role of Shariah Fraternity Monitoring of compliance. Innovation of Product & Services in ICM To guide the industry in coming up with suitable products that comply with the Shariah and at the same time are acceptable to the markets. Leading the market towards Shariah compliant outcome-based products, based on Maqasid al Shariah. that these individuals should not restrict their learning and exposure to a single jurisdiction, rather to travel and explore the Shariah cultures across different markets to gain a holistic understanding of the industry. Datuk Dr Bakar requested the senior scholars within the Shariah fraternity to provide more opportunities for the younger scholars to get more visibility by attending key industry events, mentoring, learning from others’ experience and using that knowledge to build on their careers. Next, Dr Hasan looked at the role of ICM in the face of the new normal under COVID-19 conditions, and how innovative thinking across the Shariah fraternity could boost this segment. Datuk Dr Bakar stressed on the importance of digital adoption and doing things differently in the COVID-19 environment. There is also a pressing need to convert the minds of the people to manage their limited available investment resources to get the best returns at minimal risk. Adding onto the discussion on digital adoption, Prof. Dr Laldin emphasised the importance of fintech, stating its critical role in the development of the industry going forward. Prof. Dr Laldin stated that the onus of embracing digital adoption is on the Shariah fraternity and scholars to ensure that they equip not only themselves, but also students of the Shariah with the necessary tools needed to adapt to fintech easily. Concluding the session, Datuk Dr Bakar urged the industry players to continue looking and moving forward by developing newer mindset and ways of thinking. Dr Hasan encouraged investors to not only seek financial returns from Shariah-compliant investments, but also to look at their purity and impact. Dr Hasan reiterated the importance of technology adoption, the need to have a forward-looking approach when it comes to innovation, and lastly that it is imperative for the Shariah fraternity to understand its role in the development of the industry. Challenges of ICM’s Shariah Advisory When it comes to cross-border Shariah transactions, Datuk Dr Bakar stated that whilst there is no problem with regards to a dual listing of an instrument to facilitate cross-border investments, consideration needs to be made to aspects like taxation and due diligence requirements. To do this, Datuk Dr Bakar suggested the reliance on new, cutting-edge technology to ensure cross-border compliance with laws of both countries. Difference in Shariah interpretations was a key issue raised by Prof. Dr Akram. He opined that effective communication and centralisation of the views of Shariah bodies across jurisdictions are vital to ease cross-border Shariah-compliant transactions. On the opportunities available to younger scholars looking to advance their careers within the Islamic capital markets industry, and whether they are constrained by senior industry members, Prof. Dr Laldin encouraged these scholars to take a proactive approach in seeking opportunities within the industry and work with experienced professionals, learn from their experience and gain visibility. Prof. Dr Laldin suggested Platform Partner Knowledge Partners Knowledge and the know-how of the products and instruments. Knowledge of various frameworks, Rules and Guidelines including legal and regulatory and taxation. Shariah compliance and viability of products and instruments. Watch again on IslamicMarkets.com