About IBF 2014
With a record attendance of over one hundred participants, IBF 2014 is the largest empirical research gathering in the field of Islamic finance in the UK.
Delegates came from over thirty countries, including Malaysia, Australia, the USA, France, Algeria, Pakistan and Saudi Arabia, to name but a few. The discourse benefitted from the offering of ideas from individuals involved within the many facets of Islamic finance, whether researchers, regulators, or practitioners.
The Dean of LUMS, Professor Sue Cox, gave an opening speech addressing the sustained growth of Islamic finance in the past five to ten years, and the substantial scope for future expansion. The fact that three institutions were collaborating in the UK to research this area of banking itself marked a notable step forward in reflection of the subject’s current resonance.
The keynote speech was given by Professor Thorsten Beck of Cass Business School and Tilburg University, explaining the role of Islamic banking in the modern world. It highlighted the results of a research study comparing the performance of both Islamic and conventional banks from around 22 countries, with aspects of business orientation, efficiency, asset quality and stability. Islamic banks were revealed to be more capitalised but less cost-efficient, which could be due to differences in the business model. As to lines of future research enquiry, those might include the drivers of the expansion of the industry, its role in financial inclusion, and the type of customers who uses Islamic banking services, as well as the type of products offered, given a choice in the market between competing systems.
The series of presentations consisted of original contributions on topical matters, including Islamic finance’s specific contribution to economic growth, the requirements of risk management, the Islamic variant of microfinance, the regulation, supervision and comparative performance of Shariah-compliant institutions, and corporate social responsibility, as well as technical issues of their efficiency, stability and default risk. Also covered were investment-related matters of Islamic indices and stock market returns.
The topic receiving the best paper award had analysed the stock market reaction to 131 sukuk issuances from eight countries over the period 2006-2013. It found that the type of sukuk and choice of scholars hired to certify these securities matter for the market valuation of the issuing company. In particular, the analysis revealed that Ijara (lease) sukuk structures exert a positive influence on the stock price of the issuing firm.
Another interesting contribution extended the empirical studies linking investor mood and financial market behaviour, in particular the impact of psychological effects associated with Ramadan celebrations. Using data as far back as 1990, from seven predominantly Muslim countries, the results indicated that ‘herding’ activity is significant during Ramadan in the majority of the markets examined, with the exceptions of Malaysia and Pakistan. The findings have important relevance to international investors dealing with these markets.
Among ideas put forward of immediate note in the UK, one attractive example was a proposal on Islamic student loans, seeking to enable access to university education for Muslims who wish to abide by Shariah rules but cannot afford the UK’s £9000 pound/year fee. This piece of research may have important policy implications, as it could help engage the segment of Muslim students in the UK that are currently excluded from education due to being religiously restricted from borrowing from the conventional sources operating on an interest basis .
As to the global context, Islamic banking is now practised in more than twenty countries, with a steadily growing suite of services and instruments available including bonds, equity indices and insurance. The annual growth rate is estimated at this point at around 16%, relatively unaffected by the global financial crisis. Currently Islamic finance products, which total in excess of $1.2 trillion, are offered by 350 institutions worldwide.
A central theme in Islamic finance has been revealed, relative resilience compared to conventional counterparts, as there is growing evidence that the constraints applied by Islamic banks protected them to an extent from the shocks of the international credit crunch. It is that finding that has especially attracted the attention of market participants and researchers to the Shariah-compliant banks, and their liquidity buffers, leverage ratios, managerial efficiency and bespoke financial products.
In respect of the UK, which aspires to become an important hub for the development of Islamic finance and currently is home to more than four times the number of banks offering Islamic financial services in any other country in Western Europe, there is over $19 billion held in Islamic assets here, and pioneering tax law reforms have been brought in order to support further growth of the sector.
With the continuing rapid growth and interest in the sector, the Islamic Banking and Finance Conference promises to become a focal point for academics, administrators, advisory bodies and practitioners alike. More than anything, the event will facilitate what has become observed as the necessity of inter-connectedness, on a cross-border basis, to seek resolution of the issues that remain outstanding in the sector, and help enhance awareness of its offering.