Islamic Finance and Entrepreneurship
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Islamic Finance and Entrepreneurship: Challenges and Opportunities Ahead nIrvAnA AbOu-GAbAl Harvard Kennedy School ASIm IjAz KHwAjA Professor of Public Policy, Harvard Kennedy School bAIlEy KlInGEr Director, Enrepreneurial Finance lab research Initiative, Harvard university [pic 1] [pic 2] [pic 3]in cooperation with The Kuwait Foundation for the Advancement of Sciences ISLAMIC FINANCE AND ENTREPRENUERISHIP: Challenges and Opportunities Ahead EFLRI Islamic Finance Whitepaper January 2011 Nirvana Abou-Gabal Asim Ijaz Khwaja Bailey Klinger Entrepreneurial Finance Lab Research Initiative Center for International Development Harvard University
Over the course of 2010, 20 new banks offering shari’ah compliant financial products have entered the market. Moreover, an additional seven conventional banks began offering services via shari’ah- compliant windows. Figure 1 depicts the level and relative growth of the number of institutions offering Islamic financial products (The Banker 2010) and shows that this growth has continued in spite of the financial crisis. Figure 1: Institutions Registered for Shariah Compliant Products 7006005004003002001000 2007 2008 2009 2010 [pic 8]163 362 194 420 192 436 199 456 Number of Conventiona Banks with Shariah Windows Number of Shariah- Compliant Institutions [pic 9] [pic 10] l [pic 11]2 [pic 12] Islamic Finance is increasing no longer just a GCC phenomenon but is gaining popularity across a wider range of countries. Although the majority of Islamic finance assets have indeed traditionally been concentrated in the Gulf Cooperation Council (more than 40 percent of shari’ah compliant assets), Islamic finance is enjoying significant geographic expansion, particularly in Asia. Islamic asset growth in the GCC slipped to just 5.5% in the 2010 ranking (down from 34.5 percent in 2009). Asia’s ranking on the other hand had a high growth rate of 22 percent. Table 1 depicts the regional breakdown of assets in Islamic finance (ibid). Table 1: Regional and Global Assets ($m) GCC Non GCC MENA MENA Total Sub-SaharanAfrica Asia Australia/Europe/America Global Total 262,665.4 47.5 248,264 43.9 510,929.4 41.5 6,662.1 -27.6 86,360.3 63.5 36,105.2 27.7 639,076.9 353,237.5 34.5 315,090.5 26.9 668,328.5 30.8 8,369.7 25.6 106,797.3 23.7 38,654.8 10.1 822,135.1 28.6 2007 178,129.6 176,822.2 354,951.7 4,708 119,346.5 21,475.7 500,481.9 2008 % Change Change 2010 % Change 372,484.2 5.5 337,949.8 7.3 710,434.0 6.3 10,765.1 28.6 130,904.1 22.6 42,779.5 10.7 894,882.7 8.9 2009 % At the country-level, Iran, Saudi Arabia and Malaysia were the world’s leaders in Islamic finance assets in 2009. The top 25 countries with shari’ah compliant assets in that year are illustrated in Table 2 (ibid). Table 2: Shari’ah Compliant Assets ($m) by Country Rank Country Shari’ah Compliant Assets ($m) Rank Country Shari’ah Compliant Assets ($m) [pic 13] [pic 14] [pic 15] [pic 16] [pic 17] [pic 18] [pic 19] [pic 20] [pic 21] [pic 22]1 Iran 314,897.40 14 Pakistan 6,203.10 [pic 23] [pic 24] [pic 25] [pic 26] [pic 27] [pic 28] [pic 29] [pic 30]