SAUDI ARABIA. A Deloitte Middle East Islamic Finance Knowledge Center (IFKC) report, entitled ‘Empowering Risk Intelligence in Islamic Finance’, addresses and investigates the important issues in practice and regulation in Islamic Finance in the current market challenges.
The report also assesses the impact of Islamic Financial Institutions in different countries, highlighting that Saudi Arabia is one of the main contributors to the Islamic Finance industry, with an estimated US$ 94 billion in Islamic Finance Assets.
Based on analysis provided by Deloitte Middle East Islamic Finance Knowledge Center, the total of the Saudi Arabia Islamic Finance Assets, valued at US$ 94 billion, represent 26% out of total GCC Islamic Finance assets and 8.2% out of total Global Islamic Finance assets.
The report also focuses on the governance and structural aspects of an effective risk management framework in Islamic Finance. It presents new findings in the practice of Islamic Finance risk management that offer guidance to boards in managing risk in troubled times. It is based on a survey and group of case studies developed during the second half of 2011, on 20 leading Islamic Financial institutions from the Middle East and South East Asia, with aggregate assets of more than US$50 billion. It also includes several interviews conducted with industry leaders and risk management executives.
“Greater pressure has been placed on financial institutions offering Islamic Financial services to galvanize risk exposure and governance capabilities,” commented Dr. Hatim El Tahir, director of the Deloitte Middle East Islamic Finance Knowledge Center (IFKC). “Global and regional jurisdictional regulatory reforms are continuing. How this regulation will affect the Islamic Finance sector and the role of IIFS in the economy is yet to be seen,” he added.
The Deloitte report finds that Saudi Arabia saw the launch of one the first and most important institutions in the Islamic Finance (IF) Industry. The Islamic Development Bank (IDB) is a multilateral development financing institution established in Jeddah in 1975. Up until today, the (IDB) has contributed over US$200 million of technical support to nearly 70 Islamic Financial Institutions (IFI) around the world.
Furthermore, Saudi Arabia saw the establishment of other prominent institutions that played a role in the advancement of IF. This includes the founding of the International Association of Islamic Banks in 1977, with a goal of promoting and facilitating cooperation between Shari’a-compliant financial institutions, as well contributing to harmonization of the industry on an international level.
Today, there are four Islamic Commercial Banks operating in KSA. They include: Al Rajhi Bank, US$ 58.8 billion total assets; Bank Al Jazira, US$ 10.3 billion total assets; Alinma Bank, US$ 9.8 billion total assets and Bank Albilad, US$ 7.4 billion total assets.
Aside from Islamic Commercial Banking, Cooperative Insurance industry evolved considerably in the KSA during the past 9 years. There are currently more than 30 Cooperative insurance companies, total assets of over US$7 billion with the largest company being The Company for Cooperative Insurance (Tawniya) with total assets of US$ 1.9 billion.
The concept of Cooperative Insurance was introduced in KSA in 2003 after all conventional insurance companies were exempted from Saudi Arabia and the Cooperative Insurance regulations were passed, setting the basis of providing insurance on a cooperative basis in accordance with Islamic Shari'a. However there was no detailed guidance as to what constitutes cooperative insurance but it is accepted that there are differences to the Takaful model.
The Sukuk market in Saudi Arabia (the Islamic equivalent of debt) is considered the third largest in the world after Malaysia and UAE, according to the IIFM Sukuk report. Total issue number of 25 with issue size of US$17.1 billion up until December 2011.
The single largest Sukuk issue ever was issued from General Authority of Civil Aviation in Saudi Arabia in January 2012 with an issue size of US$ 4 billion on a Murabaha. Many Islamic finance forecasts and analysis predicts that Saudi Arabia and South East Asia will dominate the Sukuk market in 2012 with high quality quasi-sovereign issues.
However, in light of the global regulations in the financial services industry, Islamic Financial institutions are being heavily impacted.
Islamic Financial institutions and their systems of governance will continue to evolve as new regulations are issued. Executives of Islamic Financial Institutions, along with executive risk offers, will equally play an important role in coordinating risk management implementation and activities between boards and Sharia’a Supervisory Boards and other business supporting units in the institution.
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Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 85 years.
Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 2,500 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region (International Tax Review World Tax 2010, 2011 and 2012 Rankings) and was recognized as the 2010 Best Consulting Firm of the Year in the Complinet GCC Compliance Awards.
In 2011, the firm received the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).