(MENAFN - Arab News) Another sign of the disconnect between the Islamic finance industry in general and some sectors of the real economy, is the meager involvement of the Islamic finance in productive sectors such as the global halal food business.
The connectivity should be natural given that they are supposedly both part of the Halal Activities Paradigm, of which finance and food are but two trillion-plus dollar components.
Last week in Kuala Lumpur the 6th World Halal Forum (WHF) unveiled the SAMI Halal Food Index and Halal 2.0, which according to WHF would greater involve interaction between the halal food sector and Islamic finance. The SAMI (Socially Acceptably Market Investments) Halal Food Index, according to the WHF, positions halal as an asset class within the investment community and comprises over 200 companies listed in Muslim-majority countries with a total market capitalization of over 100 billion.
However, WHF Director Abdalhamid Evans may be forced to revise his optimism at a press conference about Halal 2.0 being "the biggest shift that we are going to see over the coming decade. This is inevitable - they are the two great Shariah-compliant business sectors, and yet there is currently little or no interaction between them. The merging of these two sectors will give rise to areas of new growth and wealth creation." Either Evans is not familiar with the rubrics of the Islamic finance industry or he is the consummate idealist. Islamic finance is still essentially risk-averse and short-term in its outlook. This is because Islamic investors and shareholders share this short-termism and risk aversion with their bankers, who after all work for them.
While the situation may be slowly changing, Islamic financial institutions still prefer not to finance small-and-medium-enterprises (SMEs), except in Malaysia and Turkey, and do not like to finance projects such as food processing and manufacturing where the gestation period of the project is usually three years and more, and therefore do not deliver quick enough returns to investors and shareholders.
Malaysia and Turkey are exceptions in terms of halal food business and Islamic finance. The Malaysian government has promoted the halal food and business as an industry in its own right. This is manifested in Malaysia arguably having the most advanced halal food and Islamic finance industries in the world.
The halal food business is promoted by organizations such as WHF, its new not-for-profit sister organization, the International Halal Integrity Alliance (IHI), and the annual Malaysia Halal Showcase (MIHAS). Islamic finance is promoted by the Malaysia International Islamic Finance Centre (MIFC). These organizations have facilitated the development of international standards and guidelines for the Halal food and Islamic finance industries.
Successive Malaysian prime ministers have been strong supporters of both industries. Former Prime Minister Abdullah Ahmad Badawi in his keynote speech at this year's WHF could be forgiven for trumpeting Malaysia's success in the above respects. "We have a big hub for the halal industry in Malaysia. It is getting bigger and bigger. More people are showing interest in our services and products," he said.
The global halal business market is estimated at 2.3 trillion, excluding banking, finance and insurance (Takaful). According to the World Halal Forum, 67 percent, or 1.4 trillion, of this market is comprised of food & beverage. Pharmaceuticals make up 22 percent or 506 billion, with cosmetics and personal care products total 230 billion.
"If we include the services sector for halal," explained Mohd Najib Abdul Razak, who is Abdullah Badawi's successor as prime minister, "and we should give this serious consideration, the potential size of the total market is astronomical. We need to think beyond industries and move into the larger realm of a halal economy. A value based economy rooted in trust, integrity and fairness. And why not- Halal has thrived and will continue to thrive on innovation. Furthermore, Muslims account for one fifth of the global population, with between 1.4 and 1.8 billion spread across 148 countries worldwide, and these numbers continue to grow."
Malaysia is setting the pace in many respects. In 2009, Asian Finance House, the local Islamic bank in which Qatar Islamic Bank has the largest stake, and Unicorn International Islamic Bank, the subsidiary of Bahrain-based Unicorn Investment Bank, together with four other banks signed an agreement with the Penang state government to develop Penang as an international halal food manufacturing hub. The agreement was to establish a multimillion dollar Penang Halal Park.
At the same time, the CIS, especially Russia, which have a combined Muslim population in excess of 150 million but which is underserved by the halal products and services industry, is increasingly being targeted by Malaysian investors and halal food manufacturers.
Malaysia has one of the best developed halal food and business economies in the world, with the industry reaching about 10 billion in 2010 of which just over 1 billion is exported, which suggests that there is huge scope for expansion. Leading the Malaysian initiative in the CIS, is Amanah Raya, the Malaysian government trustee and wealth planning entity. Amana Raya, through its investment banking subsidiary, Amana Investment Bank, has considered the potential for this sector in the CIS and is the lead investor in Baltach, the first Halal industrial park in Russia which was launched in November 2010 and is based in Kazan, the capital of Tatarstan. Baltach will house small and medium-sized enterprises (SMEs) involved in the halal processing of agricultural, livestock and meat products, grown and reared by surrounding local farmers. Amanah Raya's main partner in Baltach is IFC Linova. The initial investment in the project is 150 million rubles which will be managed by a holding company, NHIDC.
By Mushtak Parker