THE Islamic finance industry is confronted with multiple challenges in an accelerated growth scenario. Demand-driven with limited supply of human resource — capacity building, lack of standardisation, product innovation, liquidity management and enabling legal and regulatory framework — is a major challenge.

Islamic banking (IB) has been growing at a compound annual growth rate of 17pc for the last five years and is projected to grow at 20pc for the next five years.

The boost comes from the cannibalisation of the existing market — the conversion of conventional banks (Faysal, Summit) and the establishment of IB subsidiaries (MCB) and windows etc — and the expansion of Islamic banks into untapped markets — i.e. customers previously shying away from interest-based financing who are now looking into Shariah-compliant options.

The Islamic banking segment, which forms approximately 70pc of the overall Islamic finance industry, has requested the central bank to issue licences to an additional 400 branches for the upcoming year. A conservative estimate generates an annual requirement of at least 2,000 personnel with basic training.

This growth will approximately increase the demand at head offices by 10pc, generating a need for at least 200 personnel who are highly trained in specialised fields. And this is just the additional HR requirement in the short run.

The head of learning and development of a leading Islamic bank confided that no matter what package the bank offered to fresh employees, after a few months’ training, the competition will simply double it. “Retaining staff has become a big issue as we have become suppliers to the industry.”

The spillover effect of the banking industry’s growth on Takaful and window operations has also created a demand for Takaful industry professionals.

About 25 insurance firms are expected to launch Takaful window operations. With 0.8pc insurance penetration and supporting demographics, the current eight operators are facing a tough time training and retaining staff.

Highly skilled professionals and a trained sales team which has a deeper understanding of the subject and can differentiate between Takaful and conventional insurance products, are a much needed catalyst for growth.

The asset management sector of Islamic finance is struggling with the development of products, legal framework and standardisation, as regulatory support itself is also in a fairly nascent stage. With 15 new Islamic funds expected to be launched and a conservative estimate of 30 sales staff for each, an estimated 450 freshly trained sales staffers will be required in the short-term.

According to Al Meezan Investments CEO Mohammad Shoaib, the existing structure is already thirsty for sales team trained in basic concepts; he puts the figure for potentially skilled staff required at over 1,000. To support this growth, an additional 80-90 highly skilled people will be required to take the industry to the next level of maturity.

Capacity-building is needed at all levels and in associated industries, including academicians, regulators, directors, judges and lawyers, senior and middle management, along with fresh personnel at branch- and head office levels. Moreover, a concentrated effort by the sector is needed for research to achieve the goals of financial inclusion, widespread prosperity and financial stability.

On the other hand, the supply is limited and the structure lacks standardisation, creating issues at more than one level. Furthermore, Islamic finance education faces a lack of specialisation. There are very few courses on specific asset classes such as treasury and fund management, Islamic capital markets and wealth management, which can be used to build on the students’ basic understanding.

According to the ICD Thomson Reuters Islamic Finance Development Report 2015 — ‘Global Transformation’ — 378 institutions globally are offering Islamic finance-related education, with Malaysia and the UK taking the lead. In Pakistan, 21 institutions offer Islamic finance-related education.

There has been an initiative of online courses as well, both locally and globally. The International Institute of Islamic Bankers (IIIB) is offering Islamic Banker certificates and the Islamic Research and Training Institute (IRTI) has started offering online courses on Harvard and MIT Managed Edx.

The local industry has also become a supplier for the global Islamic finance industry. A case in point is Oman — a recently opened market — which is attracting a host of talents. The Omani government, contrary to the norm, has allowed all conventional banks to open Islamic windows, creating a huge demand. In a span of three years’ eight banks have already started offering IB services.

The SBP-backed initiative of launching three centres for excellence in Islamic finance — at IBA, LUMS and IMS Sciences, Peshawar — is a timely step expected to cater to the short- and long-term need for training and research for capacity-building in this growing field.

The centres are expected to promote quality education and research, along with providing a platform for debate on current issues in the field. They will also serve to liaise between Shariah scholars, bankers and academia to provide a much-needed collaborative thrust that is required for the sector’s growth.

The writer is a consultant at the Centre for Excellence in Islamic Finance at IBA.

sahson@iba.edu.pk

Published in Dawn, Business & Finance weekly, January 4th, 2016