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The UAE’s progression as a global hub for the Islamic economy

The UAE’s progression as a global hub for the Islamic economy

March, 2015
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For the past three months, the UAE government and the emirate of Dubai have announced a number of legal and regulatory changes which are expected to have a direct impact on the development and growth of a sustainable Islamic economy based on international standards. Rima Mrad and Aqsa Khan Sadiq provide an overview of recent developments in the UAE’s Islamic finance space.

Insurance Authority’s Prudential Regulations, 25 & 26

At the end of 2013, Takaful transactions increased to AED2.3 billion (US$626.06 million). According to the Insurance Authority (IA), the UAE’s insurance market, which is one of the largest in the Arab world, in terms of gross written premiums, grew by 12% in 2014.

The IA has issued recent prudential regulations (the Regulations) which are expected to promote the growth of Takaful entities and instill both national and global confidence in the UAE’s Takaful insurance market.

The Regulations provide a comprehensive regulatory regime for both traditional and Islamic insurance companies. These Regulations are the fi rst of their kind in the Arab world and insurers in the UAE will be among the fi rst to adopt new solvency standards inspired partially by the EU’s Solvency II standards that will be implemented as of the 1st January 2016. The Regulations outline technical, investment limits and record-keeping requirements for Takaful insurers. The technical aspect of the Regulations includes an obligation on insurers to maintain a standard calculation method based on international best practices. It further imposes solvency requirements with the purpose of improving insurers’ financial and investment risks.

Takaful insurers are now required to develop investment and risk management policies in compliance with the following maximum limits set by law:

  • 30% limit on real estate investment
  • 30% limit on equities, only one-third of this may be invested in a particular class of asset, and
  • 20% on mutual fund investment, only half of this may be invested in a particular asset class.
The UAE-Luxembourg Council for Islamic Finance Cooperation

The UAE’s economic relation with Luxembourg is strengthening and the governments of both countries are working together on improving their interrelations in various sectors including the Islamic banking and fi nance sectors. On the 3rd March 2015, the UAE Ministry of Finance hosted its fi rst UAELuxembourg Council for Islamic Finance Cooperation meeting in Dubai. At this meeting it was emphasized that both countries will cooperate to provide the necessary support required by companies in the UAE and Luxembourg, to assist with developing and expanding their businesses within the Islamic banking and finance sectors.

Under an MoU between Luxembourg and the UAE, both countries are encouraged to exchange best Islamic banking and finance practices.

The Insurance Authority’s ‘Reality and Prospects for the Development of Islamic Insurance Regulations’ conference

The Islamic economy sector in the UAE achieved a phenomenal amount of growth last year and the forecast for further growth this year is at a high rate of 10-15% per annum.

In light of this, the IA hosted the Islamic Insurance Conference at Regis Hotel in Abu Dhabi on the 8th and 9th March 2015.

The conference focused on the significance of Islamic finance in protecting the national economy and its community, promoting market confidence in Takaful services in light of the recent Regulations and promoting opportunities for local, regional and international investments in the Islamic insurance industries. The conference led to the adoption of diff erent resolutions relating to the support of Takaful activities and promotion of Takaful products.

The Dubai Islamic Economy Development Center (DIEDC) creating an international/global center for governing Islamic companies and for accreditation of Halal products

The demand for Shariah compliant services and products is increasing, both regionally and internationally. Given Dubai’s ambition to become a
global hub for Islamic economy, the DIEDC proposed the establishment of an international center for governing Islamic companies. It is envisaged that the center will be responsible for developing corporate governance principles that are Islamic compliant, including standards relating to disclosure and corporate transparency. The center will provide guidance for both fi nancial and nonfinancial activities to Islamic companies.

The DIEDC also plans to launch a global center for the accreditation of Halal food and products. This center will conduct food testing for chemicals and artificial additives to ensure that all Halal food and products are compliant with Islamic law. The DIEDC’s ambition is for this global center to be recognized as the first international reference within the Halal food and products industry.

In addition to the above, a number of announcements have been made by diff erent fi nancial players on the launch of new Islamic products such as the recent launch by Abu Dhabi Islamic Bank of a new Shariah compliant investment product with low-risk access to emerging markets equities. These recent developments within the UAE’s Islamic finance sector and the increasing demand for Shariah compliant products/services, demonstrate the progressive growth of this sector and that the UAE is continuously progressing towards its ambition to become a global hub for the Islamic economy.

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Published: March 2015
Publication: Islamic Finance News
Title: The UAE’s progression as a global hub for the Islamic economy
Practice: Banking & Finance Islamic Finance
Authors: Rima Mrad and Aqsa Khan Sadiq

 

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