Why is Islamic finance important for MBAs?
Monday 06 August 2012
There are a number of business schools now introducing Islamic Finance in their curriculums. For some, the reasoning is to open MBA students up to different cultural realities, but for many schools, it just makes business sense.
We can identify three main reasons why it is important to include Islamic Finance in the curricula of an MBA student.
Islamic finance has a niche hold on the market, and it is growing at a tremendous rate
Islamic finance has developed into a solid industry that complements conventional banking, only a fraction of the available liquidity is actually invested in the sector, (2 per cent of global banking assets) though it does offer great potential and further growth prospects (is growing more than 20 per cent annually.) Some of the most active countries in Islamic finance (Saudi Arabia and the UAE for example) represent the highest level of liquidity in today’s global market, a market hungry for liquidity.
On the other hand, out of the 1.6 billion Muslims in the world, only 14 per cent use traditional banks, compared to 92 per cent of US households and 95 per cent UK, and a large number might find Islamic finance as an attractive option for their savings and/or financial needs.
The Islamic market demands a specific expertise that combines solid financial knowledge with that of Islamic finance market. MBAs can fill that role
The origins of the Islamic modern banking movement first developed in the 1950s and 60s, but its full development occurred in mid 70s after the oil crises of 1973, coinciding with the emergence of Islamic movements.
During the 90s, Islamic financial institutions became increasingly innovative and developed more complex instruments and structures to meet the demands of modern day business. Today they cover a wide product range, from corporate finance to asset management; and future development is likely to be in the area of derivatives liquidity management.
In recent years, driven by the oil financial liquidity and an increase demand, the industry witnessed a large expansion, both in terms of its side, as well as in the financial innovation of the new developed products. Today, most conventional players are active, like Deutsche Bank, HSBC, BNP, Citi, UBS, or Barclays in the offer side but also companies like general electric in the demand side. Therefore, it is becoming a global industry that needs global expertise.
Because the industry is so new, there is still much room for people willing and capable of providing the needed innovations to move the industry further. Thus, MBAs not only need to learn about the Islamic finance world because it can shed light on other finance markets, but because it invites innovation and offers job growth.
MBA students have a solid training in finance and finance innovation, that can be easily transfer to the Islamic finance sector, provided that they understand enough the Islamic finance market. Therefore, for MBA students looking into new career possibilities, Islamic Finance Industry can definitely be something for them to explore.
A deeper understanding of Islamic finance will help MBAs shape the debate on the new financial order
There is a popular saying: There is nothing like a good crisis to reassess your options and look for new alternatives.
Islamic finance can offer some food for thought in the financial crisis. For example, the industry was less effected by the crisis because its intrinsic features help the stabilization of credit growth, promote an asset-based investment, foster economic productive transactions and thus a reduction of systemic risk, and for the most part help to have a balanced leverage.
In general, the principles of avoiding speculation and fostering instead the real economy provide interesting insight on how to avoid some of the causes of financial crisis.
In short, the market for Islamic finance has developed itself as a serious alternative for conventional banking and covers a wide product range, experiencing state of the art education- and research regarding the Islamic Finance Industry is interesting for international students.
A deeper knowledge of Islamic finance can improve the competitiveness of MBA students on the international financial market stage – for their personal career possibilities and also in shaping a new financial order that is in the coming.
Celia de Anca is the professor of Islamic Finance and director of Scief at IE Business School.
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