What training for Islamic finance?

By our partner:

Association Finequity
” For ethical, fair and solidarity-based finance “

ISLAMIC FINANCE:

The training challenge

Overview of the training on offer in France

All the players in Islamic finance agree that training is today one of the critical challenges in supporting the development of this industry. The sector is in fact growing faster than its capacity to train experts, and this shortage of skills leads to a counter-productive concentration of the leading scholars in the sector’s major international standard-setting institutions.

A complex … and rare profile of expertise

The particularity of this industry is twofold:

It naturally needs finance experts, except that the experts in question must have a very good understanding of the Islamic frame of reference.

But above all, its existence today depends on a profession unique in the world, that of jurist (usually referred to by the English term “scholars”).

These are experts who master the fundamental principles of Islam and its economic and financial law as well as conventional finance.

Shortage of skills

If training today appears critical for IFIs (Islamic Financial Institutions), it is because the sector is growing faster than its capacity to train experts. A survey carried out in 2007 on a panel of 192 IFIs by Euromoney placed the sector’s need for scholars in a range of 576 to 960 specialists (depending on whether the board has 3 to 5 members) over a five-year horizon.

Concentration of professionals

Besides the shortage of skills, this industry has to deal with another problem arising from this state of affairs: the few scholars recognised worldwide sit in all the IFIs and standard-setting supervisory bodies (for a detailed presentation of these bodies, see K. Merbouh and C. Banlier, Techniques Financières et Développement, September 2009).

The chart illustrates the over-representation in the sector of the 6 most recognised scholars in the world.

Source: « La finance islamique à la française », collective work edited by Jean Paul Laramée, p. 81, Figure 9, Abdel Maoula Chaar

It is easy to see that such a concentration has consequences in terms of governance, the efficiency of validation processes, and costs. Some professionals are worried to the point of imposing government-style restrictions (a ban on travelling on the same plane, and so on)

These observations lead us to two conclusions:

– It is necessary to train “scholars” in order to reduce the risk of oligopoly within the IFIs and to encourage a renewal of standard-setting thought.

– It is essential that the growth of Islamic finance be accompanied by specialists (in law, in the Shari’ah, in commercial relations, in information systems, in financial engineering, and so on), and this in several areas of Islamic finance such as insurance, banking (retail and investment), private equity, fund management and microfinance.

Scholar: a profession with many skills, which is learned but is not taught…

The training of Shari’ah scholars generally involves several years of higher education, with on average a doctorate in the field of fiqh, combined with a doctorate (PhD) in the field of economics or finance. In addition, recognition by one’s peers is essential, and may be obtained in particular through a few years of practice in the service of one or more banks. These many years of training reflect the great complexity of the profession and the need to master excellent skills in order to validate Islamic financial products.

Clearly, this type of specialist has a cost that is often proportional to the rare dual competence they hold. Trying to assess the remuneration of these experts is an approximate exercise, so lacking in transparency are the data on the subject. It is known that the average annual remuneration per bank can range between $15,000 and $25,000. So the more banks you sit on, the higher your remuneration and the wider your reputation. This circle, virtuous or vicious depending on one’s point of view, nonetheless remains a powerful brake on the development of the profession, creating in effect a kind of numerus clausus.

Today no training for the profession of scholar, “the nerve centre of Islamic finance”, exists in the offering of training bodies, schools or universities anywhere in the world. It follows that each future scholar must train alone in the best universities of fiqh (Cairo, Damascus, Fez, Malaysia, and so on) and then, or at the same time, continue their training in economics and finance in the most prestigious universities of the United States, Canada or Europe.

The training of experts

The training of experts is finding a growing echo in both the Western and the Eastern world, as shown by the table below, taken from « La mondialisation de la finance islamique » by Mr Dhafer Saïdane, which gives an overview of the training available worldwide:

D. Saidane, « La mondialisation de la finance islamique », p. 122, Table 7, World overview of training in Islamic finance

Recently, an acceleration and a spread in the number of training programmes has been observed. In the single month of June 2009, two geographically opposite countries announced almost simultaneously the launch of a training programme in Islamic finance. Australia, where Senator Nick Sherry, in a speech at La Trobe University on 6 July, welcomed the creation of the Master of Islamic Banking and Finance Law and Management (see http://www.latrobe.edu.au/lawman/courses/ibf-symposium/mibf-information). And France, with the prestigious Paris-Dauphine University, ranked among the 10 best European universities, whose creation of the Executive Master “Principles and Practices of Islamic Finance” was welcomed by Mrs Lagarde, Minister of the Economy and Finance (http://www.financeislamique.dauphine.fr).

France?

The IFQ: a first milestone from the United Kingdom, very quickly insufficient.

Until very recently, in the absence of any training in Islamic finance in France, French students and professionals had no choice but to turn to the Islamic Finance Qualification (IFQ) in order to train.

The IFQ was created in October 2006 through a partnership between ESA Beirut and the SII (Securities and Investment Institute). It is a certification in Islamic finance in the form of a 213-page book divided into 10 parts (including Islam and contracts, IFRS/AAOIFI regulation and governance, and so on). This material allows candidates to sit a multiple-choice examination (with examination centres in London, Paris and Geneva) that is recognised by professionals in England.

The IFQ was a complete success. The training material has been sold in more than 100,000 copies worldwide, although it has not been shown that every owner of the book has sat the examination… This leads us to ask another question about the insufficient production of content on Islamic finance.

Unfortunately, the IFQ has not been updated since its launch and does not take into account the qualitative and quantitative evolution of Islamic finance across the world, nor the specific regulations of the countries in which it is sold, and therefore read. This makes it an incomplete, if not obsolete, book. Moreover, it leaves out the subjects which, in the context of Islamic finance, absolutely must be taught in depth, such as, among others, sociology, philosophy and geopolitics on the one hand, and regulation, compliance and governance on the other. Finally, this training does not allow one to keep up to date with financial developments and innovations.

The rise of long programmes in France

The first programme was launched in a private institute (IFESI) in Paris on 25 November 2008: the “Diplôme de Finance Islamique (DFI)”, able to take 25 students. Classes were concentrated over three evenings a week, and supplemented by a conference held in January 2009 on the ethics of Islamic finance. Delivered by recognised teachers and experts, the programme was built around three modules:

Module 1: Finance and regulation:

Each of the fields was treated from various angles: market, regulation, accounting standards and governance. On a purely technical level, this module emphasised financial analysis, banking techniques (retail, investment), takaful (Islamic mutual insurance), product structuring and securitisation.

Module 2: Sociology, history, political economy and ethics:

The approach of this module was to analyse the historical, sociological and political influences on Islamic finance, and to set the principles of Islamic finance against the discourse of the other monotheistic religions.

Module 3: Islamic law:

This module offered an introduction to the principles of the Shari’ah and the precepts of fiqh, followed by teaching in fiqh al-mu’amalat (the law of commercial and financial transactions).

Focused primarily on financial matters, this programme was a “pilot” year that served as a test and made it possible to prepare its large-scale roll-out throughout France. This experience came to a successful end on 18 June 2009.

Less than 2 months later, in January 2009, the University Diploma in Islamic finance set up by the Ecole de Management de Strasbourg was launched. Open to students and professionals, this programme, with a capacity of 35 students, has a marked legal orientation.

Of the 400 hours taught, more than half are devoted to the teaching of law. The rest is devoted to finance, economics, sociology, fiqh al-mu’amalat, human resources and regulation.

Classes are concentrated over three days a month, preceded by a conference on a specific theme. This programme, which will end in January 2010, received wide coverage in the economic and financial press.

On 26 June 2009, Paris-Dauphine University announced the launch of a Master 2 level diploma entitled “Principles and Practices of Islamic Finance”, due to start in mid-November 2009.

The head of this programme, Mr Elyes Jouini, is Vice-President of Paris-Dauphine University and co-author of the report submitted to Europlace at the end of 2008:

“CHALLENGES AND OPPORTUNITIES OF THE DEVELOPMENT OF ISLAMIC FINANCE FOR THE FRENCH FINANCIAL CENTRE: « 10 proposals for $100 billion »

(http://www.paris-europlace.net/files/doc137647.pdf)

Half of the places on this diploma programme will go to students holding at least a Master 1, and the other half to professionals. The 350-hour programme will be delivered on a part-time basis and concentrated over two days (Friday and Saturday) to allow professionals to attend and students to work in a professional or academic setting.

With a highly qualified teaching staff, this programme is built around 5 modules:

Fundamental finance

Financial theory, corporate finance and international risk management

International environment

History of religions, geopolitics of the Muslim world, international regulatory environment: methods of application in national and foreign law, philosophical and sociological issues, Islamic communication and marketing.

Conceptual approaches

Sources and objectives of Islamic law and the law of commercial and financial transactions.

Banking, insurance and financial markets

International capital markets, listed Islamic products, international financing, principles of portfolio management, bank management: risk and liquidity, comparative analysis of takaful insurance, governance, accounting, audit and compliance standards (AAOIFI, IFSB, IFRS)

Islamic finance techniques

Structuring, sukuk, securitisation and other structured products, financial analysis and valuation, and financial innovations

Paris-Dauphine University has also announced the launch of a Chair in Islamic finance.

Short programmes in France

Other universities and schools have also introduced shorter teaching on Islamic finance, among others:

Reims Business School:

On 15 June 2009, Reims Business School began a two-week programme offered by Mr Ghassen Bouslama (Professor of Finance at ESC Reims). This 45-hour programme, intended for French and foreign exchange students and taught entirely in English, replicates the IFQ syllabus with a view to preparing candidates for that examination. The programme is offered to Master 1 and Master 2 students enrolled in the Sup de Co Reims programme. For 2010, the programme will run over two periods: three weeks in January and three weeks in June, with perhaps one of the two sessions taught in French. This programme also received wide coverage in the specialist press, as well as media recognition across the Channel from The Economist. (http://www.economist.com/research/articlesBySubject/PrinterFriendly.cfm?story_id=13891584)

Sciences Po Paris:

A 12-hour course, ‘Introduction to Islamic capital markets’, will be taught by Mr Hassoune (Vice President and Senior Credit Officer, Moody’s) in the “International Affairs” specialisation of the Master in Finance and Strategy.

Ecole Supérieure de Commerce de Lille:

The “European financial and monetary integration” research theme, a CNRS unit of which Dhafer Saïdane is one of the leaders, organises an annual one-day workshop on the theme of Islamic finance. The second workshop will take place in March or April 2010 at the EM Strasbourg.

IAE de Toulouse (UT 1)

A 6-hour course devoted to Islamic finance has been taught by members of the Finequity association since 2009 for all Master 2 students in Finance.

Université Paris 1 Panthéon-Sorbonne:

Several hours are devoted to Islamic finance in several courses, such as an introductory session on Islamic finance in Christian de Boissieu’s seminar ‘Dynamics of banking services markets’, held in the second semester of the Professional Master in Banking and Finance.

IAE de Paris 12:

A 12-hour course in Islamic finance is planned for September 2009.

Sup de Co Paris:

An Islamic finance option within the finance major is offered to students, who can take it at ESA Beirut.

And finally, HEC, the University of Evry and the University of Lyon all offer workshops of varying length in Islamic finance.

The future?

The creation of programmes of excellence will give the market experts capable of enriching Islamic financial engineering and of better meeting the human needs of the young Islamic finance industry, in France as in Europe. It is on this condition that the Islamic finance industry will gain in stability, and will offer a safe support and relay for conventional finance.

In France, the foundations have been laid. Islamic finance has more than demonstrated its attractiveness. (See the Jouini/Pastré report and Europlace’s conclusions and lines of development: http://www.paris-europlace.net/files/doc309772.pdf.)

The French government, through the Minister of the Economy, has recognised its interest and encouraged its growth. The next logical step is therefore the establishment of an IFI in France.

What career prospects will there be for those trained, given that no IFI is yet established in France?

Although based on a still modest number of experts, genuine expertise in Islamic finance exists within the French financial industry. There are therefore real opportunities on French soil to strengthen these existing teams and enable them to gain a share of this very dynamic market. Several French or foreign companies established in France today support French or foreign clients on the subject (consulting firms, law firms, banks and insurers). But as regards Islamic banking proper, a potential source of large-scale recruitment, where do things stand?

Mrs Lagarde’s recent statement at the Europlace Forum on 2 July 2009 in favour of Islamic finance announced, from the autumn, a continuation of the legal adjustments (istisna’a, easier issuance of sukuk) that should facilitate the arrival of a bank.

On 29 and 30 September 2009 the eagerly awaited “Euromoney conference” will take place, at which the Minister of the Economy, Senator Philippe Marini and Michel Cardona, Secretary General of the CECEI (Comité des Etablissements de Crédit et des Entreprises d’Investissement), will take stock of Islamic finance in France and set out the opportunities that the establishment of Islamic banks on French soil represents.

To contact the authors:

http://associationfinequity.hautetfort.com

Mail: association.finequity@gmail.com