Growth of Islamic finance drives demand for degrees

After 13 years building a commercial banking career in Indonesia, Lukman Hakim quit and went to business school in pursuit of an “ethical” future in Islamic finance.

The 35-year-old Indonesian last year enrolled on the 12-month MSc in Islamic finance at Durham University Business School in the UK and plans to work in the industry after he graduates.

Islamic finance is a method of banking that abides by sharia law, which forbids charging interest and gambling.

“Conventional finance has a problem with transparency and fairness,” says Mr Hakim, who is a Muslim. “I think those problems can be addressed by sharia law, which I believe encourages us to do business morally and ethically.”

Like-minded bankers such as Mr Hakim are helping to drive the growth in provision of Islamic financial training. Once an optional course, the subject has become a masters degree at well-known business schools.

Madrid’s IE Business School, which is a partner with the Financial Times in a corporate learning alliance, created a custom masters in Islamic finance in 2014. The course is available only to students on a two-year talent development programme at the Islamic Corporation for the Development of the Private Sector (ICD) in Saudi Arabia, which finances private sector investment. Participants study IE modules in Madrid, Saudi Arabia and online.

Globally, the number of institutions offering Islamic finance degrees has risen from 141 in 2014 to 191 in 2016, according to ICD-Thomson Reuters Islamic Finance Development reports.

One catalyst has been the growth of the sector. There are 1,407 Islamic financial institutions globally, from retail to investment banks and asset managers. The 2017 ICD-Reuters report put the Islamic finance industry at $2.2tn of assets in 2016 and forecast that it would grow to $3.8tn of assets by 2022.

Some employers are demanding that graduates have specialist knowledge of sharia-compliant finance, according to Celia de Anca, the director of IE’s Saudi-Spanish Center for Islamic Economics and Finance.

She says that job opportunities at Islamic financial institutions are sparse because the industry is still small when compared with conventional finance.

However, Prof de Anca adds that finance graduates are now expected by employers to know sharia law. “It’s a handicap not to have knowledge of Islamic finance. If you work for, say, Citibank, at some point there will probably be a sukuk sale,” she says, referring to a bond that is structured to comply with sharia law.

Many of IE’s Islamic finance graduates work in trade, project finance, asset management and private banking, she says. “Any roles that deal with Gulf Co-operation Council states such as Qatar will probably require Islamic finance knowledge because they are big markets for it.”

Abdullah Hidayat Mohamad, 35, who is Malaysian, completed the IE course last year and established Social Finance Sdn Bhd, an Islamic finance consultancy in Kuala Lumpur. In his previous career he worked for an asset management company.

“People want to hire me as a consultant because the degree gives me
credibility,” Mr Mohamad says.

Academics fear that a subject connected to religion is at odds with business schools

One of his projects is creating a sharia-compliant money market based in Malaysia, which banks use to borrow and lend money between themselves, typically with instruments such as deposits. He hopes to expand the project globally and says the IE course, whose participants came from around the world, including Africa, will help him work with global teams.

“Although much of the Islamic finance industry is in majority-Muslim countries, there are cultural differences,” says Mr Mohamad.

He cites murabaha contracts (when a bank sells a client goods for cost plus profit instead of charging interest), which are widely used in Malaysia but not in Indonesia. “You need to adhere to conventions. That has been very helpful to know,” he says.

Henley Business School, at the University of Reading, launched an MSc in investment banking and Islamic finance in 2008 that was taught in the UK and Malaysia. From this year it will be offered only in Malaysia, where demand from students is high, and where the school established a permanent campus in 2015. Some 39 per cent of applicants so far this year are from the country — the largest contingent.

One reason is the lack of high-quality courses locally, says Teck Yong Eng, head of Henley Business School Malaysia. “Islamic finance faculty are hard to recruit, partly because the field is relatively small, so the supply of specialists is low,” he says. They can command high salaries as a result, making it even harder to hire them, he adds.

Some academics are concerned that a subject connected to religion is at odds with business schools, which pride themselves on independence. Mehmet Asutay, the director of Durham’s MSc in Islamic finance, says that some business schools have steered clear of the topic for that reason. “Professors often ask whether Islamic finance is a religious rather than a business subject.”

Mohd-Pisal Zainal, associate professor at Henley Business School Malaysia, believes that misconceptions about Islamic finance could deter students from pursuing the subject.

He relates the example of when he was delivering a speech at a UK law school in 2015 — shortly after a man had attacked French police with a knife. “When it came to the Q&A, the question people asked most was: ‘Does Islamic finance fund terrorism?’ ”