Dubai outlines plans to unify legal framework for Islamic finance

The chief executive of Dubai Islamic Economy Development Centre outlined the phases for the development of a unified legal framework for Islamic finance during a meeting to discuss Dubai’s contribution to the Islamic economy.

Abdulla Al Awar said that once complete, the project would bring “much anticipated standardisation to the Islamic finance sector, reduce discrepancies in practices across the globe, and eventually translate into positive outcomes for the Islamic economy as a whole”, Dubai Media Office said.

The DIEDC is working with the Islamic Development Bank on standardisation and the two parties signed an agreement last month. The DIEDC had previously signed an agreement with the Accounting and Auditing Organisation for Islamic Financial Institutions for the use of its standards as a reference point in building the international legal framework.

The Sharia-compliant segment of Dubai’s economy contributed Dh41.8 billion to the emirate’s gross domestic product in 2018, a 2.2 per cent year-on-year increase, as Dubai continues to pursue its goal of becoming the top Islamic economy hub in the world.

The Islamic economy accounted for 9.9 per cent of total GDP in 2018, Dubai Media Office said, quoting data issued by Dubai Statistics Centre.

Of that, Dh17.9bn (43 per cent) came from the retail and wholesale sector, Dh10.7bn (26 per cent) from the financial sector, Dh7bn (17 per cent) from the hospitality and food and beverage sectors, and Dh6.2bn (14 per cent) from the manufacturing sector.

Dubai, the Middle East’s commercial hub, hopes to drive economic activity through Sharia-compliant segments to boost its GDP and position the emirate as a significant player in the fast-growing global Islamic economy.

Worldwide spending through Islam-inspired ethical consumption sectors is expected to increase to $3.2 trillion (Dh11.75tn) by 2024, up 45 per cent from the end of 2018, according to a State of the Global Islamic Economy survey by DinarStandard, a research and advisory company in the US.

Islamic finance was the largest sector at $2.5tn in 2018, followed by the halal food sector at $1.4tn, according to the report released in November last year. Malaysia, the UAE, Bahrain and Saudi Arabia continue to lead on the Global Islamic Economy Indicator index comprised of 73 countries. While Malaysia is the biggest market for Islamic finance, the UAE led in the five other sectors, including halal food and modest fashion, the report said.

The DIEDC is carrying out a five-year Islamic economy strategy that was launched in 2017. The strategy is supposed to identify new metrics to monitor the growth of three key sectors – Islamic finance, halal products and Islamic lifestyle (including culture, art, fashion and family tourism) – and measure their contribution to national GDP.

Dubai’s Islamic economy can contribute significantly to efforts to mitigate the economic damage caused by the Covid-19 pandemic and spur the revival of the global marketplace, Sheikh Hamdan bin Mohammed, Crown Prince of Dubai, said.

The emirate could help the sector play an important part in responses to the health crisis, said Sheikh Hamdan, who also oversees Dubai’s “Capital of Islamic Economy” initiative.

He said the growth of the Islamic economy was fuelled by Dubai’s expertise, advanced infrastructure, strategic location and its commitment to becoming the preferred investment destination.

Sultan Al Mansouri, Minister of Economy and chairman of the DIEDC, said “the increase in the contribution of the Islamic Economy to Dubai’s GDP reinforces the confidence of international investors in the UAE’s flexible business environment”.

“These factors, combined with its strong legislative framework, and advanced technological infrastructure, have helped the UAE to maintain its status as a preferred investment hub on the global landscape,” he said.

Since launching the strategy in 2013, Dubai has taken “significant strides” towards becoming the global capital of the Islamic economy, Mr Al Mansouri said.