The Sukuk and economic development for the Silk Road
In his opening address on 21 August 2017, at a forum held at Hamdan bin Mohammed Smart University, Abdulla Mohammed Al Awar, CEO of Dubai Islamic Economy Development Centre discusses the opportunities and challenges for China’s “Belt & Road” Initiative.
The revitalisation of the Silk Road roadmap means the world will witness large-scale development projects. So, it might be a good time now to examine the key challenges surrounding the development of such projects under the ‘One Belt One Road’ initiative.
The primary challenge is finance. This makes it imperative to establish strong and solid ties between financial and banking institutions and investors from the public and private sectors. Needless to say, the relationship should be based on the fundamentals of ‘sharing’ and not ‘lending’. I say this and I am sure you’d agree that in the past debts have caused massive burdens to governments and public and privates institutions…they have created fear and hesitation in the process of investment decisions.
The second challenge is to foster a culture of investment and standards of work that takes into account the rights and needs of people without compromising their safety and stability.
Through its products, services and standards, an Islamic economy offers safe solutions to tackle these challenge by focusing on the principle of sharing risks and profits between financial institutions and corporations engaged in production and trade. This form of partnership provides one of the main components of success: the collective responsibility for the success of investments. None of the parties can achieve profit unless he assumes his part of this responsibility…no finance for the sake of finance…or calculation of lumped profits for the institution providing the finance. Instead, the calculation of profit is based on the real outcome of production in the sustainable development process. Also, all the components of an Islamic economy advocate sustainability and comprehensive development.
However, if we are to achieve our objectives of overcoming the challenges, it is important for all stakeholders and decision makers to provide the right environment to help nurture such a culture and foster the creation of such products and services.
China’s philosophy on development is based on a rich legacy, wide expertise and deep knowledge of the dynamics of global trade. So, in looking towards an era of development, and for Islamic economy to make a tangible contribution to such development, it is important that we focus on the following areas:
- Create a regulatory and legal environment that enables Islamic financial institutions and products to grow at the centre of leadership and management of China’s Silk Road initiative
- Launch media campaigns to introduce Islamic finance products such as Sukuk, Murabahah, Istisnah’ contracts and others
- Pioneer and develop laws that regulate the issuance of Islamic bonds
- Establish an umbrella body responsible for creating unified standards and promote internal collaboration among the Islamic financial institutions
- Create Islamic finance windows in major Chinese and Asian banks such as the National Development Bank of China, China Import and Export Bank, the Silk Road Fund, AIIB and the Asian Development Bank.
- Enhance collaboration between the Chinese banks and Islamic financial institutions in GCC and the Islamic and Arab world at large.
In other words, the economic position of China and its significant impact on the global economic policy enable it to have a greater impact on the nature of the global finance system where the priority should be given to financial institutions committed to the goals of sustainable development that are fair, comprehensive and inclusive of all strata of society.
Our nation offers great potential to build on our existing ties with China, as well as other countries that would influence the future of the Silk Road initiative.
How do we take this synergy forward and help shape stronger and more sustainable relations?
Here are a few recommendations:
- First: In addition to supporting and strengthening the efforts of the UAE-China Council in providing the required finance for the Silk Road initiative, especially in the area that covers the region, we can look at establishing a joint Islamic finance platform between both countries to be based in Dubai the Capital of Islamic Economy
- Second: Create a joint centre for researches and studies to assess the needs of the region and the countries situated on the Silk Road belt. The proximity of the UAE and Dubai, as well as its unique economic ties with the countries in the region and its knowledge of the economic and social nature of these countries enable it to add value to the vision and strategies of the Silk Road initiative
- Third: Examine the opportunity of creating joint coordination committees to collaborate on establishing global standards for Islamic finance products and mainly for Sukuk
- Fourth: Consider establishing a platform that gathers representatives of official entities from both countries and representatives of public and private sectors in order to agree on the guidelines of investments in the projects related to the Silk Road initiative and ensure compliance with best practises for achieving the long-term goals of the initiative
- Fifth: Discuss the option of establishing an Islamic Arab-Asian bank based in Dubai to provide the liquidity required for financing the envisioned projects especially the ones related to this region
- Sixth: Explore the opportunity to put in place a comprehensive joint vision on the objectives of the Silk Road projects where an ethical contract is created to guide investors towards sustainable and comprehensive development, besides drawing up financial strategies where the priority is given to entities operating in compliance with this contract
The huge projects offered by the Silk Road initiative offer incredible opportunities to boost global economy, develop the infrastructure of the emerging countries, increase production and trade, and offer jobs and opportunities that will eventually reduce unemployment, poverty and stagnation while raising the purchase power of people…this is what we at DIEDC consider the key to real development.
At the same time, these opportunities and suggestions offer corporations and investors a chance to revamp their projects but under safe and sustainable procedures and standards.
But the biggest opportunity the initiative offers has to do with the future of 63 per cent of people who live in the areas that would be directly affected by the Silk Road initiative. Not just that, such an impact will also boost the cumulative growth rate of the global economy and elevate the quality of lives of millions around the world.
Such an envisioned framework places an exceptional responsibility on us—a responsibility that requires exceptional vision, collaboration, and decision making.