Archive for January 2013

The Centre for Learning and Life Chances in Knowledge Economies and Societies at the Institute of Education, University of London cited Tahseen Consulting’s research on the governance of skills formation in knowledge-based economies as a potential model for more effective national education and skills formation strategies in OECD countries.

Tahseen Consulting’s Related Work

Read about Tahseen Consulting’s work on creating national skills formation for knowledge-based development

Last week the UAE joined the growing list of global financial hubs which aspire to also become Islamic finance hubs. The list includes countries such as Thailand, UK, Singapore, Hong Kong, India, France, Canada, Japan, India, China, Nigeria, Malaysia, and Bahrain. Despite their aspirations, many of these countries lack the critical financial sector standards and human resources to offer substantial sharia compliant banking and financial services.

Our study of Islamic financial hubs reveals several common structural approaches pursued by Islamic banking leaders:

  • Dual Banking Systems: The most successful Islamic banking hubs operate a full-fledged Islamic banking system in parallel with a full-fledged conventional system complete with liberalization measures that also allow foreign banks to operate
  • A Step-by-step Approach: Successful Islamic banking hubs have an overall long term strategy to develop a large number of instruments; a large number of institutions; and an Islamic interbank market
  • Comprehensive Legislation: Successful Islamic banking hubs pass comprehensive Islamic banking legislation and typically have a common Sharia Supervising Council for all Islamic banks
  • A Practical, Open-minded Approach: To complement education and training of potential employees entering the Islamic financial services sector, Islamic banking hubs employ research-based approaches and product experimentation to serve local needs and ensure innovation
  • Participation in Forming International Standards: Several Islamic banking hubs have established bodies to internationalize Islamic banking standards which are  involved in regulating the global industry and establishing standards involved in furthering Islamic finance training and education

As shown in the figure below, these structural approaches to forming an world-class Islamic banking system are underpinned by sound financial systems rooted in internationally accepted economic, financial, and statistical standards.

Islamic banking and financial systems

Establishing a sound financial system and Islamic banking sector requires adoption of internationally accepted economic, financial, and statistical standards

Human Resources Frequently Limit Ambitions of Aspiring Islamic Finance Hubs

Based on our projections that a another $87 to $124 billion could potentially enter the Islamic banking system in the UAE by 2015, approximately 7,800 new jobs will be created at Islamic banks in the UAE assuming current asset concentration ratios remain similar. We also project another 500 jobs will be created by 2015 in other Islamic financial services segments. By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

Established 2011 Total Assets in $Current Number of EmployeesProjected Number of New Employees Needed by 2015
Dubai Islamic bank1975$24,683,505,1772,0002,522
Sharjah Islamic bank 1976$4,831,918,801412519
Abu Dhabi Islamic bank 1997$20,245,231,6081,2001,513
Emirates Islamic bank (merged with Dubai Bank)2004$5,853,895,0951,0971,383
Noor Islamic bank 2007$4,598,651,499650820
Al Hilal Islamic bank2008$7,697,841,417702885
Ajman Islamic bank2008$1,089,903,815
Number of employees in the Islamic banking sector in the UAE

By 2015, the Islamic financial services sector will double in size from approximately 10,000 employees currently to 20,000.

To meet this growing demand for employees trained in Islamic finance, the UAE will need to significantly broaden its education and training options to ensure availability of human capital does not stall the growth of the sector. While it has a number of current executive training institutions and higher education institutions that target mid-level employees in the Islamic finance sector, the UAE does not have any programs that target new entrants interested in the field or senior level leaders. The UAE also does not have institutions which provide research and analysis that advances the field. The experiences of Bahrain and Malaysia show that research capabilities and institutions have been key structural feature of Islamic banking systems that lead to product innovation and effective regulation. Furthermore, many of the masters programs in Islamic banking and finance in the UAE remain general MBAs or masters degrees with very few specialized courses related to practical aspects of Islamic banking that are required by employers. The exceptions are Zayed University and Hamdan Bin Mohammed e-University which have in-depth course offerings in Islamic finance and economics.

Tahseen Consulting’s Related Work

Read about Tahseen Consulting’s work on skills gaps and how they impact Arab businesses

Islamic Banking Training in the UAE

While it has a number of current executive training institutions and higher education institutions that target mid-level employees in the Islamic finance sector, the UAE does not have any programs that target new entrants interested in the field or senior level leaders.

Malaysia's Islamic Banking Education and Training System

Malaysia’s human capital development programs span all levels of the industry with a focus on internationalizing operational and product standards.

Towards a Islamic Finance Human Capital Development Strategy for the UAE

To solidify its position as an Islamic finance hub amongst the heavy competition, the UAE will need to significantly enhance its current education and training system. This includes human capital development and research programs to ensure:

  • Quantitative supply of Islamic banking graduates through expanded undergraduate offerings or financial sector bridge programs that target non finance graduates
  • High quality executive training focused on resolving likely skills gaps amongst current employees
  • Specific executive training and leadership development training for senior level bank leaders and regulators to create the necessary vision and Sharia knowledge to enable product innovation
  • High quality research and thought leadership that pushes the boundaries of the sector and allows the UAE to participate in the internationalization of operational and product standards which is currently being led by competing Islamic financial hubs

In so far as a similar global economic development narrative based on the transition to knowledge-based economies and accompanying high wage, high skill jobs was perpetuated by the engagement of the World Bank and UN with the Arab World in the early Nineties, a similar opportunity bargain as that in the West emerged in the Arab countries. In addition to high skill, high wage job creation, however, the Arabization of the concept of knowledge-based economy infused economic development with a host of other development issues such as economic integration and diversification, innovation, entrepreneurship, education and training system reform, environmental sustainability, identity, language, gender equality, and political participation and democratic reform. With its association to human capital development, the concept of knowledge-based economy created a convincing economic development narrative that met the psychological needs of Arab citizens but, as evidenced by the Arab Spring, clearly missed the mark on delivering on physiological needs.

Broken Promises of the Arab Opportunity Bargain

Although there are few regional public opinion surveys that can provide an indicator of the effectiveness of Arab governments to deliver on the opportunity bargain that has become enmeshed with the Arab Dream, a recent survey of 16,000 citizens across 21 countries in the Arab World shows several sources of breakdown. Carried out in late 2010 and early 2011 before the Arab Spring reached it boiling point, the survey provides a baseline indicator of several seeds of discontent that point towards unfulfilled promises associated with the pursuit of knowledge-based economy in the Arab World and a broken Arab opportunity bargain. Particularly in the less wealthy Arab countries outside the Gulf, respondents described an Arab World that is not amenable to finding employment; lacks effective education systems; which offers few opportunities for youth to get ahead through hard work; faces a dismal outlook for economic growth; and offers a difficult path to reaching life milestones such as securing affordable housing (Silatech 2010). In many countries, citizens indicate that they would prefer to migrate to realize their dreams elsewhere.

Securing a Viable Arab Dream

How Arab governments respond to the broken regional opportunity bargain following the Arab Spring could make the difference between a lost generation of youth plagued by chronic unemployment and social marginalization as well as significantly impact future generations. Disaffected youth have the potential to become a perpetual thorn in the side of Arab nations as youth bulges experiencing economic hardship have been linked with political violence. Discontent amongst Arab youth based on an evolving opportunity bargain that no longer promises free education, a public sector job guarantee, and state support could severely compromise ambitious economic development plans.

The Arab Spring was in part a result of people buying into the Arab Dream, investing their time and money in education, but then subsequently finding that their credentials and hard work does not allow them to  fulfill their dreams of gainful employment and achievement of accompanying social and economic advancement. The Arab Dream is grounded in a regional pursuit of knowledge-based economic development driven by policies that envision the emergence of high skill, high wage economies that will create jobs. However, the global availability and growth of low cost, high skill workers potentially threatens the viability and economic fundamentals of sophisticated, innovation-driven knowledge-based industries taking root in the region and devalues the credentials of skilled workers. If knowledge-based industries fail to take root and lead to employment, many of reforms and money spent on higher education expansion, education quality, R&D ecosystems, and entrepreneurial growth could be deemed inappropriately spent.

The Arab Spring was a very tangible reminder that securing a viable Arab Dream is a major issue of concern to regional governments. The Arab Dream must include a revised opportunity bargain which factors in how the marginalized whose voices came to a boil in the Arab Spring can have access to livelihoods. Creating this opportunity bargain requires not just benchmarking and replicating the economic development trajectories of  wealthy, developed countries but also being aware of the vulnerability Arab economies face in an era of globalization and the emergence of high skill, low wage knowledge workers that have changed the fundamentals of knowledge-based industries.

While some Arab countries are more suited to competing in a high skill, low wage global economy, other Arab countries which are unable to compete in high skill, high wage knowledge-based industries will need to adequately calibrate the expectations of their citizens regarding the types of jobs which will be available in the future and the likely instability of salaries due to wage compression from competing low wage, high skill workers. Efforts to privatize education attainment so that labor market success or failure passes the burden on to individuals are prone to market failure without sufficient demand for skills from the labor market. Short term, quick fix government payouts to solve the problems with the broken Arab opportunity bargain are also likely to fail. Arab governments will have to take a hard look at the economic counsel they have received over the last two decades to judge its worth in securing the economic interests of the region. Reforms to reinvigorate the Arab Dream must challenge the assumption that more education is always the answer, reconsider the full employment promise which hampers global competitiveness, reduce wage inequality to ensure equal distribution of wealth, and determine the Arab world’s position in an global economy with emerging low cost, high skill competitors that challenge knowledge-based economic development both in the developed and developing world.

Related Work

Rethinking Arab Knowledge-based Economies

Value for Money in Arab Educational Reform

How Skills Surveys Can More Effectively Identify Workforce Skills Gaps