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@ Halal | September-october . 2020

One of the unique propositions of Islamic finance is that Zakat , sadaqah and cash waqf are part of the overall ecosystem .

finance and the halal industry have grown remarkably , albeit their lack of convergence .

Islamic finance was initiated as an alternative to conventional finance whilst the halal industry begun as a response to the overwhelming demand from Muslims to consume halal food .

The halal concept then expanded to include other consumer needs such as pharmaceuticals , cosmetics and now , lifestyle activities such as travel , entertainment and fashion .

Although Islamic finance and the halal industry might not be integrated , the two businesses share substantial commonalities between them .

Islamic finance and halal industry are both being guided by the Shariah principles where both are under the domain of muamalat ( commercial ) activities , and both entail intrinsic values that go beyond faith .

Data from the Malaysian Islamic Development Department ( JAKIM ) shows that more than 60 per cent of halal product manufacturers are multinational companies owned by non-Muslims .

Promising future

Growth of the halal industry is at a healthy 5.2 per cent year-on-year growth and is forecasted to reach USD3.2 trillion by 2024 at a Cumulative Annual Growth Rate (“ CAGR ”) of 6.2 per cent .

Concurrently , Islamic finance assets were reported to have reached USD2.5 trillion in 2018 and forecasted to grow by 5.5 per cent CAGR to reach USD3.5 trillion by 2024 .

These numbers indicate promising potentials of both industries and the numbers could be multiplied if there is a convergence between these two .

A survey by Bank Negara Malaysia ( BNM ) in 2019 showed only 54 per cent of halal businesses obtained financing from banks whereby less than 22 per cent of these facilities were from Islamic banks .

This suggests that in terms of general acceptance and awareness of Islamic finance amongst halal business operators , there is still a long way to go .

In recent years , several initiatives have been introduced to propel the synergy between the halal industry and Islamic finance .

In Malaysia , the Halal Industry Masterplan 2030 , published by the halal Industry Development Corporation , has identified Islamic finance as one of the key enablers to support its implementation .

Creating Value

In promoting Islamic finance to halal industries , it is important to show to the clients the

Halal Industry & Islamic Finance : 2024 Outlook

USD Billion

1000

800

600

400

200

1,369

1,972

283

402

220

309

189

274

Muslim-Friendly Travel value and impact created by Islamic finance .

The role of Islamic finance in providing vital support for the development and growth of the halal industry , especially to the SMEs is being widely recognised .

One of the unique propositions of Islamic finance is that Zakat , sadaqah and cash waqf are part of the overall ecosystem .

These funds could be deployed to address the issue of limited access to working capital facility encountered by the small halal enterprises .

This could help to both scale-up those businesses and increase the entrepreneurs ’ standard of livelihood .

The halal industry , from manufacturing to distribution of the halal products , at the other end can be served with the solutions from Islamic finance .

Islamic finance solutions ought to be holistic to cater to the different needs of halal players . Nevertheless , a lot more needs to be done to address the existing gaps along the halal value chain .

With 15 OIC countries out of 50 countries dominating the global smartphone penetration , this indicates a demand for a practical , digital Islamic finance solution which can drive a robust ecosystem of digital Islamic solutions spanning Islamic finance , halal food and products , modest fashion and Islamic lifestyle .

The development of digital solution offers consumers a seamless experience as well as helps to integrate their businesses with other players in the halal value chain efficiently .

The halal digital marketplace is one of the good examples where technology can bring manufacturers , suppliers , retailers and consumer into a single platform .

Effect of Covid-19

The role of digital banking has also become more significant since the pandemic with financial institutions becoming more connected to customers via digital banking .

Zakat payments were just a few clicks away and Maybank for one , at the peak of the pandemic was able to engage with their customers via its online platform M2U asking for their recommendations for which struggling local hawkers , grocers and merchants can Maybank promote via M2U .

Thus , the creation of Sama-Samal Lokal on the M2U platform , which has been quite a success .

Conclusion

Despite their different growth paths , Islamic finance and the halal industry share a lot of common values and features .

These commonalities compel relevant stakeholders to enhance the synergy between these two industries and understanding about needs and potentials of each industry is paramount in materialising the synergy .

More importantly , the synergy will benefit Muslims and non-Muslims alike .

92

92

134

Halal Pharmaceuticals

2024 2018

64

64

Halal Cosmetics

Islamic Finance

Source : State of the Global Islamic Economy 2019 / 20 , Dinar Standard

95

2,524 ^{3 , 472}