Human Capital: The Strongest Competitive Advantage of Interest Free Finance Industry

BY: Yigermal Meshesha

Today, the significance of improving ‘human capital’ is best illustrated by the massive global efforts through enlightening and academic programs to augment the administrative and productive talents of human individuals.

The term ‘human capital is being employed by economists, as a labor (being one of the three factors of production), however, as per social psychologists, the term covers a wider scope of human capability and knack of production as well as management of life. Besides this complementary divergence, both economists and social psychologists agree on the importance of human capital development to cope with the rapidly changing socio-economic and political conditions of human life.

From a development perspective, the banking and finance industry is identified for pervasive professional development and extensive capacity-building programs globally, with significant resources committed every year. Whilst the enduring improvement efforts, shortage of competent professionals is witnessed in the industry; mainly in the area of Wealth Management ans Interest-free finance.

Corresponding with the global experience, banks in Ethiopia are trying to focus on capacity building, as most of them set human capital development as a primary priority. This initiative is further deliberated with and strengthened by the National Bank of Ethiopia’s decision which obliges banks to invest 2% of their annual expense for human capital development.

In our country, it’s well known that we have a limited number of higher education institutions providing undergraduate degrees on banking and finance, no formal pre-employment training available, and business and economics programs developed in the universities are stern of theories with a set of orthodoxies, consequently, the burden making a junior banker out of a fresher is entirely on the shoulder of the banks.

Exacerbated against conventional banking, the emerging Interest-Free Finance business has a very small number of professionals. Whereby, most professionals with mere qualification of Islamic banking & finance got their qualifications through the online learning platform, which has helped them to acquire certifications from institutions abroad including AlHuda, INCEF & CISI. At the moment, most of the needs for the IFF industry are fulfilled through the hiring of conventional finance professionals and recruiting young graduates. However, with the current growth pace experienced by the IFF industry, it is already known that there will be a shortage of Interest-free finances professionals soon.

While hiring conventional finance professionals may meet the need of the IFF industry in the short-term, it is very important that in the medium and long-term there is a drive to create more educational institutions specializing in IFF and economics, especially if the IFF industry wants to offer differentiation in off erring its products and services. This is because banking practitioners from the conventional wing may have attended scores of seminars and workshops on Interest-Free banking but they are not trained to deal with Shari’ah-related problems in the banking business. Doing some requires an intimate knowledge of the Shari’ah. Even in the IFF thriving countries, many banks turned to people with Shari’ah degrees for advice, but their understanding of economic principles and how banks operate is suspect. Shari’ah Experts have categorically approved new financial instruments with less idea of how that would impact bank’s earnings, consumer welfare, economic stability, and income disparity.

For example, most of the IFF service-providing banks offer debt-based products such as Murabahah which is considered as a mirror of the conventional product, however, the Murabahah asset will not change when the market rates go up. This feature will incur the customers on the interest rate risk. The Murabahah contract is also found to be losing ground to conventional term loans since the profit rate is not adjustable. We need more high qualified Interest-free bankers to create more innovative products to meet the customer requirement as well as comply with the Shari’ah principles.

In our context, the future introduction of IFF values into financial activities will see the potential opening of IFF-compliant businesses in the banking, insurance, capital market, venture capital, and private equity industry. Should the supply of Shari’ah trained professionals be given low priority, then the speed of development of the Interest-Free finance industry in this country may not change.

Developing genuine IFF professionals will enable the IFF industry to be more innovative in its product development and at the same time, also address the issues raised by many observers — that most IFF products are merely carbon copies of conventional products with differences only in name and agreement. Thus, it is very important to create synergy between the industry and educational institutions to develop human resources competence not only in the conventional finance knowledge but also conversant with the application of Shari’ah in the financial world.

These problems can be attended with more rigor when banks open their doors to Shari’ah -trained and qualified professionals. It would be too presumptuous to think that one or two conventionally trained personnel who may have attended some workshops and short courses on Interest-free banking can deal with pressing juristic issues.

With this right combination is expected that the progressive spirit of IFF in creating a more fair business environment and socioeconomic justice could be translated into innovative financial products and services offered to society.

BY: Yigermal Meshesha

Yigermal is an Author, Experienced Banker, L3 Islamic Finance Qualified, and Tech Enthusiast.

You can reach Yigermal through his LinkedIn page https://www.linkedin.com/in/yigermal-meshesha/

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