Emergence of the Middle East and North Africa Region as the Islamic Finance Hub - Assignment Example

Task Should Bloomberg consider dedicating a channel to cover the MENA region, its emergence as an Islamic finance hub, and the growth of their equity markets? Introduction: About Bloomberg Bloomberg is a leader in the news industry, financial information, and global business in general. Bloomberg provides influential decision makers with valuable information and opportunities of connection with a dynamic network of people, ideas, and information. The core of the professional service provided by Bloomberg is the strength of the company; to deliver information, analytics, data, and news through innovative technology in as accurate and efficient a way as possible. Bloomberg offers real time financial data to subscribers crossing 320,000 in number all over the world (“Bloomberg Facts”). The enterprise solutions of Bloomberg dwell upon the core strength of the company i.e. to provide customers with access to data and an opportunity to integrate, manage, administer, and distribute the information across a variety of networks and channels very effectively and efficiently. The company provides information beyond finance to the decision makers in a variety of industries using its engines including Bloomberg BNA, Bloomberg New Energy Finance, and Bloomberg Government. Bloomberg News covers the world with the number of news and multimedia professionals exceeding 2,400 at 150 bureaus located in 73 different countries (“Bloomberg Facts”). Bloomberg News achieves this by being broadcast through the Bloomberg Professional service over a variety of mediums including television, mobile, radio, and the Internet. In addition, three magazines namely Bloomberg Markets, Bloomberg Pursuits, and Bloomberg Businessweek also play a huge role in the vast broadcasting, access and spread of the news. The headquarter of Bloomberg is located in New York. The company is the employer of over 15,500 people from at least 192 different regions located across the globe (“Bloomberg Facts”). This report discusses the background and history of Bloomberg, its facts, its resources, popularity, and its capability to become the number one reporting channel regarding the MENA region. The intended audience of this report include news agencies, journalists, financial institutions, and a host of regional and international religious and political agencies. Bloomberg is a leader in the news industry and is well-equipped to dedicate a channel to cover the MENA region, and depict its emergence as an Islamic finance hub, and the growth of equity markets of the countries in the MENA region. Background: Bloomberg Facts This section discusses some facts about Bloomberg all of which have been retrieved from (“Bloomberg Facts”). The number of subscribers of Bloomberg Professional service spread all over the world exceeds 320,000. Bloomberg News creates more than 5,000 stories every day from bureaus exceeding 150 in number located in 73 different countries. The content of Bloomberg News is syndicated to over 1,000 outlets of media in more than 60 countries in the world. Bloomberg Television network is accessible in more than 340 million homes in different places spread all over the world. The programs and reports of Bloomberg Radio are syndicated nationally to 200 affiliates of radio. 375,000 Bloomberg Markets magazine are circulated whereas the Bloomberg Businessweek is circulated in over 150 countries across the world and the number circulated globally each week is more than 980,000. The number of unique visitors at Bloomberg.com and Businessweek.com every month is more than 24 million. Bloomberg has leading apps on Android, iPhone, Windows and Samsung iPhone, iPad, and Blackberry. The number of US government contracts that are annually tracked is 8.6 million. The number of projects of renewable energy that are tracked globally is more than 37,000. There are over 3,000 computer engineers and technologists in the R&D staff of Bloomberg. Bloomberg has over 24,00 news professionals and multimedia staff all over the world. These statistics speak of the vast expanse of news coverage by Bloomberg and its phenomenal impact in the news and information industry, journalism, politics, and international relations. Bloomberg is one of the most popular news channels with recognition all across the world. The channels of Bloomberg are trusted for the reliability of information. Taking these facts into consideration, it can be estimated that Bloomberg can establish a channel solely for the coverage of the MENA region. To get the opinion of people in general and the concerned agents and agencies in particular, a primary as well as secondary research will be carried out. The primary research will be based on interviews with the concerned industry experts. The secondary research will be carried out through review of literature. Bloomberg should consider opening a channel for coverage of the MENA region because there are a lot of restrictions on free media in the MENA region. Governments of countries included in the MENA region have quite conservative and strict policies with respect to the freedom allowed to the journalists and news agencies. Owing to the strict control of the government over the news agencies, the underlying political and socioeconomic problems of the countries in the MENA region have not been rightly understood globally. This imparts the need for a strong and well-equipped news channel that would provide true and reliable information about all aspects of the culture, politics, and economy of the countries in the MENA region. To explore the possibility for Bloomberg to dedicate a channel for covering the MENA region and to identify the challenges and opportunities associated with this endeavor, secondary research will be carried out based on the review of literature. To study the growing financial importance of the MENA region and the significance and role of Islamic banking system in the economic growth of the region, this research will review the treatment of tax in four basic structures of Islamic finance including sukuk, commodity murabaha, istisna, and salaam in eight countries located in the MENA region including Turkey, Saudi Arabia, Egypt, Oman, Libya, Qatar, the QFC, Kuwait, and Jordan. The distribution of questionnaires will be coordinated by the concerned offices of these countries e.g. Ernst & Young’s Qatar office will administer the distribution of questionnaires in Qatar. Relevant statistical procedures will be applied on the data thus collected to draw the results using software e.g. SPSS and MS Excel. Task 2 Should Bloomberg consider dedicating a channel to cover the MENA region? Introduction: The Need for Increased Coverage of the MENA Region Two global broadcasters have discussed launching channels in the MENA region with a number of Middle Eastern media companies in the television market of the region. Company behind the channel MTV India established in Dubai in 2012 to propagate music station into a number of Middle East countries. BBC is also in the process of increasing the number of English-language stations it has launched in the MENA region. The number of channels for the viewers in the MENA region exceeds 500. More than US$1 billion are spent on TV advertising every year in the MENA region. In spite of the fact that the television market of the MENA region is quite crowded, global broadcasters are contemplating ways and deals to distribute their channels more widely in the region. For example, Viacom18, the Indian entertainment company established a joint venture between Network 18 Group and Viacom in Dubai partly with a view to expanding the MTV India channel’s distribution in the MENA region with its new office. The head of international business and distribution at Viacom 18, Gauray Gandhi said, “We want to grow MTV India distribution…We are in discussions to get that in the Middle East. In the next quarter or two, we should have something on MTV India” (Gandhi cited in Flanagan). MTV India is present in Qatar along with a number of other markets spread all across the globe including Singapore, the US, India, and Australia. The office of Viacom 18 was opened in India in order to better handle the marketing, sales and distribution for the different TV brands of the broadcaster. The primary objective of establishment of the new office was propagation of Colors, the flagship channel of entertainment of the company across the MENA region. Bloomberg should consider dedicating a channel solely for the coverage of the MENA region because the political, socioeconomic, and cultural events and facts of the MENA region are underreported in the media and no news channel or agency has adequately represented the MENA region in the international media without the influence and intervention of the local governments of the countries included in the MENA region. Background: Lack of freedom of media in the MENA region The government of Bahrain has used direct censorship, temporary closure and harassment of the outlets of opposition media, and increased violence and persecution against journalists and bloggers as a means to stifle the freedom of expression. The concerned authorities in Bahrain have harassed a number of foreign as well as domestic nongovernmental organizations that have put forth criticism for the way the state has dealt with the uprising. While media flourished as independent and free in Tunisia in the start, it was threatened ever since the coverage period’s end, though some improvement in coverage has been noticed. “The new government can solidify these gains, some of which are not yet legally codified, by repealing old legislation that restricts expression…and cracking down on the perpetrators of violent attacks against secular activists” (“Divergence and Decline”). Even after the President Hosni Mubarak has been ousted from Egypt, the country has not registered significant changes because of the persistence of key practices and institutions that prevailed during the era of Hosni Mubarak. In fact, a number of scores of Egypt have essentially remained unchanged despite the change of government. For example, no net change of score has been recorded in the transparency or rule of law. Many of the strategies of Hosni Mubarak e.g. severe restrictions on media are still in effect. While there was seen an upsurge in the outlets of independent media shortly after the ouster of Hosni Mubarak from Egypt, their freedom of expression was limited by the traditional regulatory restrictions in Egypt. Mohamed Morsi who was elected as president after the end of the coverage period has not yet been able to lift the restrictions on independent and free media in the country. In its research, the Office of the High Commissioner for Human Rights based in the Middle East found that while most Middle Eastern countries’ constitutions offer freedom of expression in papers, their international and conventional media in reality is under intimidatory and restricted political, security, and legal conditions. A majority of Middle Eastern countries frequently alter the publication laws and national press. Their laws are purposely worded vaguely so as to direct them to wide interpretation, subjectivity of meaning, and abuse. Head of the UN Human Rights regional office based in the Middle East, Fateh Azzam talked about media’s critically important role in revealing the events happening in the Middle East on World Press Freedom Day in these words, “The media – old and new, local and international has paid a heavy price for its sustained and courageous efforts to inform local and international populations about the political upheavals in the Middle East…Journalists across the Middle East are being harassed, intimidated, arbitrarily detained and deported, subjected to torture and other forms of violence, and some have been killed (Azzam cited in “Freedom of the Press”). The Committee for the Protection of Journalists (CPJ) reported that eight journalists had been assassinated in the Middle East by the end of April because of their work so far in 2014. Azzam also said that many countries in the Middle East have used security services and emergency regulations in order to restrict the media outlets and organizations. “Governments in the Middle East, in effect, prevent conventional media from fully doing their work, including having direct access to situations where very serious human rights violations are taking place…This situation must change…an open and free press is crucial for the exercise of democratic participation” (Azzam cited in “Freedom of the Press”). Methodology This research will explore the need for Bloomberg to open a channel for coverage of the MENA region. This imparts the need to explore the merits of undertaking this endeavor for Bloomberg, the risks and challenges associated with the endeavor, and the potential ways of mitigating those challenges so that the channel can be successfully established. The relevant information for these objectives will be searched over the Internet. The research will be based on literature review and the results will be compiled in the form of a report. Task 3 Emergence of the MENA region as the Islamic finance hub and the growth of equity markets of the countries in the MENA region Introduction MENA region is evolving as the hub of Islamic finance. The traditional banking system has been heavily criticized because of its tendency to indebt the countries. To a large extent, the recent global financial crisis that started in 2008 and continued till almost the end of 2010 is attributed to the traditional banking system. This has raised the interest of financial analysts and economists in the study of Islamic banking system. Islamic banking system is radically different from the traditional banking system because of the laws of Shariah. This paper discusses the emergence of the MENA region as the Islamic finance hub as well as the growth of equity markets of the countries that make part of the MENA region. The intended audiences of this paper include but are not limited to tax advisers, tax administration and policy advisers, and other personnel involved in the Islamic banking industry. Adoption of the Islamic banking system has played a vital role in improving the financial performance and growth of equity markets of the MENA region’s countries. MENA region as the hub of Islamic finance Out of the eight countries included in the MENA region, the tax systems implemented by Qatar Financial Centre (QFC) and Turkey are the most friendly toward Islamic finance. Although it is possible to conduct simpler Islamic finance transactions in certain countries without incurring the costs of prohibitive tax, yet only QFC and Turkey are the countries whose tax system allows for the conduction of sukuk transactions without excessive costs of tax. Sukuk is the term used for Islamic equivalent of bonds. Islam does not allow fixed income bonds that bear interest, so the securities of Sukuk are especially structured in such a way that they adhere to the investment principles of the Islamic law. Bahrain is the strongest financial center in the whole of MENA region. It has remained financial capital of the Gulf for almost four decades and has been a leader in the Middle East in a variety of sectors ranging from banking and Islamic finance to asset management. As of April 2014, the assets of Bahrain were $194 billion (“Bahrain is the most”). The banking system of Bahrain comprises Islamic as well as conventional banks and is the financial system’s largest component. There are 76 wholesale banks, 28 retail banks, 21 offices representing overseas banks, and 2 specialized banks (“Bahrain is the most”). Bahrain is known as Islamic banking and finance’s global leader. Its 24 Islamic banks lead all banks in the MENA region. Growth of equity markets in the MENA region Islamic banking has surfaced as a new financial industry in the last two decades. Financial industry is characterized by operations of banking without interest rate’s use. Islamic banking is essentially interest free banking as taking, giving, or charging interest is declared haram in Islam. The interest free banking has shown unexpected rates of growth all over the world. Considerable theoretical research has been conducted in the various aspects of Islamic banking. Most of these theoretical models have shown that the Islamic financial system is superior to the traditional financial system both with respect to equity efficiency and equity stability (Khan and Mirakhor). Economists are increasingly realizing the significance of Islamic financial system for economic development, though there is dearth of research empirically testing the relationship between economic development and Islamic financial system because of lack of availability of aggregate information on the Islamic sectors (Goaied and Sassi). The Islamic financial system is capable of eradicating poverty. Islamic banks have played an important role in eradicating poverty by using the Zakah funds. Zakah is very different from tax firstly because it is a religious obligation on everybody who meets the requirements and conditions defined by Islam. As a result, the poor are excused from paying Zakah unlike tax system that is equally an obligation on the rich and the poor. Secondly, since Zakah has a defined percentage which the affording people can easily pay as it is just 2.5 per cent on the assets and savings annually. This makes Zakah different from tax whose percentage varies from item to item and in some cases, from state to state. In addition to that, while tax imposition has not acquired the image of alleviating poverty, Zakah has always played a pivotal role in poverty reduction. “Other the use of these funds for zero interest credits to customers in needy case, these funds are used to give to the poor a combination of productive resources to maintain at least one household; the idea is to make the poor more productive which in turn contributes to economic development” (Goaied and Sassi 8). There are plentiful examples of the role of Zakah funds in eradicating poverty. For example, the Jordan Islamic Bank in the MENA region does not have oil manna; this bank set a fund especially for loans without interest for the poor people. The number of beneficiaries that received an aggregate of USD 22 million from the bank in the three years between 2001 and 2003 is above 40,000 whereas USD 22 million makes almost 230 per cent of the net profit made by the Jordan Islamic Bank in this period (Goaied and Sassi). Methodology Growth of the MENA region’s financial importance and the contribution of the Islamic banking system in it will be explored by reviewing the tax treatment in the Islamic finance structures of including sukuk, commodity murabaha, istisna, and salaam in the selected MENA countries. The responsible offices in these countries will be contacted and requested for coordination and administration of the questionnaires. Further research can be conducted to study the impact of such consumption taxes as Value Added Tax on the transactions of Islamic finance. Such research will play a role in removing barriers from investment and trade at the international level. Islamic finance institutions are a fundamental element of the global business’s financial infrastructure. Works Cited: “Bahrain is the most mature, well-established financial centre in the MENA region.” 2014. Web. 10 Nov. 2014. . “Bloomberg Facts.” 2014. Web. 10 Nov. 2014. . “Divergence and Decline: The Middle East and the World after the Arab Spring.” Freedom House. 2012. Web. 10 Nov. 2014. . Flanagan, Ben. “Britons and Indians join TV stampede.” The National. 20 Jan. 2012. Web. 10 Nov. 2014. Mhttp://www.thenational.ae/business/media/britons-and-indians-join-tv-stampede>. “Freedom of the Press: in the Middle East, widely curtailed and often violated.” United Nations Human Rights. 2014. Web. 10 Nov. 2014. . Goaied, Mohamed, and Sassi, Seifallah. “Financial Development and Economic Growth in the MENA Region: What about Islamic Banking Development.” JEL classification: E44; O16; C33. (2010): pp. 1-23. Web. 10 Nov. 2014. Khan, Mohsin S., and Mirakhor, Abbas. “Theoretical Studies in Islamic Banking and Finance.” The Institute for Research and Islamic Studies, Houston, 245 p. 1987. Read More