By Isla McFarlane-Islamic Business and Finance, Zawya
Is a lack of Islamic funding contaminating the Halal food industry?
People rarely look beyond packaging. Whether a label tells us that a product will keep us thin, young or holy, we tend to go along with it. The Halal stamp assures Muslims worldwide that the product they are about to use won’t violate their faith, but can they trust it?
According to Muhammed Zahid Yaqoob, Chief Executive Officer of National Halal Food Group UK (National Halal), Halal is currently one of the most abused words on the globe. The majority of products on offer cannot be truly Shari’ah-compliant – because they are financed with conventional debt.
“One cannot call Halal food Halal if the money involved is based on Riba,” said Yaqoob. “By the grace of Allah, National Halal is the first British Islamic brand in its sector where the entire process, not just the slaughter, is carried out in strict accordance with Shari’ah requirements – including the animal welfare procedures and processes – and the money involved is Riba free. In totality, that is a unique position to be in. That’s why National Halal qualifies as an Islamic brand, not a Muslim brand.”
For many Muslim brands, the failure to be truly Islamic is not through lack of trying – Shari’ah-compliant funding simply isn’t there. National Halal has been reliant on the financial support of family and friends, since funding from Islamic financial institutions was not forthcoming.
“The Halal food sector does not enjoy the complete support of many Islamic banks,” said Yaqoob. “National Halal, by the grace of Allah, is the largest independent retailer of Halal food in Europe. I was told there was no Islamic finance available for the Islamic brand. No Islamic finance available for a growing Shari’ah-compliant food business in an established market. We tick every box for a potential investor.”
“I would say the marriage that should happen between Islamic finance and Islamic foods has not yet materialised.”
Islamic Business & Finance’s US correspondent, Rushdi Siqqidui has been one of the loudest voices calling for Islamic finance and the Halal sector to unite. “Islamic finance and the Halal industry share common values as both are mentioned in the same chapter of the Qur’an, Al Baqarah, yet there is very little communication, connectivity, and collaboration between the two,” he said. “These two compliant niche markets need to not only better understand each other, but, more importantly, need to connect Islamic liquidity to Halal opportunity.”
To help bridge the two sectors together, Siddiqui co-founded Azka Capital, a private equity advisory firm focused on Halal industry initiatives. “Halal has emerged as an asset class in and of itself, and its convergence with Islamic finance broadly and Islamic private equity in particular presents significant growth opportunity,” said Azka Capital. “Driven by growth markets with growth demographics, the Halal industry is on the cusp of exponential growth.”
In April, it was announced that Azka Capital would raise a $500 million fund to focus on global opportunities in the Halal industry. “The demand for Halal products and services is expected to increase with the growth of the Muslim population and increasing awareness of the Halal standard,” Malaysia’s Former Prime Minister, Tun Abdullah Ahmad Badawi, who is Chairman of its Advisory Board, said in his keynote address at the World Halal Week Conference 2013. “Now is the right time to put our money where our mouth is.”
Although this is a good start, many Halal businesses are languishing without finance because Islamic banks don’t share Badawi’s sentiments. Bafflingly, Islamic banks have shown little interest in an industry which is currently valued at $2.77 billion and is growing at 20 per cent a year. The Halal food sector alone is valued at $685 billion. This becomes even more perplexing when one considers the shortage of suitable Islamic assets for banks to invest in, Islamic banks’ over-reliance on real estate and the under-utilised surplus liquidity that Islamic banks tend to shoulder.
A growing Islamic business such as National Halal Food Group, recent winner of the English Asian Business Award 2013, ought to be considered a prime investment opportunity. “Only a few years ago the business employed 30 people – we now employ approximately 300 people,” said Yaqoob. This has been achieved with the sole support of family and friends.
With no help from governments or Islamic finance, the Halal food industry has suffered from a lack of support in more ways than one. “We tried approaching Islamic banks, but Islamic finance is only investing in bricks and mortar,” said Yaqoob. “Islamic finance is not assisting its younger brother, the Halal food sector. Because Halal has not been assisted, it has been compromised. The definition of Halal has disappeared. There are certification bodies across the globe and no unification or central platform. In Islamic finance you have prominent scholars sitting on boards – the Halal industry is many years behind.”
As the cries for standardisation in Islamic finance grow ever louder, Halal business seems to have been left to its own devices, to the detriment of the industry. “Halal food is being predominantly produced by non Muslim countries, so Muslims are essentially importers and consumers,” said Abdalhamid Evans, Founder of Imarat Consultants and Editorial Director of the Global Islamic Economy Summit in Dubai.
“Although it is called Halal, they don’t know what they’re actually getting. They’re importing without being aware of the regulatory process that is being used to oversee the Halal production process. The rest of the food industry is highly policed, monitored and controlled for quality, safety and compliance – Shari’ah compliance in the food industry is not.”
The party that suffers most from this is the end user – the consumer. “Retailers have an obligation to sell the correct product to the customer,” said National Halal. “There is a lot of fake Halal coming in from non Muslim countries.”
Because conventional institutions, not Islamic ones, are taking an interest in Halal Shari’ah compliance is often put on the back-burner. Yaqoob explained how National Halal was invited to the head office of a global fast food chain who were interested in offering Halal products. “The market had saturated for them and they wanted some of the growing Muslim market,” he said. “But I was there to sell the concept – if you get that right you’ll get the market. They had committed to a trial and I told them not to bother. I asked if they had segregated the kitchen and they said no – they hadn’t thought about it. They did a trial for a few weeks and then it stopped.
“Unfortunately Halal is the most abused word due to the greed factor. Awareness of this is growing. People are now questioning the butchers where they have been buying products for the last 20 or 30 years.”
PURE AND SIMPLE
As more people question the origins of their Halal meat, demand for pure Islamic brands is set to grow – and not just within the Muslim market. In the same way interest in Islamic finance picked up during the financial crisis, Halal brands have the chance to trade on their ethical stance.
“If you had proper Halal oversight, something like mad cow disease or the horsemeat scandal wouldn’t have happened,” said Evans. “There is no way, within an Islamic supply chain, that you’re going to get horsemeat. They wouldn’t want a non Halal chicken in there – let alone a different species!”
According to National Halal, ethics is the unique selling point of an Islamic brand. “The mission statement is very clear; we are here to build the Halal brand according to the teachings of the Qur’an,” he said. “We deliver that chapter and verse.”
And this isn’t limited to Halal food. “Food is the primary pillar of the Halal sector; coming in its wake you’ve got personal care products, cosmetics, pharmaceuticals, travel… The Muslim travel market is worth around $126 billion a year – it’s been called the largest identifiable niche market,” said Evans. “Muslims travel for longer, go in bigger groups and spend more money – why would we not pay attention to that?”
WANTS AND NEEDS
Of course, with more industries entering the Halal market, the line between an Islamic and a Muslim brand become more easily blurred. The Halal meat industry was born out of necessity, and its guidelines are laid out clearly in the Qur’an. The same cannot be said of, say, Islamic cosmetics.
Yaqoob explained how his father arrived in the UK from Pakistan to study medicine in 1954, where the Muslim community was vegetarian because there was no source of Halal meat. The elders of the community asked Yaqoob’s father, a Hafiz of the Qur’an, to slaughter a hen for them. “That’s when Halal was born in Birmingham,” said Yaqoob. “As the community grew, that hen went from one hen to two hens to a dozen to two dozen and so forth… In the end he abandoned his medical studies and dedicated his entire life to the Halal industry, affectionately becoming known as the ‘Father of Halal’. The first outlet was created in 1956.”
The same primal need and Shari’ah law is more difficult to apply to other industries. “It may be turned into consumer preference,” said Evans. “Let’s take the issue of cosmetics – does it matter that a face cream is Shari’ah-compliant? You’re not going to eat it! From a legal perspective it probably doesn’t matter. Would a Muslim woman rather use a product that doesn’t contain anything doubtful? Yes, probably; just as any woman probably doesn’t want placenta in her face cream. So these become issues of consumer preference.”
Does this not create a concern that Islam could become commercialised? After all, the Halal brand could be applied to anything: A Muslim may prefer to pick up a bottle of mineral water which is branded Halal, even if its contents are exactly the same as a conventional brand. With products such as Shari’ah-compliant toothpaste already in existence, at what point does such a label become exploitative?
“There is a sensitivity to it – part of which is valid, and part of which is not,” said Evans. “Part of the sensitivity is that Islamic values could become commercialised and devalued and that is a danger. A highly respected scholar once told me that ‘the consuming one’ is one of the names of the devil. That genie is out of the bottle – the world is already talking about the Muslim consumer. We can’t go backwards but we can be careful how we tread forwards.”
Part of that is ensuring that the product being sold as Halal is truly Shari’ah-compliant. The only way for this to happen would be for more funding to be made available from Islamic banks. Currently, Islamic brands are constricted by a lack of funding, meaning they have been limited in their expansion.
“The Halal meat industry is lacking in market leadership and a brand,” said Yaqoob. “There are 57 Muslim countries in this world. Not a single one of them has a global brand. Islamic finance treats Halal like an emerging market – but we are the next dot.com. We tried talking to Islamic banks, but the vision of building a Shari’ah-compliant food brand doesn’t exist. No one’s prepared to invest in the industry and take it to the next level.”
STRENGTH IN NUMBERS
Sadly, Islamic banks aren’t just missing out on an investment opportunity. By not joining forces with the Halal industry, Islamic finance is missing the chance to make itself more accessible. “Islamic finance has to reinvent itself – the conversation is stuck,” said Evans. “It’s the same people saying the same things. It’s only for the bankable, which is a very small percentage of the Muslim world. Islamic finance is of very little relevance to the average Muslim – it doesn’t enter his life. Halal food, on the other hand, is relevant in a much more immediate way.
“Islamic finance doesn’t speak to the man on the street – he’s thinking about food – so why aren’t the Islamic institutions?”
The Islamic finance and Halal industries both have a lot to gain from each other. “There is a huge learning process that has to take place between Islamic finance and the Halal sector; not only to do with infrastructure and standards, but also in terms of speaking to the needs of people’s lives,” added Evans. “The Halal food sector does that much better than the Islamic finance sector, whereas the Islamic finance sector is much better regulated.”
National Halal, which celebrates its 60th anniversary next year, is aiming to be a global Islamic brand – with or without help from Islamic banks. “We’re a small company in the overall industry,” said Yaqoob. “Our aims and objectives are to build a great Islamic brand and export it.”
It seems sad that such an ambition is being hindered, rather than helped by Islamic institutions. Nonetheless, Yaqoob won’t let a lack of support from Islamic institutions dampen the company’s ambition; neither will he let conventional finance compromise the Shari’ah compliance of National Halal. Let us hope Islamic companies will not have to face this dilemma in future.
“You’ve got to eradicate the fake Halal from the supply chain,” said Yaqoob. “Let’s take market share and leadership. We cannot go into overdraft or take a loan from a high street bank – that would cancel us being an Islamic brand. What we need is Islamic finance and Islamic food. That marriage has to happen.”