The easiest way to increase availability of halal food and other products within the broader Islamic economy is to show businesses that there is profit to be made in serving the market and providing funding and assistance to reach that market. Japanese fund manager Inspire Corp has set up a fund in partnership with the Malaysian state-owned fund manager Permodalan Nasional that will help Japanese companies get halal certification and build sales networks in Muslim countries.
The SME sector has always been a big part of the Islamic economy and most sectors outside of Islamic finance are dominated by SMEs rather than big multinationals. The challenge they face is that it is more difficult to reach markets that are not just geographically distant, but where the barriers to entry are created by halal certification.
This fund would unlock the barrier, not by removing it, but by recognizing that the supplier is not able to navigate the process of halal certification which is complicated, particularly for companies targeting multiple markets. The fund will allow SMEs to target markets with the greatest number of potential consumers, but at the end of the day, an SME is likely to have to pick and choose–even with financial and technical assistance–because of the number of different standards for what is and is not halal.
A lot has been made in events around OIC countries about the need for SME development in OIC states as a way to meet the employment challenges facing countries with young populations in order for them to benefit from the demographic dividend. Supporting SMEs that are exporting to OIC countries can provide one way to support the SME sectors within these countries.
While the idea of supporting companies producing halal goods to export to OIC countries may seem to increase competition to the detriment of local producers, it is not necessarily a zero-sum game.
Firstly, the import of halal goods will require local distribution and sales capacity which can support local SMEs. In addition, by raising the quality and choice within the halal market, it can broaden the appeal of halal goods. This broadening will produce growth in the market, which will benefit not just the foreign SMEs exporting into the OIC, but also other halal industries which will see greater demand if they can produce a product of equal or better quality.
The Islamic economy can provide a way to expand OIC economies and to broaden the market for halal products in a way that can offset the potential loss from increasing competition. However, many of the SMEs outside of the OIC are unable (for lack of knowledge or lack of funds) to reach these potential markets, which provides a good opportunity for financial institutions to coordinate the available skills and funds.
*This article was originally published on zawya on 21 April 2014. Read the original article here.