Islamic finance must strengthen regulation, boost its professional staff and diversify as it takes on a bigger global role in the aftermath of the worldwide financial crisis, experts said.
Financial products compliant with Islamic Shariah law are likely to gain in popularity as investors seek safer havens after the ruin caused by toxic derivatives sold globally by mainstream Western banks, they said.
However, experts warn that Islamic financial institutions must be on their guard against falling into the same unbridled excesses that jolted Wall Street and snowballed into a global economic downturn.
“Islamic finance is not immune from such pitfalls. Hence we must be careful to avoid this error in the Islamic financial industry,” said Muhammad Sulaiman Al-Jasser, governor of the Saudi Arabian Monetary Agency.
“Islamic financial institutions are continuing to invest time and effort to improve corporate governance and risk management and I expect that they will continue to avoid mistakes made in designing over-complicated securities,” he said.
He and other experts were speaking at a recent meeting of the Islamic Financial Services Board held in Singapore, which is aiming to be a key player in Islamic finance.
INTEREST
Islamic banking has been left relatively unscathed by the global financial crisis, largely because of rules forbidding engagement in the kind of risky business that sank mainstream institutions like Lehman Brothers.
Islamic Shariah law bars the payment and collection of interest, which is seen as a form of gambling.
RISK-SHARING
Islamic finance also operates on the principle of risk-sharing between the issuing bank and the buyer of a financial product, making it a less risky alternative to some conventional banking instruments.
Al-Jasser and other speakers told the Singapore conference that Islamic finance was likely to gather momentum in the aftermath of the downturn.
“It is my belief that Islamic finance has moved on to a new stage in the last few years. In the past, it was an individual decision based on faith, now it is competing on its own very strong merits in the global marketplace,” he said.
Islamic finance is now established in 47 countries with more than 600 institutions managing “balance-sheet assets” worth over US$630 billion, with another US$200 billion to US$300 billion managed as investment funds, he said.
Heng Swee Keat (王瑞傑), managing director of the Monetary Authority of Singapore, said more Asian countries were using Islamic finance to fund infrastructure projects.
‘SUKUK’
Issuance of Islamic bonds, called sukuk, in Asian currencies totaled US$64.3 billion last year, down 1.5 percent from 2007 when it expanded by 50 percent over the year before, Moody’s Investor Service said this month.
But the industry has much room for growth as Islamic finance represents only 1 percent of the total assets held by the global financial markets, experts said.
Ahmad Mohamed Ali, president of the Islamic Development Bank, urged the industry to offer a wider range of financial services, noting that commercial banking accounts for more than 70 percent of Shariah-compliant assets.
“There is a need for major investment banks that provide a different model of investment banking, a model that is able to have positive impact on economic growth without compromising stability and resilience,” he told the meeting.
“We also need varieties of venture capital institutions, small and medium financing institutions specialized in financing, leasing, etc,” he said.
As global regulatory bodies revise financial regulations to prevent future financial crises, Islamic regulatory and accounting standards must also improve, Ahmad said.
While the previous approach focused on regulating individual Islamic financial institutions, regulatory bodies should now adopt a comprehensive strategy to address both macro and micro-economic issues.
Muliaman Hadad, deputy governor of the Bank of Indonesia, said one of the key challenges was producing much-needed professional staff to deal with Shariah-compliant financial products.
EDUCATION
Indonesia, the world’s most populous Muslim nation, will also launch an education campaign across the country to help people — including bankers, bureaucrats, students and religious leaders — understand Islamic finance better.
Tunc Tahsin Uyanic, a sector manager for the World Bank in the East Asia and Pacific region, offered the bank’s assistance in personnel training, education, policy direction, development of new financial instruments and regulation.
The paramount chief of a volcanic island in Vanuatu yesterday said that he was “very impressed” by a UN court’s declaration that countries must tackle climate change. Vanuatu spearheaded the legal case at the International Court of Justice in The Hague, Netherlands, which on Wednesday ruled that countries have a duty to protect against the threat of a warming planet. “I’m very impressed,” George Bumseng, the top chief of the Pacific archipelago’s island of Ambrym, told reporters in the capital, Port Vila. “We have been waiting for this decision for a long time because we have been victims of this climate change for
Rainfall is expected to become more widespread and persistent across central and southern Taiwan over the next few days, with the effects of the weather patterns becoming most prominent between last night and tomorrow, the Central Weather Administration (CWA) said yesterday. Independent meteorologist Daniel Wu (吳德榮) said that based on the latest forecast models of the combination of a low-pressure system and southwesterly winds, rainfall and flooding are expected to continue in central and southern Taiwan from today to Sunday. The CWA also warned of flash floods, thunder and lightning, and strong gusts in these areas, as well as landslides and fallen
MASSIVE LOSS: If the next recall votes also fail, it would signal that the administration of President William Lai would continue to face strong resistance within the legislature The results of recall votes yesterday dealt a blow to the Democratic Progressive Party’s (DPP) efforts to overturn the opposition-controlled legislature, as all 24 Chinese Nationalist Party (KMT) lawmakers survived the recall bids. Backed by President William Lai’s (賴清德) DPP, civic groups led the recall drive, seeking to remove 31 out of 39 KMT lawmakers from the 113-seat legislature, in which the KMT and the Taiwan People’s Party (TPP) together hold a majority with 62 seats, while the DPP holds 51 seats. The scale of the recall elections was unprecedented, with another seven KMT lawmakers facing similar votes on Aug. 23. For a
All 24 lawmakers of the main opposition Chinese Nationalists Party (KMT) on Saturday survived historical nationwide recall elections, ensuring that the KMT along with Taiwan People’s Party (TPP) lawmakers will maintain opposition control of the legislature. Recall votes against all 24 KMT lawmakers as well as Hsinchu Mayor Ann Kao (高虹安) and KMT legislative caucus whip Fu Kun-chi (傅崐萁) failed to pass, according to Central Election Commission (CEC) figures. In only six of the 24 recall votes did the ballots cast in favor of the recall even meet the threshold of 25 percent of eligible voters needed for the recall to pass,