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.
NO-LIMITS PARTNERSHIP: ‘The bottom line’ is that if the US were to have a conflict with China or Russia it would likely open up a second front with the other, a US senator said Beijing and Moscow could cooperate in a conflict over Taiwan, the top US intelligence chief told the US Senate this week. “We see China and Russia, for the first time, exercising together in relation to Taiwan and recognizing that this is a place where China definitely wants Russia to be working with them, and we see no reason why they wouldn’t,” US Director of National Intelligence Avril Haines told a US Senate Committee on Armed Services hearing on Thursday. US Senator Mike Rounds asked Haines about such a potential scenario. He also asked US Defense Intelligence Agency Director Lieutenant General Jeffrey Kruse
INSPIRING: Taiwan has been a model in the Asia-Pacific region with its democratic transition, free and fair elections and open society, the vice president-elect said Taiwan can play a leadership role in the Asia-Pacific region, vice president-elect Hsiao Bi-khim (蕭美琴) told a forum in Taipei yesterday, highlighting the nation’s resilience in the face of geopolitical challenges. “Not only can Taiwan help, but Taiwan can lead ... not only can Taiwan play a leadership role, but Taiwan’s leadership is important to the world,” Hsiao told the annual forum hosted by the Center for Asia-Pacific Resilience and Innovation think tank. Hsiao thanked Taiwan’s international friends for their long-term support, citing the example of US President Joe Biden last month signing into law a bill to provide aid to Taiwan,
China’s intrusive and territorial claims in the Indo-Pacific region are “illegal, coercive, aggressive and deceptive,” new US Indo-Pacific Commander Admiral Samuel Paparo said on Friday, adding that he would continue working with allies and partners to keep the area free and open. Paparo made the remarks at a change-of-command ceremony at Joint Base Pearl Harbor-Hickam in Hawaii, where he took over the command from Admiral John Aquilino. “Our world faces a complex problem set in the troubling actions of the People’s Republic of China [PRC] and its rapid buildup of forces. We must be ready to answer the PRC’s increasingly intrusive and
STATE OF THE NATION: The legislature should invite the president to deliver an address every year, the TPP said, adding that Lai should also have to answer legislators’ questions The Chinese Nationalist Party (KMT) yesterday proposed inviting president-elect William Lai (賴清德) to make a historic first state of the nation address at the legislature following his inauguration on May 20. Lai is expected to face many domestic and international challenges, and should clarify his intended policies with the public’s representatives, KMT caucus secretary-general Hung Meng-kai (洪孟楷) said when making the proposal at a meeting of the legislature’s Procedure Committee. The committee voted to add the item to the agenda for Friday, along with another similar proposal put forward by the Taiwan People’s Party (TPP). The invitation is in line with Article 15-2