9 May 2009

SINGAPORE: Islamic finance, which puts emphasis on sharing of risks between contracting parties has an enduring appeal, especially in the aftermath of a global financial crisis, says Muhammad Al-Jasser, governor of Saudi Arabian Monetary Agency (SAMA). He said Islamic financial products could now compete with others on their own merits in the global marketplace.

He made this comment while addressing the Sixth Annual Summit of the Islamic Financial Services Board (IFSB) that began here on Thursday. It is attended by leading figures in the Islamic financial services industry who pointed out that the unique features of Islamic finance could contribute to resilience and depth in the global financial system. They also stated their firm commitment to its continued soundness and stability, taking account of the possible changes in the global financial architecture.

The summit, held under the patronage of Singapore’s senior minister, Goh Chok Tong and themed “The Future of Islamic Financial Services”, is hosted by the Monetary Authority of Singapore (MAS) and attended by more than 250 Islamic financial services industry stakeholders from across the globe.

“Islamic finance is now moving to a new stage whereby, rather than being driven by individuals’ decisions based on faith, it is now competing on its own merits in terms of efficient products and services in the global marketplace,” said Al-Jasser, who is also chairman of the Council of the IFSB. He cautioned that the recent crisis has shown, among others, the failure of self-regulation. This implies that the Islamic financial services industry needs to meet the global standards and best practices for risk management, capital adequacy, corporate governance and transparency.

In his speech, Ahmed Mohamed Ali, president of the Islamic Development Bank (IDB), noted that despite the relatively small resources managed by institutions offering Islamic financial services, the direct linkage of financial resources and real productive activities can help economies face the rising challenges, thereby alleviating poverty and mobilizing institutions such as Zakah and Awqaf in providing social safety-nets especially to the more vulnerable segments of the society. He appealed to those concerned to provide an opportunity for Islamic finance to play an active role in building a better global financial system.

Heng Swee Keat, governor of the MAS, in his welcoming remarks, stated that despite the challenging times, the summit provides a timely opportunity for the industry’s stakeholders to reflect on the shortcomings in the existing economic and financial models, as well as in supervisory approaches.

The MAS has been committed to developing a regulatory approach that is clear, relevant and consistent, across the range of Islamic financial activities. It has issued directives on how its banking regulations apply to Islamic banking, ensured equal tax, regulatory, and liquidity treatment of Sukuk with Singapore government securities. In addition, the MAS will be developing human capital by sponsoring students for a number of eligible Islamic Finance Masters programs.

Professor Rifaat Ahmed Abdel Karim, secretary-general of the IFSB, highlighted that the IFSB has directed its work toward developing the critical building blocks of the Islamic financial architecture, particularly in financial regulation and supervision.

However, as the global financial architecture undergoes structural reforms in response to the crisis, there may be a need to review the Islamic financial services industry architecture in the light of these developments.