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Wednesday, 7 November 2012

Islamic banking needs strong regulatory body


MUSCAT — To mark the conclusion of the first-ever Muscat International Islamic Finance Forum (MIIFF), the organisers have compiled key recommendations which have resulted from the discussions among senior industry figures, global investors, takaful operators, bankers, as well as top Shariah scholars who participated in the event.


Over the diverse categories covered, the recommendations are as follows:
In regulatory framework, they recommended that as the industry is in its early stage of development, it is essential to form a solid regulatory framework and incorporate learning from the experiences of other regulators.

The experts also called for full transparency and disclosure as best practice ethics are fundamental for this industry and urged the regulators to be flexible in the beginning to allow the industry to pick up as the infrastructure is not yet available to the industry and the players.

Regarding Shariah, they called to explore various legitimate techniques of ijtihad to advance Islamic finance products; to enhance Shariah research to enrich the fatwa construction; to hold frequent dialogues amongst Shariah scholars to achieve some understanding and resolution and to avoid if possible, reliance on commodity murabahah.

On asset liability management (ALM), the experts called on the government to assist in developing Islamic short-term liquidity instruments to assist absorbing excess liquidity and facilitate ALM; interbank relationship (for all banks — Islamic and conventional) to be encouraged on short to medium term instruments as long as the products are Shariah compliant; encourage regulators to issue licences to downstream institutions such as Islamic finance companies and mortgage issuers, to enhance the deployment of excess liquidity and participate in real supply chain in facilitating liquidity management with credit enhancement.
When it comes to in-country value (Development of real economic sectors and SME), the experts opined that the main focus of Islamic finance is not just about giving out financing or managing funds, it is also about enhancement of actual economic development such as job generation, infrastructure development etc which facilitate socio-economic improvement in turn.

MIIFF advises that Islamic banks should effectively develop SME funds on Musyarakah basis; new set of investment deposit IFI (special investment account — not guaranteed — under restricted mudharabah); asset management function of IFI for SME and venture capital or via subsidiaries and tier 1 capital under Basel III through issuance of sukukmudharabah and musyarakah.

Other recommendations include development of parallel mudharabah product and adoption of Istina/Ijarah Mawsufah fi Dhimmah or Istisna/Wakalah for project-based/asset-based financing.

When it comes to asset/fund management, they called for steps to promote white-labelling and feeder fund approach to expedite development of asset management; to have stock exchange undertaking shariah screening and Shariah index; to develop fund that invest in strategic services sectors such as education and healthcare, and encourage government participation.

Others include regulators to provide incentives and waiving of registration fees/tax on REITS in order to treat REITS just like equity fund.

Regarding education, they recommend affiliation for Islamic finance courses between educational institutions; short programmes and professional courses in the short term to bridge the gap in knowledge and IFI to invest in structured training to customised to their needs and requirements.

On Takaful, they called for adoption of BancaTakaful to expedite distribution and Takaful to collaborate with other takaful/asset managers in managing their contributions as the penetration level is still low in short term.

Regarding Sukuk, they sought to promote innovation in sukuk to meet current requirements such as Tier 1 sukuk and perpetual sukuk; to tap new markets to address the supply issue; to tackle pricing issues to be competitive with conventional banks and to consider issuing more asset-backed sukuk as asset-based sukuk face fierce competition from conventional bond.

Regarding media and awareness, they called to enhance the coverage on Islamic finance to spread the awareness among the public; Islamic financial institutions to take initiative and be proactive in working with the media to create the awareness about the industry and its products and to encourage educational institutions to conduct seminars and host speakers to create awareness among students.

The two-day forum, organised by Amanie Advisory House, concluded at Al Bustan Palace. It aimed to provide the ideal atmosphere for networking within the Islamic financial alliance and create a rising consciousness about the manifold benefits of Islamic Finance.


(Oman Daily Observer / 07 Nov 2012)


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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

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