Alfalah Consulting: 05/02/12

Wednesday, 2 May 2012

AAOIFI issues 7 sharia standards for Islamic finance

(Reuters) - The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has introduced new guidelines for applying religious law to finance, as it prepares to launch a sweeping review of the industry.

The seven new standards, which help scholars decide whether financial activities and products conform with sharia law, address issues including financial rights, bankruptcy, capital protection, entrusting money to an agent for investment, and contract termination.

Capital protection has been widely discussed in the industry over recent months; some investment firms are keen to offer it in products, but Islamic principles do not allow companies to promise guaranteed returns.

AAOIFI's new standards also cover the ways in which financial institutions manage their liquidity, discussing the sources and uses of funds and offering rules for calculating and distributing profits from investment instruments.

How to increase liquidity has been a key concern for Islamic banks. Last month two global bodies launched a standard contract for Islamic profit rate swaps, which banks can use to manage their exposures over varying time periods.

The Bahrain-based AAOIFI announced the new standards on Sunday after several days of internal discussions among sharia scholars, its deputy secretary-general Khairul Nizam told Reuters. The standards are being issued first in Arabic and will be translated into English later.

AAOIFI, one of the top standard-setting bodies in Islamic finance globally, will over the next couple of years conduct a broad review of how the industry operates, addressing issues such as how boards of scholars work, the organisation's secretary-general Khaled Al Fakih said earlier. (Editing by Andrew Torchia)

( Reuters / 30 April 2012)

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World Bank: Islamic finance full potential can be realised

KUALA LUMPUR: The full potential of Islamic finance could be realised if several challenges are to be addressed, according to World Bankmanaging director Dr Mahmoud Mohieldin.

The challenges that needed to be addressed include improving regulatory oversight, rebalancing tax treatment, strengthening insolvency framework, promoting standardisation, ensuring adequate liquidity and establishing sound risk-management practices.

“Lack of standardisation and cohesion in Islamic finance, especially insukuk products, hinders the growth potential of the industry and deprives the market of an organised structure to facilitate secondary trading and liquidity. For example, the industry would benefit from more widely accepted benchmarks and indices,” Mahmoud said in his presentation entitled: Taking Islamic Finance to the Next Level: Key Challenges and Opportunities organised by the International Centre for Education in Islamic Finance (Inceif).

Mahmoud said innovation and knowledge sharing between various market players were essential to facilitate the standardisation and unification of global markets for Islamic financial products.

In many countries, levelling the playing field with respect to the tax treatment of financial instruments was an urgent need. Conventional debt often received advantageous tax treatment, while some Islamic finance products like faced double taxation, he said

“Malaysia and Thailand took fundamental steps to ensure that Islamic financial transactions operate on a level playing field and are treated equally for tax purposes,” he said.

Meanwhile, Inceif signed an agreement with the World Bank to develop education and executive programmes in Islamic finance.

The collaboration, which aims to foster the development and expansion of sustainable and equitable Islamic finance worldwide, is focused on sharing of research, strengthening capacity, sharing of case studies and sharing of knowledge.

Its president and CEO Daud Vicary Abdullah said Inceif’s position as a global knowledge leader in Islamic finance would be strengthened with this collaboration.

(The Star Online / 1 May 2012)