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Thursday, 16 May 2013

Islamic finance’s next step

The next growth trajectory for Islamic finance will come when organisations and nations involved in the sector are able to create a credible regulatory framework, according to an Islamic finance banker.

This would include wider implementation of standards produced by the Kuala Lumpur-based Islamic Financial Services Board (IFSB), and the involvement of Organisation of Islamic Conference nations and the Islamic Development Bank.

“On top of such effective regulatory framework, they need to have a conducive legislative framework in terms of legal framework and a robust Shariah governance,” said CIMB Islamic Bank Bhd ED/CEO Badlisyah Abdul Ghani.

“For a regulated activity to be executed successfully it has to have regulations.

“Once that is available, only then you will see the potential of Islamic finance, being a significant component of the global financial market, and be at par or even be bigger than conventional sectors, come into reality.”

He said Bank Negara Malaysia (BNM), regulator of the local banking sector, has adopted some of the guildelines issued by the IFSB.

“They have adopted these regulations in part, with perhaps some minor tweaking to suit local requirements.

“And that has impacted very positively on the regulations of the Malaysian market because at the end of the day it set the standards on how an Islamic bank should be governed in a healthy manner,” he told The Malaysian Reserve at the sideline of a pre-event for IFSB’s 10th Summit in Kuala Lumpur yesterday.

Badlisyah was one of the speakers at a forum jointly organised by IFSB and Islamic Research and Training Institute (IRTI) to conduct a midterm review of a 10-year framework and strategies for the Islamic financial services industry development.

Also speaking was Durham University Prof Habib Ahmed and Sharjah chair in Islamic finance.

IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors.

It has thus far published 13 standards. The first, IFSB-1, was entitled “Guiding Principles of Risk Management for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)” was issued in 2005.

The second, also issued in 2005, was on capital adequacy standard. The latest, issued last year, was “IFSB-13: Guiding Principles on Stress Testing for Institutions offering Islamic Financial Services”.

Badlisyah said there is no doubt that Islamic finance and Islamic banking have caught the attention of regulators and governments across the globe, turning it into an engine for growth.

On the overall outlook of the Islamic banking and finance system, he said the sector will see more growth.

“Islamic finance outlook is very good, it has never been better. It is undoubtedly growing very fast, with greater awareness about the market on a global scale.

“It has caught the attention of all stakeholders, global regulators, consumers and government legislators. As a result of this, the situation is getting better for Islamic finance,” he said.

(The Malaysian Reserve / 15 May 2013)

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