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Wednesday, 11 September 2013

Lack Of Governance Affects Islamic Finance Growth In Middle East

Lack of proper governance and regulation for Islamic finance can affect future growth and confidence of the sector in the region, industry experts have warned.

“The bigger you grow, the more transparent an industry needs to be in order to gain confidence. This happens only when there is proper governance and regulation,” said Ashruff Jamal, partner and global Islamic finance leader at PwC, Dubai.

Middle East banks are yet to agree on a centralised board of governance and regulation for Islamic finance seen in countries like Malaysia, which is obstructing the region from tapping the sector’s potential.

Jamal said that culture plays a major role in the lack of common governance in the region where every bank has its Sharia standards and regulations.

“Here each bank started out with its own board which sets out Sharia regulations and now finds it hard to give up that control.”

According to PwC’s report, global Islamic finance assets are valued at $1.2 trillion with Middle East constituting a large part of that market.

Jamal said that the Islamic finance industry is estimated to grow rapidly and more than double in the next four years.

The world’s Islamic population is projected to grow by 30 per cent by 2030, significantly boosting the demand for Islamic finance. The current demand for Islamic finance is expected to grow mainly in Africa and Asia, which hold 95 per cent of the world’s Islamic population, the report said.

Experts said that there is an attractive market among the emerging middle class for Islamic deposits, lending, protection and payment products. The growth in the retirement market is further creating demand for Islamic pension and asset management products.

However the Middle East will be unable to cash in on the boom experienced by Islamic finance due to its lack of regulation.

Jamal said that due to the lack of common governance and regulation, various banks in the region have the same Sharia scholars. He said that research showed around 20 Sharia scholars are part of as many as 619 boards creating room for conflict.

The expert also said that the pace at which the Islamic finance industry has been expanding is equally challenging. These institutions are traditionally small compared to their conventional banking counterparts making them unprepared for this quick growth.

Jamal said that the industry should have more Sharia scholars in the region in order to reduce conflicts and arrive at a common governance board.

“Speculation around the future of Islamic finance is over. Larger global forces are ensuring that Islamic finance is here to stay and grow particularly in view of the need to satisfy the rapidly increasing Islamic financial service needs of South America, Africa, Asia and Middle East region,” he said.

( Gulf Business / 09 Sept 2013)

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