Islamic Finance projected to manage 4% of world economy

KUALA LUMPUR: Islamic Finance industry, which grows about 15 per cent a year, is projected to manage four per cent of the world economy soon.

Governor of Qatar Central Bank and Chairman of Islamic Financial Services Board (IFSB), Sheikh Abdulla Saoud Al-Thani said over the past 10 years, Islamic Finance witnessed continued growth despite facing several challenges in the wake of the ongoing global financial crisis.

“Islamic financial institutions are now operating in well over 75 countries, having a total financial asset size of over a trillion dollars,” he said when opening 10th IFSB Summit 2013 here yesterday.

“With the implementation of the Basel III gradually approaching, the IFSB is working hard to introduce standards consistent with Basel III such as IFSB exposure Draft 15 to assist Islamic financial institutions.

“The challenge is that even with all the reform being created and developed, our utmost concern lies with the implementation of these standards in different jurisdictions that are increasingly getting involved in cross-border transactions,” he said.

Sheikh Abdulla said there was a need to reduce the cost of finance.

“According to some reports, the cost of issuing sukuk can be as much as 60 per cent higher than conventional bonds, which can have a negative impact on the growth of the sukuk market.

“This brings back to the issue of standardisation and the continual debate of how much standardisation is needed,” he said.

Meanwhile, IFSB secretary-general Jaseem Ahmed said the IFSBsurveys and research results indicated that national supervisory practices, supported by IFSB standards, have made significant progress in reflecting the risk characteristics of Islamic Finance.

“But many challenges remain, including the progressive completion of a supervisory system and supporting financial infrastructure that fully reflects the cross-sectoral aspects of Islamic Finance.

“This is in addition to the continuing need for a systemic liquidity management infrastructure that will help strengthen risk management capabilities at the level of financial institutions and macroeconomic level,” he added.

Islamic Development Bank Group president Dr Ahmad Mohamed Ali Al-Madani said based on lessons learnt from the financial crisis, there were calls for a new architecture to help minimise the frequency and severity of such crises in future.

“The Islamic financial services industry is capable of providing the broad parameters of such an architecture,” he said.

The merit of the Islamic financial services industry should not, however, be judged merely in the light of whether it was capable of providing a worthwhile contribution towards the goal of minimising the frequency and severity of financial crisis,” he said in his opening remarks at the summit.

The system should also be judged on the basis of its ability to help developing countries achieve a reasonably high rate of inclusive economic growth that was not only immune to excessive monetary expansion and contraction but also provide a tangible way out of crucial problems like poverty and unemployment.