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Friday, 31 August 2007

Islamic Financial System Needs Proper Pricing Benchmark

KUALA LUMPUR, Aug 30 (Bernama) -- Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz says the Islamic financial system needs to have an appropriate pricing benchmark for Islamic securities so that they are efficiently priced and credible. Speaking at the INCEIF Global Forum today, she said a vital challenge for Islamic finance is to build a stronger, competitive and dynamic financial system that reflects the internalisation of Syariah principles. "While developing Islamic financial system with products and services mirroring conventional counterpart is acceptable as a pragmatic approach to integrate into the existing financial system, it needs to develop further on its own paths and merits so as to maximise the potential benefits of Islamic financial system." Giving an example, Dr Zeti said that if a sukuk is issued based on the Ijarah principle, and uses the property as its underlying asset, the rental rate may be explored to be used to determine the rate of return on the instrument. Price movements would then depend on the demand and supply for that property thus giving a true reflection of the price of the underlying asset, she added. Meanwhile, commenting on Malaysia's experience in the international Islamic financial integration, Dr Zeti said the country has shown positive results starting in 2002 with its first issuance of a global Sukuk to liberalise greater market access in Islamic banking and takaful initiatives, by permitting entry of foreign players. Malaysia has also opened retakaful licenses to qualified local and foreign players, she said. "In the sukuk market, foreign corporation, multinationals and multilateral agencies may raise ringgit and foreign currency denominated instruments in our market. "Our private debt securities market is the largest in South East Asia and Malaysia also has highly liberalised exchange administration rules that allow for the free inflow and outflow of funds," she said. To date, the total assets of global Islamic financial system are estimated to exceed US$1 trillion, and it is among the fastest growing financial segment in the international financial system with an estimated annual growth of 15-20 percent.

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