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Thursday, 6 September 2007

Islamic financial institutions told to play a key role in helping developing countries meet crucial UN goals on poverty, health and primary education

MANAMA: Islamic financial institutions were yesterday told they can play a key role in helping developing countries meet crucial UN goals on poverty, health and primary education. At the opening of a two-day conference on the role such firms can play in financing sustainable development a number of regional experts underlined the contribution the Islamic finance industry, of which Bahrain is acknowledged as a global hub, can make to crucial infrastructure projects and initiatives. Held under the patronage of Prime Minister Shaikh Khalifa bin Salman Al Khalifa, the Regional Forum on the Role of Islamic Financial Institutions in Financing for Development has been organised by the United Nations Economic and Social Commission of Western Asia (UN-ESCWA) in association the Central Bank of Bahrain (CBB). Islamic Development Bank vice- president of operations Amadou Cisse called on Islamic banks and other institutions to harness the skills that have seen the industry mushroom in recent years in the cause of some of the world's poorest people. "Currently the growth of Islamic financial institutions is mostly focused on financing for economic growth rather than financing for social development," he told delegates at the event being held at the Ritz-Carlton Bahrain, Hotel and Spa. "However an important yet subtle movement has taken place - the idea of financing for development has come to be associated with the objective of assisting developing countries to achieve the UN's millennium development goals (MDGs). "In this context let me state one important principle - relatively high and sustained economic growth is a necessity in the region for achieving the MDGs," said the top executive of the Jeddah-based bank. The UN has set eight MDGs to be achieved by 2015 including the eradication of extreme poverty and hunger, universal primary education and the initiation of global cooperation on development. Mr Cisse praised the government of Bahrain and the CBB for their leadership "in internationalising Islamic finance" and said a similar degree of vision and determination would be needed to develop Islamic versions of sectors such as microfinance - a crucial initiative where there were few Sharia-compliant options. UN-ESWCA under-secretary general Badr Al Dafa told delegates the two-day meet would help "identify areas in which efforts are to be intensified in order to mobilise domestic and international financial resources to maximise the economic development". "The distinguished role that Islamic financial institutions play to improve the current welfare of our society make them unique among other corporate and financial institutions," he added. Mr Al Dafa called for greater co-operation between the industry and UN-ESCWA. "Such cooperation can take the form of undertaking several social development projects - this would include but not be limited to providing training for the youth, the real wealth of our society. "The importance of our meeting today and what makes it special is that it aims to complete our knowledge on how to better tap the considerable sources that will be made available by Islamic financial institutions for enhancing and accelerating economic and social development in all the four corners of the world and with particular emphasis on developing countries," he said. "Islamic institutions can make a major contribution to our economic growth and development - combating unemployment and alleviating poverty," he concluded. In a well-received keynote address CBB Governor Rasheed Al Maraj explained why Islamic transactions were particularly suited to development work. "Since Islamic financing must be based on real underlying assets, and preferably in the form of equity participation to create an equitable distribution of wealth, the opportunity for Islamic banks to participate in projects relating to infrastructure, industry and housing is unlimited," he told delegates. He also explained that more and more international firms were showing interest in undertaking Sharia-compliant activities. "Sharia principles which place emphasis on providing economic added-value to stakeholders and aim to create equivalence in benefits and costs free from harmful speculation are gaining more attention and better understanding globally," he added. He also drew attention to Bahrain's status as an innovator in the Islamic finance industry, explaining it was the first country in the region to introduce rules for the industry, and was a pioneer in the issuance of both short-term and long-term sukuk. He also revealed the CBB is close to presenting the first Islamic repurchase agreement (repo) to the market in a move which will help financial institutions to meet their liquidity needs. Speaking on the sidelines of the event, the governor told GDN Bahrain was already familiar with using Islamic instruments to fund development. "The government borrowing in terms of funding our major development projects. The government has structured sukuk to fund their capital development programmes - so there are many examples. "Even in the case of some of the large borrowing by our biggest corporations like Alba and Bapco some of the tranches were Islamic structures. Islamic Finance in general has played a role in financing development projects in Bahrain," he said. Asked if the fact that major telecom firm MTC was considering Bahrain as its global HQ was further proof of the CBB's success in creating a welcoming business environment, Mr Maraj was reluctant to take all the credit. "I think it is a collective effort for all government agencies to get rid of red tape and all bureaucratic constraints and I think there has been tremendous work over the last five or six years in order to improve the working environment in Bahrain. "It is not just the CBB, the CBB is part of a team. Our efforts collectively will facilitate for others to see the benefits of working and locating in Bahrain," he said. Asked if there would be a delay in the introduction of a GCC single currency, the governor said such decisions were for heads of state and not central bank governors. - (GN, 6 Sep 07)
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