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Wednesday, 16 April 2008

Efforts needed to integrate Islamic finance with global financial markets, says Doha Bank chief

(The Peninsular, 16 Apr 08)

DOHA • “Islamic finance has attained key significance in the regional and international financial markets due to its growing demand on account of its strong and ethical fundamentals, however, to integrate Islamic finance with the global financial markets strong efforts to develop various standards, namely, legal, regulatory, accounting and corporate governance frameworks are required at a faster pace. Such integration would subsequently promote adapting to changes in international standards,” R Seetharaman, Group CEO-Doha Bank, said. He was delivering the keynote address on the five-day ‘The International Islamic Finance Forum’ due to conclude tomorrow in Jumeirah Beach Hotel, Dubai.
The conference focuses on ethical financing, micro-financing, review of issues pertaining to Islamic financing, exploring alternative Islamic asset classes, examining new ideas, challenges and opportunities to further develop the expanding Islamic finance industry, learning major strides that have been taking place in Islamic retail finance and understanding the role of regulators, exchanges, and industry organizations from a practitioner’s perspective. The conference is being attended by renowned bankers, analysts, economists, regulators and legislators across the globe.
R. Seetharaman, Group Chief Executive Officer – Doha Bank delivered the keynote address for the forum on Monday, on “Seamless integration of Islamic Finance with the International Financial Markets”. The forum included sessions on Sukuk – growth and development, Takaful – growth potentials, Islamic Accounting Standards – challenges and implementation, Islamic Treasury management – liquidity and management, Shariah standards review, Islamic social responsibility, focus on Islamic alternative asset classes – scope, challenges and opportunities, Islamic Hedge funds, and Islamic retail banking. The conference also featured detailed presentation by Nobel Laureate Professor Muhammad Yunus on micro-financing.
Seetharaman explained the reforms taking place across the globe and highlighted the changes in the economic profile of countries and blocs. The world dynamics being radically redefined with significant events such as the sub-prime market turmoil in the West, strengthening of economies and bilateral trade ties among countries in Middle East and developing Asia were highlighted. Further, he analyzed the financial leverage that had taken place in the West resulting in growth of hybrid products, like derivatives, the creative accounting practices evolved on account of these hybrid-products. Seetharaman said, though estimated loss on account of these are still debated, only 0.4% of the total bank assets in Middle East and developing Asian region represents holdings in these sub-prime securities. He elucidated on the principles forming the basis for Islamic Finance that helped in countering situations like sub-prime currently disturbing these financial markets. Thereby, he highlighted the fact that Islamic Finance in all respects is the only solution to the current Global Financial Crisis as well as making it the ethical solution preventing future financial crisis.
Seetharaman continued to highlight the transition of Islamic Finance since 1970, capturing in specific the key developments that have taken place in Islamic Finance from just being operating as Commercial Islamic Banks in 1970s, to Takaful and Islamic Investment Companies in 1980s, to Brokers/dealers in 1990s, to Islamic Investment Banks, Asset Management Companies and E-Commerce in 2000s. He also emphasized that Islamic Finance from being centric to Middle East region in 1970s has spread its wings to Asia Pacific, European and American region by 2000s, thereby rightly fitting itself into the “globalization-era”.
Seetharaman continued highlighting the growth of Islamic finance within the GCC region, Asia Pacific region and the globe as a whole. Further, he drew attention on the multiple models and forms by which Islamic finance operate currently.
Explaining the innovations that had taken place in Islamic Finance, Seetharaman showcased the significant products structuring under Murabaha, Diminishing Musharaka, Islamic credit cards structured under Murabaha and Musawama, Tawarruq to address liquidity needs of the customers through commodity trade, leveraging Ijarah towards financing education, medical treatment etc., Murabaha based back-to-back financing, Commodity Murabaha placements and Takaful. He also dealt in detail on Sukuks, being the Islamic finance mode for funding “big-ticket” infrastructure projects, structuring of Sukuks and underscored the growth of Islamic finance based Equity funds, real estate funds etc. Dwelling on the opportunities existing for Islamic Finance, Seetharaman said more Islamic products with high liquidity along with product diversification are the need of the hour.
Seetharaman explained the judicious utilization of Islamic finance based sovereign wealth funds. He underlined that these Islamic based sovereign wealth funds helped global financial institutions to tide the current sub-prime crisis to the tune of not less than US Dollars 30 billion. Further, he also said that these sovereign wealth funds have well diversified investment portfolios towards high yielding equities, alternative investments and emerging markets. When talking on the challenges, Seetharaman said responsive time, high end technological deployment, processing standards, regulatory framework compatibility to Basel II, need for viable and alternate solutions and evolving risk management standards for Islamic Finance are being now addressed on a progressive basis.
Seetharaman also stressed the importance of Green-culture and went on to explain the concept of “ECO-nomics”. Further, he explained how Islamic Finance principles and Green-culture go hand-in-hand and how natural integration can be brought between Islamic Finance and “Eco-nomics”. He also explained how through Islamic finance significant contributions can be made towards promotion of Green-culture.
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