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Thursday, 3 July 2008

Pioneer standards body tries to spread the word

Source: The Finacial Times/by Farhan Bokhari

Rifaat Ahmed Abdul Karim, is in a self-confident mood. The director-general of the Malaysia-based Islamic Financial Services Board (IFSB), says it has entered a "more meaningful phase" in its existence.
Up to 28 workshops are planned by the board around the world, mainly to translate research into training.
The move is in keeping with its aims: the IFSB was set up five years ago as the Muslim world's first standards body in the Islamic finance industry. It describes itself as "an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry". It does this by issuing standards and guiding principles for the industry, which it broadly defines as including the banking, capital markets and insurance sectors.
The IFSB has pronounced on risk management, capital adequacy, corporate governance, supervisory review processes, transparency and market discipline, recognition of ratings on sharia-compliant financial instruments, and the development of money markets.
Research under way includes examining operations of takaful, or Islamic insurance, and governance of investment funds. The training exercise involves teams from the IFSB teaching courses in countries to key people including central bank officials and financial experts.
The IFSB has set itself the objective of becoming the Islamic world's premier standard-setting body. It aims to be seen as the Islamic world's equivalent to the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions and the International Association of Insurance Supervisors all wrapped into one.
Mr Abdul Karim, a prominent Sudanese economics professor who has built a reputation as a leading scholar on Islamic finance, says the IFSB's could play a central role in the evolution of Islamic finance. "The global structure is there but you have to adapt it to Islamic finance. Otherwise, if we did not have the IFSB, every institution would make its own interpretation."
In some ways, the IFSB's task may be easiest in Malaysia, its home base, which prides itself on hosting the world's largest market for sukuk - Islamic bonds - and where Bank Negara Malaysia, the central bank, has set an ambitious target of raising the proportion of total banking assets under Islamic institutions from 15 per cent now to 20 per cent by 2010.
Much of the demand for its services comes from outside its home country: there are many entrants to the market hopeful of attracting money from Muslim investors in the cash rich Arab world.
Mr Abdul Karim says coming up with high-quality global standards and achieving their adoption is not easy. "Our biggest challenge is the implementation side of our work. We don't have the legal right to impose standards," he says.
Many experts acknowledge the value of IFSB's work but also note that the long-term future of the IFSB's work depends on assuring lenders and borrowers that it achieves globally-accepted standards.
Mr Abdul Karim believes that attitudes are changing. "The industry has grown and has been demand-driven," he says. "The growth has brought about a lot of things. One of the good things is that there are more institutions now."
Rafe Haneef, Malaysia- based Managing Director of Fajr Capital, a recently established international Islamic investment management company, says Islamic banks "have to be as competitive as conventional banks. Muslims may not turn to an Islamic institution unless they see value in that decision."

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