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Saturday, 7 November 2009

Waqf Can Be Another Source Of Financing, Says Raja Nazrin

LABUAN, Nov 6 (Bernama) -- The use of Waqf, more commonly known as Islamic endowment, can be another source of financing and also a mechanism for wealth distribution in Islamic Finance, the Raja Muda of Perak, Raja Dr Nazrin Shah said on Friday.

He said from an economic point of view, waqf could be looked upon as a savings-investment mechanism where funds are diverted from consumption and invested in productive assets that provide revenue for future consumption.

"The proceeds can be used for building hospitals, universities, commercial complexes and even facilitate micro-financing.

"Such innovative uses have assisted in unlocking its economic potential, as well as its philantrophic objectives. Nonetheless, waqf has not been given due recognition," said Raja Nazrin, who is also the financial ambassador of the Malaysian International Islamic Financial Centre (MIIFC).

He said this in his keynote address at the Labuan International Islamic Finance Series VI here.

Raja Nazrin noted that contemporary Islamic finance has been largely disengaged from its socio-economic aspects and waqf was one instrument that tied the two together.

He added that the principle of perpetuity embedded in the waqf structure creates a distinction from other foundations and charity funds as widely practiced in western countries.

In further propogating Islamic Finance, Raja Nazrin said there was a need for continual product innovation if there was to be a different model of financial intermediation.

"It has to stand out especially at a time when even the strongest conventional banks have suffered a great loss of reputation," he explained.

He said product innovation was the first challenge, as the country takes a step into the third stage of developing Islamic Finance, which is deepening its acceptibility not only to the Muslim community but also to the non-Muslim world.

However, he cautioned that the innovation of Islamic finance products, in reflecting its uniqueness, should trump any imitation of conventional products, and must not replicate conventional structures which could be destabilising in the long run.

"As new Islamic financial instruments continue to pervade the global financial markets, it is important that innovation in turn does not dilute the authenticity of Syariah," he said.

The second challenge, he said, was to harmonise Syariah standards and regulatory practices, or there would be an absence of consistency and predictability needed to ensure deep and liquid international financial markets.

According to Raja Nazrin, with an increased integration of Islamic markets into the global financial system, comes the added possibility of contagion effects.

"This poses a new set of challenges for Islamic financal regulators and industry to rethink stability as well as governance policies," he noted.

The third challenge he stated is to fortify the institutional foundations that will sustain the Islamic financial sector.

"As Islamic finance becomes more integrated into the international financial system, it will not escape the effects of impeded growth and diminished liquidity that comes with recession.

"Therefore, a sound liquidity management infrastructure is also required to effectively manage our risks.This is another area of potential collaboration among the Islamic financial community," he said.

Raja Nazrin also noted that Islamic Finance has not only gained a strong foothold in western economies, but was also assuming growing importance within mainstream international finance.

"Financial centres such as London, Hong Kong and Singapore have already made the raising of Islamic Finance a part of their activities and were aspiring to join the ranks of more established financial centres like Kuala Lumpur, Dubai and Bahrain," he highlighted.

He added that the assets of Islamic financial instituions worldwide are currently valued at between US$700 billion and US$1 trillion, with the Syariah-Fortune database listing 810 firms, operating in 50 countries globally.

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