“The level of innovation, scale and complexity of Islamic financial transactions is also increasing at a tremendous pace.
“Going forward, it is envisaged that the legal services in Islamic finance will become even more significant in the continued advancement and efficiency of Islamic finance,” she said yesterday at the Fourth Islamic Financial Services Board Seminar on Legal Issues in the Islamic Financial Services Industry.
Zeti said the relevance of a legal framework was essential in providing certainty and predictability to Islamic financing transactions and products.
“Indeed, a robust legal framework in Islamic finance instils public confidence in the Islamic financial system, provides an enabling platform for practitioners to develop more innovative and complex financial products to meet the increasingly multifaceted consumer demands.
“In addition, it provides the mechanism for dispute settlement that takes into account the distinct features of Islamic financial transactions,” she said, adding that this was where the legal services industry had a vital role in providing sound legal solutions in Islamic finance.
It provided a “bridge” between syariah and legal parameters, and also played a role as a risk mitigator.
To promote consistent application of Islamic financial contract in Malaysia, Zeti said Bank Negara had issued “syariah parameters” aimed at promulgating a standard point of reference on syariah for Islamic finance practitioners.
The syariah parameters outline the main syariah requirements in the contracts and provides examples, methods and models for practical application of such contracts.
“The first syariah parameter on Murabahah that was recently issued aimed to promote consistent interpretation and application of syariah views and opinions on Murabahah contracts,” said Zeti.
She added that Islamic financial transactions had their own unique risk characteristics that needed to be managed, including the legal risk of losses in the event of lawsuits and non-compliance with syariah principles.
In view of the importance for Islamic finance to be supported by a robust legislative framework, the new Central Bank fo Malaysia Act 2009 explicitly codified the duality of the Malaysian financial system which shall consist of the Islamic financial system and the conventional financial system, Zeti said.
Meanwhile, Islamic banking assets in Malaysia at the end of the second quarter of 2009 constituted close to 19% of total banking assets.
Total financing amounted to RM118bil and accounted for 20.1% of the total financing portfolio of the banking industry.
On the global front, Islamic financial assets are projected to grow to US$1.6 trillion by 2012.
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant/Speaker/Motivator : www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com