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Friday, 19 March 2010

Raja Nazrin: Islamic finance crucial to reform global finance rules

KUALA LUMPUR: The principles of Islamic finance are integral to reforming global finance regulations, especially as the world grapples with the fallout from the global financial crisis and maps out the path to recovery, said the Crown Prince of Perak Raja Dr Nazrin Shah.

In his keynote address at the inaugural Securities Commission-Oxford Centre for Islamic Studies forum here on Tuesday, March 16, he said Islamic finance could be an alternative to conventional finance due to the dissimilarity between Islamic and conventional financial products as the former afforded much consumer protection even before regulatory overview took place.

"However, I do not think that Islamic finance can substitute conventional forms of finance just yet, but what it can do is inform, influence and ultimately, improve the world of global finance," said Raja Nazrin, who is financial ambassador for the Malaysia International Islamic Finance Centre.

"I would argue that the principles of Islamic finance are integral to the reform of regulation," he said, referring to the process of rebuilding investor confidence in addition to regulatory processes in the global financial markets. Meanwhile, Securities Commission (SC) chairman Tan Sri Zarinah Anwar said the global financial crisis required an exploration of "every avenue of reconciliation with the recent past and with what the future holds".

"From bad design to unethical sales practices to poor governance, the financial crisis was fuelled by all that is wrong for business and finance," she said in her welcoming address at the event. "Participants in the market should not be driven solely by profits or, for that matter, solely by the desire to be charitable."

With regard to the extension of the Islamic financial space, she added it was important to ensure that form did not undermine substance and that uncertainty, lack of clarity as well as conflicting interpretations would not inspire confidence in the Islamic capital market.

"It is for this reason that the SC had last year introduced numerous changes to the Capital Market Services Act," she said.

"These changes which are expected to come into force next month, strengthens the SC's Syariah Advisory Council (SAC) and places it on sound legal footing to ensure that the SAC will continue to play an important role in the development of the Islamic capital market."

She added that the SAC was now recognised as the central authority for the ascertainment of syariah principles for the Islamic capital market.

"The new provisions also enable a licensed person, the stock exchange or other persons to refer matters to the SAC for its advice and ruling which shall be binding on the person or entity concerned," she said.

"We believe this to be a crucial step in ensuring a clear and consistent development path for Islamic finance that ensures certainty while protecting investors."

Zarinah also said the fact that the SC registered all syariah advisers for the Islamic capital market activities gave the regulators an opportunity to ensure that the advisers were aware of new developments and fully met the standards in the SC Guidelines on the Registration of Syariah Advisers.

In his speech, Raja Nazrin also said the lessons and views in Islamic finance could be applied and contribute greatly to the "renewed and stronger fabric of the financial markets" and that this alternative form of finance was increasingly recognised as seen by changing legislation and tax neutral policies adopted by countries such as the United Kingdom, Luxembourg, Hong Kong, Japan, Singapore and South Korea.

Despite such progress in recent years, he said Islamic finance would still need to broaden its acceptability and grow the market.

"For all its successes, Islamic finance still accounts for less than 1% of global financial instruments," he said. "Muslims make up over 20% of the world's population. Even in Muslim-majority countries, the assets of conventional banks far outstrip those of Islamic ones."

He also called for greater consultation among financial and supporting infrastructure so that "depositors and investors do not end up perplexed".

(The Edge)

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