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Saturday, 22 May 2010

New instruments for Islamic banking to facilitate cross-border transactions, improve liquidity

KUALA LUMPUR: Bank Negara is in the final stages of developing instruments that will facilitate cross- border transactions by financial institutions to improve liquidity in the Islamic banking system, said its governor Tan Sri Zeti Akhtar Aziz at the 6th World Islamic Economic Forum (WIEF).
While not wanting to pre-empt the market, she said that this was something that the central bank had been working on in the last two years.
During her keynote speech, Zeti said the relatively better performance and the sustained momentum of the growth in Islamic finance during the global financial turmoil exemplified its strong linkage to productive economic activity, accountability, disclosure and transparency.
'While the amount of funds managed in the Islamic financial system is still only a fraction of the total assets of the international financial system, it represents that portion of financial activities that is truly supported by underlying productive capacity that generates growth of economies across continents,” she said.
Bahrain's Ithmaar Bank executive vice-chairman Khaled Abdulla-Janahi said regulators must be careful not to over regulate to the point of making players uncompetitive.
“Everytime something happens, new rules are put in place. When Enron happened, we had new regulations. The smaller countries always ask for more rules, and they get bashed down. Many times these rules are just pushed down the throats of the bankers,” he said.
For Islamic finance to thrive, Khaled said it was time to take the bull by its horns.
“We need to think of how to take this to the next level. So many times we have big ideas, but when it comes to implementation, we put it on the shelf. We should not compromise anymore,” he said.
Bank of London and the Middle East, UK chief executive officer Humphrey Percy said that while Islamic finance was no longer a nebulous concept, and was seen as something very alive and well in Europe, key challenges remained.
“First, there's the issue of education. Many people still don't understand Islamic finance. In Europe, we don't have enough skills to regulate. The issue of documentation and standardisation of terms have to be resolved,”
“In terms of products, Islamic finance still offers a very narrow range of products, although progress has been made. Liquidity is also patchy and short term. In the UK for example, the tax treatment of sukuk is still not certain,” said Percy.
The number of Islamic institutions was relatively small compared to conventional players, he added.
“We would welcome more competition. Availability and accessibility is key,” he said.
Switzerland's Islamic Wealth & Asset Management specialist John A Sandwick said the area of concern for Islamic finance was asset management.
“Out of some total global wealth of US$65 trillion, only about US$2.5 trillion is owned by Muslims. In 2010, 50% of total managed wealth is in bonds. Now, there is barely US$60bil in sukuk bonds, with only another US$10bil to US$15bil in the pipeline,”
“There is no hope of meeting our minimum demands (targets) with the way we are moving now. In Saudi Arabia for instance, asset management is seen as something very elitist, it is only for the top tier. We need to change that,” he said.
Maybank MEACP Pte Ltd Singapore chief executive officer Mumtaz Khan observed that only three Muslim countries were in the G20 - Indonesia, Turkey and Saudi Arabia.
“I would recommend forming a G3 + 3, which is the combination of those three countries together with WIEF, The World Islam Development Bank and Malaysia to work together and develop tangible results for the Muslim world,” he said.
Malaysia had exhibited exemplary leadership skills apart from having strong ties with the Muslim nations, the West, China and India, he added

(The Star, 21 May 2010)

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