Islamic banking gif
es and resources in certain regions specifi- cally in the Islamic countries to come to the forefront by reinventing and reinvigorating themselves as major mainstream providers of debt and equity, creating a globally recog- nised alternative to the present conventional system (interest based) that is sustainable and reliable with full transparency and dis- closure which is in the contrary to the con- ventional (interest based) system
Moving forward and being transforma- tional With that as backdrop, IFIs, in Islamic coun- tries in particular, must immerse themselves in the main source of Islamic banking and finance; that is, Shariah law. This immersion can evolve only through innovation, creativi- ty, development, groundbreaking structures, and new Islamic funds as well as regulations and standardisation while preserving and protecting the industry’s reliability, account- ability, and integrity.
While clinging to its present marginal po- sition in global financial markets, Islamic banking and finance has a long way to go to transform itself into a major player, mainly through standardisation, uniformity, govern- ance, transparency and innovation, in addi- tion to consolidation. This could be possible and accelerated by the evolution and ad- vancement of a Shariah-compliant System, Shariah-compliant financial products and services that are in line with international best practices.
The financial crisis and its lingering effects might drag the global economy into a dou- ble dip during 2011, and we might witness an exact repeat of the 2008 crisis and the global economy slowly slide into a recession. These turbulent and chaotic market condi- tions present the Islamic banking industry players as well as potential new entrants to the industry with an opportunity to join forc-
Implementing Islamic financial regulations at the national or regional level for invest- ment and finance (i.e., the regulators) (cen- tral banks and capital market authorities), eventually leads to a well defined regulatory and supervisory structure through a deeper commitment and engagement in terms of resources and human capital as well as Sha- riah expertise to establish and strengthen the Shariah activities and processes inside the regulator organisations while segregat- ing the Islamic banking from conventional ones.
Accordingly, the Shariah side under the regulator should cover all Shariah-compliant activities in term of regulations including finance companies, Islamic leasing compa- nies, Awqaf Islamic endowment, mortgage companies and Islamic microfinance, beside the generic IFIs, while simultaneously forbid- ding (by the power of laws and regulations) private efforts by individuals, organisations or institutions from assuming the regulators’ role or operating outside the regulator circles and jurisdictions as such irregularities could only harm the reputation and the integrity of the industry, not to mention the heavy blow to the confidence in IFIs, particularly at the customers’ level. The success of Malaysia is an unblemished testimony for national government involvement that turned the
country into a major centre for Islamic bank- ing. Similarly, the Arabian Gulf Cooperation Council Countries (GCC) recently proposed a unified GCC’s Shariah Supervisory Board (SSB) which was definitely a long awaited and wished-for move in the right direction, something I was criticised for when I called for such unification during a conference in Bahrain in 2008.
Maybe the boldest and most extreme move in the industry by a regulator was by the Cen- tral Bank of Qatar (CBQ), when it ordered the shutdown of Islamic banking windows (IBW) in the conventional banks, thus restoring confidence and integrity in Islamic bank- ing, also preventing the combining of funds and assets between Shariah-compliant and conventional transactions and deposits as required by Shariah guidelines which have been a gray area in the industry and subject of debates and disagreement due mainly to the commingling funds. Regardless of what drove CBQ to take this stance, it set a prec- edent for others to evaluate and consider, particularly in the GCC region where over 50 percent of Islamic banking industry is domi- ciled.
In the same line of thinking, national and international IFIs jointly with their regula- tors and education institutions should col- lectively invest in research and development (R&D) of Shariah-compliant products and structures to foster uniformity and conform- ity of Shariah-compliant structures and prod- ucts. This development should be in perpet- ual motion and public in nature, and should also be parallel to the contributions towards educating the public and raising awareness about Shariah-compliant investment and finance as part of IFI’s corporate social re- sponsibility.
Similarly, educational institutes should ad- vance and expand their curriculum for un- dergraduate and post graduate degrees making it more relevant to IFIs by develop- ing Islamic finance degree streams covering related syllabus of risks, ethics, economics, accounting, finance and investment from a Shariah prospective pertaining to IFIs and its industry. Equally, governments of Islamic countries should also foster the growth of Shariah-compliant products in addition to is- suing regulations by utilising Islamic finance
2012 April Global Islamic Finance 61
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