gif Islamic banking
instruments (i.e. Sukuk) to finance major infrastructure developments, power grids, transportation projects, housing and mining projects, and at the same time allowing its citizens at the individual levels (retail seg- ment) to become Sukuk unit holder thus par- ticipating in financing those projects through those Sukuk while getting reasonable re- turns on their participation while having the comfort from knowing the underlying assets. Allowing the participation of individuals in the Sukuk will eventually create products for preserving wealth and encouraging savings for citizens, while gradually developing a vi- brant secondary market.
A particular R&D area that needs more at- tention, commitment and resources is inno- vation, as it is one of the major drivers for promoting growth within the industry, which will eventually expand products’ and serv- ices’ offerings and mix. As a result, growth will be ignited in the industry as a whole; however, innovation should come only from within the Shariah guidelines and not mim- icking or Islamising conventional structures and products.
Also, innovation should be driven by needs and demands, not just for the sake of in- novations or for short-lived publicity. For in- stance, an area that is underdeveloped and underutilised, and yet is one of the missing pillars for the industry, is Islamic Endow- ment (Waqf). As a concept, structure, and tool, Waqf needs to be renewed in term of structure and to be regulated to evolve as a major tool for the development of Muslim communities.
In order to develop Waqf funds in terms of structure and regulations, Waqf needs a major R&D work to revive its role in the com- munity and the economy alike, en route for putting it to a good use to advance predomi- nantly universities, cultural institutions, R&D centres, hospitals and medical research centres among other vital segments in the economy as in the developed countries where endowments are well developed and organised with renowned and celebrated contributions to the welfare and progress of their communities.
Standardisation and Institutionalisation One of the global financial crisis’s major impacts is that the global financial indus- try will be more heavily regulated as the crisis unfold and beyond. This will have di- rect influence and implications in banking transactions including Islamic banking, thus existing Shariah-compliant structures and their Fatwas have to be very responsive and adaptive to those changes. Accordingly, Sha- riah-compliant products and services have to be repositioned, where those products
62 Global Islamic Finance April 2012
Dhafer Salih Alqahtani, Principal, Rusmal Consult, Bahrain
He is a Principal at Rusmal Consult and also a senior banker and
renowned visionary and strategist professional in the Islamic banking industry. With over two decades of diverse and extensive experience with the reputable financial institu- tions, he spent the most recent
11 years in leading executive roles (i.e. CEO, Co-CEO, COO, CIO) in the Islamic banking, in both finance and investment lines of work. The earlier 10 years of his career were with leading regional conventional banks in the corporate banking and distribution segment. Mr. Alqahtani is recognised as one of the promi- nent names in the Islamic finance industry for being an advocate of standardisation and consolida- tion as well as absolute transpar- ency in the industry. He is a strong promoter of innovation in the retail segment through exploring its true needs in the Islamic countries.
undertake, thus it should be initiated at all fronts covering IFIs, academia, scholars, law- makers and regulators jointly with standards and regulations setting bodies who should take the leading role. We should also con- centrate on the fact that a revised Islamic investment and finance and associated new products should be accepted globally by em- bracing best international practices in terms of transparency, disclosure, compliance, governance, and risk without compromising the adherence to Shariah guidelines as a threshold towards globalisation.
Institutionalising Shariah-compliant prod- ucts and structures, which could come from the new supreme body that resulted from the consolidation of those Islamic industry bodies mentioned earlier, should be a prior- ity at the national level for the institutions as well as the regulators, and that could only become a reality through creating a Unified Shariah Supervisory Board (USSB) under the central banks and capital market authorities for any given country as is the case with the GCC countries which presently is a Work In Progress.
The USSB will have the overall authority of IFIs in-house SSB and the final say, thus enhancing the standardisation of Fatwas and structures while eliminating doubts and suspicions at the client’s level about the industry and its products and structures by bridging the gap between the Fatwas and actual practice. This will also eradicate dis- putes over conformity among practitioners, scholars and investors. Tawarruq transac- tions and structures are excellent examples of such conflicting Fatwas and applications that have to be resolved once and for all.
Sukuk, a pivotal pillar of the industry No dialogue or intellectual discussion about IFIs or its industry as a whole will be complete without discussing one of the mainstays and pillars of Shariah-compliant investments and finances (i.e. Sukuk) even though as an instrument it is only over one decade old.
and services should be revisited, reviewed and consolidated as well as documented, thus establishing stronger foundations by going back to the basics which will pave the way to standardisation and eventually the globalisation of uniform structures and formats that are Shariah-compliant and ac- ceptable to the critical mass, both Muslims and non-Muslims, without compromising the industry’s authenticity and integrity. The standardisation could start by consolidating Islamic industry bodies (standards-setting bodies) namely AAOIFI, IIRA, IIFM, CIBAFI and IFSB under a supreme platform or body as frequently been echoed in the indus- try versus working in silos. With that said, standardisation is a major assignment to
Nonetheless, during its remarkable growth in such short time, Sukuk has survived in- tensive scrutiny about being a workable real Islamic financial instrument in particular the conflict between the Sukuk documents and the governing law of the Sukuk, particularly in the case of cross boarders Sukuk, aside from the transfer of the underlying asset to Sukuks units holders through the trust in case of default which differentiate true Sukuk from none complaint ones. Such setbacks and others that might rise by the present financial crisis and the recently in- creasing issuance of Sukuk are needed to push the envelope further for refining and tuning Sukuk structures and documenta-
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