gif Islamic banking
One of the global financial crisis’s major impacts is that the global financial industry will be more heavily regulated as the crisis unfold and beyond. This will have direct influ-
ence and implications in banking transactions including Islamic banking, thus existing Shariah-compliant structures and their Fat- was have to be very responsive and adaptive to those changes’’
as the difficulty in attracting investors due to the lack of breadth and depth caused by the shortage in diversity and volume on top of that the low variety of sectors in relation to the underlying assets in Sukuk issuance. On the issuance side, governments through its central banks will have a stable tool to man- age the money supply as well as the fiscal and monetary budget.
Risk and Shariah-Compliance Risk The prolonged financial crisis highlighted the importance of all types of risks and com- pliance issues that are common to both IFIs and conventional banks. Nevertheless, the crisis forced a new risk to emerge into our daily practices that is very unique to Shari- ah-complaint institutions which is to be con- sidered seriously for all IFIs.
As a term it’s called Shariah Compliance Risk, or SCR, which is a risk that arises due to the possibility that the financial services or products is not or will not be in compli- ance with the established Shariah principals and standards as stipulated in its fatwa dur- ing the tenor of the instrument, security or transactions, thus it will be non permissible as far as Shariah concerns and a corrective action have to be taken to minimise further implications on the IFI operations as a Shari- ah-compliant institution.
However, the corrective action will have a negative impact due to certain consequenc- es on the IFI traditional risks. SCR arise by executing the corrective action to make the instrument, security or transactions Shariah- complaint again or liquidate its position in such instrument as an extreme option. SCR, as a term, definition and process, is a risk that should be incorporated in the financial risk management process for IFIs as well as instruments, transactions, Sukuk and funds plus indices.
SCR should be integrated in every risk as- sessment process and manual while treat- ing it as a standalone risk in the risk man- agement process and strengthen its ‘what if scenarios’ structure, thus it should not be diluted or merged with other risks. SCR is to be tested and challenged on a regular basis by every risk officer involving the Shariah in- ternal auditor and the SSB. The regulators
64 Global Islamic Finance April 2012
too should check the SCR for all IFIs includ- ing their products, thus become part of their check and balance system and audit inspec- tion program. The recent troubled transac- tions and Sukuk was a strong indication for the need of a well identified SCR and it’s mit- igates that is usually is not found in the fine print of these instruments documentation.
To further highlight the impact of non-Sha- riah compliance on IFI, it will strike the IFI in traditional risk such as financial, busi- ness, operational, liquidity and market risk, eventually it will go far beyond the financial losses, customers distress and sharehold- ers disappointment as it will negatively dent the credibility and the reputation of that IFI for a start with the first causality is its mar- ket share, the spill over of such incident will cast doubt on the industry as a whole as we have seen in the some of the instruments (i.e. Sukuk) when experienced debt servic- ing default during and after 2008 crisis.
Opportunities While waiting anxiously for a nerve racking volatility and uncertainty to settle at an ac- ceptable and tolerable level for doing busi- ness as well as bringing back a runaway confidence in the global financial sector and the world economy, in the same time, hoping that the indecision over the European sover- eign debt crisis that is driven by a short sight- ed political agenda to reach a resolution to avoid escalating and spreading the already crumbling Western European economy and resolve the euro zone fiscal and debt calam- ity, along with ending the protracted agony of US economy which is being dominated by bickering politicians to get in its way to recov- ery, all this add up to a bigger fear, that the urgency of reaching a long-term solutions to those crisis in both sides of the Atlantic to avert sliding into a global recession is not getting serious and timely attention thus re- ducing the options for solutions and escalat- ing further the global economy deterioration with austerity measures spreading like fire all over the globe, leading to incomprehensi- ble level whose implications are profoundly negative.
What is ironic about all this, is the fact that sovereign debt was created specifically to solve economic problems and to stimulate
market economy, but instead over time the solution (i.e. sovereign debt) has become the problem in itself. Accordingly we now have two major problems, which raise a question about if capitalism, particularly as the West- ern version is in self denial about what it promised to deliver, and the only thing it has to show for it is over- leveraged economies and over-borrowed countries.
With such market conditions and its even- tual impacts is overshadowing everything around us, IFIs and its industry, beside the Shariah-compliant system, are an intricate part of this cycle and are not isolated from its impact and progression. Accordingly, IFIs should rise above the situation and leap forward to take advantage of this turmoil as solutions providing for the crisis, with rapid adaptation to changes in the market place.
IFIs should be able to see and capture op- portunities in the crisis while having some risk tolerance. Similarly, gearing themselves for the growing competition among them- selves as well as from IBWs who are sup- ported by their head offices balance sheet strength beside the new comers who tend to be more aggressive for market share as they are all allured by the enormous growth potential of the industry that still hovering around 15 percent to 20 percent annually.
With that in mind, new strategies have to evolve to explore the abandoned opportu- nities in their markets and beyond such as venture capital, private equity, real estate funds, Waqf funds, retail Sukuk, Islamic mi- crofinance and Islamic REITs alongside the major component of Islamic banking which is retail banking where innovative products and services for retail clients are to be de- veloped to meet the needs of their existing clients and newly acquired ones who expect the IFIs to deliver exceptional customer ex- periences, knowing that the customer these days are growing increasingly sophisticated and knowledgeable, with immediate access to information and data, particularly the youth segment.
In the same time, those customers are mir- roring the economy and market place condi- tions, as they are already in deep risk-averse mode and retrenched for protection from the
„
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88