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Press Release > 2017

Seminar on Islamic Finance and Global Regulation: Moving Targets and New Horizons

Date posted: 11 April 2017

Kuala Lumpur, 11 April 2017 – The Islamic Financial Services Board (IFSB) successfully organised a Seminar on Islamic Finance and Global Regulation themed, Moving Targets and New Horizons on 4 April 2017 in Kuala Lumpur, Malaysia. This Seminar was held as part of the IFSB Annual Meetings and Side Events 2017, which the Central Bank of Islamic Republic of Iran and Bank Negara Malaysia co-hosted.

This one-day seminar aimed to provide an interactive environment enabling speakers and participants to explore issues and share ideas around regulation and expanding outreach of Islamic finance, bringing together regulators, market players, academics, rating agencies and other stakeholders of the industry.

H.E. Dr. Akbar Komijani, Deputy Governor, Central Bank of the Islamic Republic of Iran (CBRI), in his Keynote address explained how the global financial crisis (GFC) had shed light on the complexities and interlinkages within the financial system, which shifted global regulatory focus to macroprudential policy and financial stability. Similarly, better alignment and more coordinated approach has been taken by various international standard setting and supervisory bodies in terms of the issuance and implementation of standards and guidelines. He also stated that amongst various global regulatory reforms and associated higher indicators, Islamic finance also has to contend with its own obstacles, notably the lack of liquidity instruments.

Dr. Komijani also spoke about CBRI’s intentions to issue more Islamic instruments to facilitate monetary and fiscal policy in the country. The IFSB’s technical assistance and implementation work was noted as being key facilitator for the industry and for member jurisdictions. He also proposed the IFSB to coordinate the set-up of a consultancy group, leveraging from skills of its members, to aid and assist development of Islamic finance in various member jurisdictions.

In his welcoming remarks, Mr. Jaseem Ahmed, Secretary-General of the IFSB, welcomed the participants to the Seminar and expressed his thanks to Bank Negara Malaysia and CBRI for hosting the event. His speech focused on two key themes namely Islamic finance and global regulatory changes, and new horizons such as FinTech and financial inclusion. Jaseem stated that the Islamic financial services industry (IFSI) is now worth almost USD 2 trillion globally and has achieved domestic significance in 12 jurisdictions. In line with the global regulatory reforms, the IFSB has issued a number of prudential standards across all sectors to compliment the work of comparator standard setters such as the Basel Committee, IOSCO and the IAIS. The implementation of these standards has helped the member regulatory and supervisory authorities to align their regulatory regime with global best requirements, helping the market players to effectively manage their risks. He also observed that many post-GFC reforms are still being implemented globally and there are continuing difficulties for the Islamic finance industry in respect to liquidity and liquidity coverage ratio compliance due to the lack of Sharīʻah-compliant high quality liquid assets.

Jaseem also welcomed the IMF Executive Board’s announcement with regard to its consideration of a formal recommendation for the endorsement of IFSB-17 (Core Principles for Islamic Finance Regulation for Banking Segment) in 2018.

On the second theme of moving targets and new horizons, Jaseem noted the emergence of FinTech and more recently, P2P and Crowdfunding platforms. While the potential benefits of this phenomenon are enormous for financial inclusion and wealth creation, it also presents new challenges for financial stability generally. For Islamic finance, which is grounded on Sharīʻah principles, further thinking will be required on the specific exchange contracts presented by the FinTech model, as well as block chains and smart contracts. He highlighted that chapter 4 of the upcoming IFSB’s Stability Report 2017 will include a discussion on these issues. He also announced that the IFSB is planning to launch a Technical Note on the theme of financial inclusion and the role of Islamic finance, later this year.


The first session of the Seminar, themed, The Roll Out of Regulatory Reforms – Progress so Far and What is Left to Do? was chaired by Madelena Mohamed, Director, Prudential Financial Policy, Bank Negara Malaysia. The speakers for this session were Dr. Yakup Asarkaya, Vice Chairman, Banking Regulation and Supervision Agency, Turkey and Suliman Aljabrin, Head, Banking Prudential Regulations Division, Saudi Arabian Monetary Authority (SAMA).

Madelena Mohamed echoed the theme of the GFC and many of the regulatory reforms that have been undertaken. Globally, capital adequacy ratios have doubled and leverage has halved. There is also more lending to the real economy at a lower rate (although this may also be due to the low interest rate environment) and SMEs. The Chair also repeated the promotion of financial stability that IFSB standards provided.

During the session, both speakers provided an overview of the banking sectors in their home jurisdictions and updated on regulatory forms being undertaken. Turkey is aiming to increase Islamic banking share of assets from 5% (currently) to 15% by 2021 alongside the full implementation of new Basel rules. Saudi Arabia has also implemented new regulatory reforms on capital, liquidity and leverage. From a FinTech perspective, SAMA has adopted the ‘sandbox approach’, allowing providers to experiment whilst still remaining cognisant of financial stability.

Key discussion points from the session highlighted structural liquidity as being a major ongoing issue for Islamic finance. The IFSB has incorporated the Alternative Liquidity Approach into its GN-6 for this reason. SAMA stated that this was also an issue for conventional banks given Saudi Arabia has not historically issued much sovereign debt. The speakers recognised regulatory fatigue could be a pressure for the market and that strong communication was needed between regulators and the market players. The regulatory reforms have however driven financial institutions to become more innovative, with FinTech being rapidly embraced by many players.

The second session, themed Developing Liquid Islamic Money Markets: Challenges in Harmonisation and Local and International Issuances was chaired by Mohd Radzuan Ahmad Tajuddin, General Manager and Head, Islamic Capital Market & Market Development, Securities Commission Malaysia and the speakers include Abdoul Aziz Ba, Acting Chief Executive Officer, International Islamic Liquidity Management Corporation and Khalid Howladar, Founder & Managing Director, Accreditus, United Arab Emirates.

Radzuan provided a brief overview of how Malaysia established its Islamic liquidity market, beginning in 1983 with the first government issuance, up to the present times.

Khalid stressed liquidity risk as being the most prominent for all banks, which is even more poignant for Islamic finance players where there is a lack of Sharīʻah-compliant liquid assets. A harmonised global liquidity pool is needed for this reason. Khalid also explained that recent GCC sovereign debt issuances were seem to be driven by desire to access funds from international sources rather than internally.

Abdoul Aziz emphasised that the IILM was created to help address some of the discussed liquidity issues for Islamic banks. The IILM structures short-term sukūk through pooling assets from various obligors and then using primary dealers across the GCC and Asia to act as market makers. Current outstanding IILM sukūk stands at approximately USD 760 million.

The key discussion points highlighted the need for more local currency sukūk issuances, especially in the GCC given the long term outlook for oil and the plan to relatively open the foreign exchange regime. The issue of harmonising Sharīʻah in sukūk issuances for developing a cross-border market was reiterated. Demand for sukūk on a larger scale is still lacking in some markets despite tightening of price spreads between bond and sukūk issuances. Economic incentives such as tax breaks are important to increase this demand.

Wider Outreach for the IFSI and Structural Challenges was the third session of the Seminar. The chairperson for this session was Zahid ur Rehman Khokher, Assistant Secretary-General, IFSB with distinguished speakers including Mr. Paul Muthaura, Chief Executive, Capital Market Authority, Kenya, Minorhadi Mirhassan, Head of Government Relations and Special Projects, Bank Islam Brunei Darussalam and Professor Dr. Nafis Alam, Professor of Finance, Sunway University Business School, Sunway University, Malaysia.

Zahid spoke on how outreach Islamic finance outreach can be increased across the start-up and SME sectors, which generally struggle for access to funding. This gap in turn offers opportunities for FinTech companies which have grown rapidly in the last few years and may provide the platform for further Islamic Finance growth. He emphasised that the risks presented by the emergence of Fintech, however, need to be understood and managed in parallel with its rapid growth.

Paul gave an overview of Kenya’s financial sector and capital markets development as it is positioning itself as an African financial centre, highlighting that standardisation of contracts and structures was important for Islamic finance growth. He noted that Kenya’s Finance Ministry has provided explicit policy support for the IFSI, and that Kenya is also one of the leading markets globally for digital banking and FinTech initiatives, a recent highlight being the first ever government bond that can be subscribed to and traded using just a mobile phone.

Mirhassan emphasised FinTech as a disruptive technology for the traditional banking sector given its accessibility and cost-efficiency. He discussed the financial inclusion potential of Islamic crowdfunding platforms given there are still over 2bn unbanked people globally. BIBD itself has moved towards providing digital banking services to its customers with innovative features. It was highlighted that FinTech can promote mutually beneficial partnerships and participative financing, giving it strong synergies for Islamic finance.

Professor Nafis underlined the importance of SMEs and start-ups for economic growth. The lack of Islamic financing options for SMEs could be explained by a fear of investing in relatively risky ventures and a fear of new ideas. Examples of success stories across the Start-up and FinTech space from Islamic majority countries were shared with the audience, including Beehive, Blossom and Goldmoney and Yellow. Dr. Nafis stated that Islamic finance institutions have a number of opportunities across the financial services in promoting financial inclusion.

The final session of the Seminar, a panel discussion on What does a “Future State” Islamic Finance Industry Look Like?, was chaired by Daud Vicary Abdullah, President and Chief Executive Officer, INCEIF with Khairul Nizam, Chief Executive Officer, Finance Accreditation Agency, Malaysia, Emmanuel Daniel, Chairman, The Asian Banker and Arsalaan Ahmed, Chief Executive Officer, HSBC Amanah Malaysia, as panelists.

Daud Vicary continued the theme from the previous session and gave the example of Kenya where even a basic service such as a shoeshine could be obtained through cashless payment in digital channels. This was noted as being in line with what future generations would demand from financial services providers; relevance, trust and impact.

The key points from the discussion were; The link between finance and the real economy has become less tacit; however P2P platforms were bringing back the relationship between customers/investors and tangible assets/entities. There is a strong synergy here between FinTech innovation and the principles underpinning Islamic finance.

The panel also deliberated on the future of the Islamic finance industry and observed that the essence of Sharīʻah is that of social justice. It was noted that the industry may have become too focused on specific structures, losing sight of the bigger social picture and impact that are and remain the souls of Islamic finance.

The panel noted that the IFSI should focus on increasing financial inclusion and servicing the under-banked population going forward. Particularly, the panel discussed how Takaful penetration and market share increases could be aided by technology, particularly telecommunications. The panel discussed whether the terminology of ‘Islamic’ finance was needed, and whether this was actually a marketing hindrance. The view shared was that so long as the themes of social justice, fairness and transparency are upheld, the explicit labelling may not be necessary. Similarly, the panel agreed that whilst financial metrics such as profitability were important to gauge the future success of the industry, social impact and sustainability measures were equally as important.

More than 140 delegates from among the IFSB member and non-member organisations – representatives from market players, regulatory bodies, and international agencies – Sharī’ah scholars as well as academia attended this Seminar.

The IFSB’s Annual Meetings and Side Events 2017 was held from 4 - 6 April 2017. Other than the Seminar on Islamic Finance and Global Regulation, 9th Public Lecture on Financial Policy and Stability, as well as the 15th Islamic Financial Stability Forum were held on 5 and 6 April respectively.

For more information of these and other IFSB’s events, please visit www.ifsb.org


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