Kuala Lumpur, 25 June 2014 – The Islamic Financial Services Board (IFSB) successfully organised a Seminar on Islamic Finance in Kazakhstan, themed, “Prospects and Challenges in the Development of Islamic Finance for Kazakhstan” in Almaty, Kazakhstan on 16 June 2014. The Seminar was hosted by the National Bank of Kazakhstan.
This Seminar is part of the IFSB Seminar on Islamic Finance Series, which are held in jurisdictions wishing to deliberate on the opportunities and challenges in promoting Islamic finance. It also aimed to create greater awareness on the specificities of the Islamic financial services industry, and discuss the issues in developing Islamic financial services industry in the CIS countries in general, and Kazakhstan in particular.
Dr. Serik Akhanov, President of the Association of Financial Institutions, Kazakhstan, in his Keynote Address, emphasised that after the Global Financial Crisis, the potential of Islamic finance is now well appreciated around the globe. He stated, although the legal system of Kazakhstan has been subject to various combinations of models, the dual banking model well suits Islamic finance in Kazakhstan given the diverse ethnic and religious considerations. He expressed confidence that Islamic finance can address the issue of social justice and financial inclusion to allow the wider community to participate in economic development. Given few academic institutions offering Islamic finance courses in the country, he highlighted the challenge of insufficient awareness and capacity building on the specificities of Islamic finance. The shortage of Sharī`ah scholars in the region, for example, is a concern for the industry. In his remarks, he also noted that harmonisation in the various legal and regulatory models is important and that the expansion of Islamic finance in the country is being driven by strong political will and continuous improvement in the legislative framework.
Meanwhile, H.E. Daniyar Akishev, Deputy Governor of the National Bank of Kazakhstan, in his Welcoming Remarks, highlighted that a gradual and consistent approach has been adopted towards the development of Islamic finance in the country. He said the government is committed to establish Kazakhstan as a leading Islamic financial centre for the region. He highlighted the role of the National Bank of Kazakhstan in introducing a series of regulatory reforms to implement the Roadmap for the Development of Islamic Finance 2020. The relevant authority is also planning to launch a screening methodology for equities to attract a wider range of investors from Middle East and South East Asia.
In his Opening Remarks, Mr Jaseem Ahmed, the Secretary-General of the IFSB stated that the global community is recognising Islamic finance as an important alternative source of finance for socio-economic development. He noted that the development of Islamic finance requires a set of explicit priorities over the medium term, and emphasised that “designing and implementation of sequence strategies for the Islamic financial services industry is an important challenge for regulatory and supervisory authorities”. He welcomed the greater understanding on the need for a strong public policy stance in support for legal and regulatory framework, and also noted two important initiatives – the Kazakhstan 2050 Strategy and Road Map for Development of Islamic Finance in Kazakhstan by 2020 – which exhibit Kazakhstan’s strong commitment to develop Islamic finance. Indicators such as the country’s dynamic leadership, encouraging demographics and relatively strong economic fundamentals show that Islamic finance has the potential to play a major role in the development of the financial system in Kazakhstan.
The first session of the Seminar themed “Islamic Finance for Central Asia: Growth with Stability – Regulatory Issues and Key Preconditions” was chaired by Dr. Amat Taap Manshor, Chief Executive Officer, Finance Accreditation Agency, Malaysia. The speakers for this session were Assoc. Prof. Mustafa Kemal Yilmaz, Executive Vice President, Borsa Istanbul and Khurshed Mirakilov, Head of Economic and Financial Department, The Association of Banks, Tajikistan. The speakers spoke on the development of legal and regulatory framework in their jurisdictions, the obstacles faced and new initiatives being taken not only to resolve the impediments but also to collaborate with regional and international partners in providing the necessary boost to this sector. Apart from legal and taxation issues, among the major challenges highlighted by the speakers were standardisation of products, strengthening bankruptcy and insolvency frameworks, human capital development and awareness building to improve understanding of Islamic finance. Improving the liquidity management infrastructure and introduction of high quality liquidity assets was another consideration highlighted in the session, which is seen as essential to enhance Islamic interbank activities and offer market players options for investing their surplus funds. The session proposed a regional Islamic finance institution with the mandate of sharing the experience with Central Asian countries on Islamic finance, preparing the ground for a regional Sharī`ah Advisory Board, standardisation of the products across the Central Asian region and harmonisation in regulations.
The second session, chaired by Maxat Kabashev, President of the Kazakhstan Stock Exchange was themed “The Role of Sukūk: Infrastructure Financing, Capital Market Instruments and High Quality Liquid Assets (HQLA).” The speakers were Dr. Mohamed Damak, Director, Standard & Poor’s, France; Madzlan Mohamad Hussain, Partner and Head, Islamic Financial Services Partner, Zaid Ibrahim & Co., Malaysia and Bilal Yazaroğlu, Expert, Corporate Finance Department, Capital Markets Board of Turkey. The session highlighted the potential of Sukūk, which is the second fastest growing segment of Islamic finance. The session discussed Sukūk as a tool for infrastructure financing for both public and private sectors as well as a liquidity management instrument under the new global liquidity coverage rules and as a component of IIFS’s capital to meet IFSB-15 capital requirements. Islamic finance can help the country to access a new class of investors through Sukūk as Kazakhstan’s medium-term economic outlook is positive with significant planned investments.
The session also highlighted the non-existence of short-term Sukūk in most of the markets and presented three main suggestions for aligning Sukūk pricing: (i) standardise the structures – that allow in alleviating any issue related to Sharī`ah compliance, increase the predictability of the default process resolution and reduce cost of issuance; (ii) list Sukūk on liquid markets (developed markets, Nasdaq Dubai, Malaysia, etc.); and (iii) increase issuance in foreign currency. The speakers also underlined their concerns on having incremental and piecemeal approaches towards putting in place a conducive and enabling legal and regulatory framework for Islamic financial services, and suggested a more comprehensive approach towards revamping the legal and regulatory architecture for the industry.
The final session, “Panel Discussion on the Way Forward for the Development of Islamic Finance for Kazakhstan” was chaired by H.E. Deputy Governor Daniyar Akishev. The panelists for this session were Prasad Abraham, Chief Executive Officer, Al Hilal Bank, Kazakhstan, Madzlan Mohamad Hussain, Partner and Head, Islamic Financial Services and Partner, Zaid Ibrahim & Co., Malaysia and Khurshed Mirakilov, Consultant and Head of Economic and Financial Department, The Association of Banks, Tajikistan. The panelists identified and discussed the national and regional opportunities and benefits, as well as key challenges for the development of Islamic finance in Central Asian countries, specifically in Kazakhstan in which they highlighted key issues relating to the tax regime, capacity building of accountants and lawyers and regulators on advanced Sharī`ah-compliant structures, which are seen as hampering the development of Islamic finance in many new markets. The panelists noted that in order to have strong Sharī`ah governance framework, enhancing the capacity of local Sharī`ah scholars and external auditors will be needed.
The panelists also reflected that growing capital needs for the infrastructure sector in Kazakhstan and the region present strong opportunities for Sukūk to enhance its role as an important source of development financing. There is also a need to simplify the product approval structure through improving the legal framework. The suggested roadmap and a way forward included five key drivers for the development of Islamic finance in the region:
Over 100 delegates participated in this Seminar.
The IFSB also organised the IFSB-Facilitating the Implementation of Standards (FIS) Workshops on selected Banking and Takāful Standards on 17 – 19 June 2014. The Workshops aimed to provide the participants with a better understanding of the IFSB Standards and their implementation process and procedures.
