Mauritius, 22 May 2014 – Key leaders of the Islamic financial services industry (IFSI) shared their views on the industry’s developments, namely in the areas of legal and regulatory frameworks as well as the role of Islamic finance in supporting long-term growth strategies and infrastructure needs on the first day of the 11th IFSB Summit, themed “New Markets and Frontiers for Islamic Finance: Innovation and the Regulatory Perimeter”. The Summit was held on 21 and 22 May 2014 in Mauritius, and hosted by Bank of Mauritius.
The first session, themed,“Legal and Regulatory Environment of Islamic Finance”, was chaired by Mejeb Turki Al-Turki, Director, Supervision & Control Department, Qatar Central Bank and Deputy Chairman, Technical Committee of the IFSB. The speakers in the session were Ian Johnston, Chief Executive, Dubai Financial Services Authority, UAE, Mehmet Siddiq Yurtcicek, Head of Legal Affairs Department, Banking Regulation and Supervision Agency, Turkey and Badru Jaffar, Sharī`ah Audit Manager, First Community Bank Limited, Kenya. In addition to focusing on current trends in the regulator developments on capital and liquidity frameworks of Islamic finance, the session highlighted legal and regulatory challenges faced by new jurisdictions in the introduction of Islamic finance.
The speakers shared their experiences on introduction and development of the legal and regulatory frameworks of Islamic financial services industry (IFSI) in their respective jurisdictions, while taking into consideration the state of development of their respective markets. Sharī`ah governance forms part of the equation in determining the success of the IFSI. Having in place a Sharī`ah governance framework will help to ensure certainty in the interpretations of products and hence transactions across borders. Meanwhile, a Sharī`ah Supervisory Board, whether at the central or institutional level, will balance innovation with certainty. Key success factors in developing the IFSI include ensuring the soundness of institutions offering Islamic financial services and customer protection, creating a level playing field for the IFSI, capacity building for regulatory and supervisory authorities to enable them to regulate the industry effectively, as well as adopting and complying with international standards for Islamic financeto ensure stability of the industry as well as consistency of regulations across borders.
The second session, themed, “Global Overview of the IFSI: Outlook and Policy Developments”, was chaired by H.E. Sultan Bin Nasser Al Suwaidi, Governor, Central Bank of the United Arab Emirates. The speakers in the session were Khaled Mohammed Al Aboodi, Chief Executive Officer & General Manager, Islamic Corporation for the Development of the Private Sector (ICD), Dr. Bashir Aliyu Umar, Special Adviser to the Governor, Central Bank of Nigeria, and Alfred Kammer, Deputy Director, Middle East and Central Asia Department, International Monetary Fund.The panel shared the progress and growth of the IFSI and the challenges faced by the industry on the backdrop of a recovery in advanced economies and stronger global activities, as well as the ongoing global regulatory reforms and developments.
Greater integration of the IFSI can be achieved through increased cross-border financial flows and connectivity, and greater collaboration among regulators and the private sector. The ongoing global regulatory reforms on the IFSI is also impacting the industry, in particular in the areas of capital structure and capital adequacy. This stresses the importance of adopting and implementing the IFSB Standards and Guidelines so as to strengthen the stability and resiliency of the industry. Factors that could adversely affect growth and stabilityof the industry include the absence of global database for Islamic finance, dearth of Sharī`ah scholars, and a lack of Sharī`ah-compliant lender of last resort instruments.There has also been heightened awareness and interest among global multilateral organisations on the strong growth illustrated by the IFSI and its potential in encouraging inclusive finance, supporting economic growth, and in meeting the financing needs of emerging economies. This, coupled with emerging importance of systematically important Islamic finance sectors, has increased the participation of global multilateral institutions in policy and regulatory deliberations in Islamic finance.
The third session, themed “Sukūk, Market Development and Regulation”, was chaired by Dr. Nik Ramlah Nik Mahmood, Deputy Chief Executive, Securities Commission Malaysia. The speakers in the session were H.E. Dr. Abdul Aziz Al Hinai, Vice President (Finance), Islamic Development Bank, Michael Bennett, Head of Derivatives and Structured Finance, Capital Markets Department, The World Bank, and Ritesh Maheshwari, Managing Director, Financial Services Ratings, Standard & Poor’s, Singapore. The session highlighted the latest developments and emerging trends in the Sukūk market and the role these instruments can play in supporting long-term growth strategies and infrastructure needs.
The panelists illuminated the delegates on the trends and product innovations in the Sukūk market, factors driving its growth, regulatory developments and key challenges facing thesector. The sector’s strong growth over the years has resulted in the innovation and creation of new Sukūk structures to fund growth, diversification of funding, and meeting the demand for infrastructure spending of jurisdictions. Increased innovation has also resulted in more standardised products, improved process, and the creation of specific organs such as rating agencies and clearing and settlement exchange for Sukūk. Innovation has also led to greater acceptance of Sukūk in the conventional space. The speakers also highlighted potential for green Sukūk and Socially Responsible Investment (SRI) Sukūk, which not only could offer sustainable, socially conscious, or ethical investing, but also meet the demand for fixed income instruments from conventional investors. Islamic finance can benefit from additional screening for social impact and by tapping the SRI market. The demand for Sukūk is also expected to increase, given the Basel III capital rules which are likely to limit bank financing for long-term structures. For the Sukūk market to thrive, supportive regulatory developments and harmonisation of standards on disclosures are key drivers, which should be aided by a well-defined legal framework.
The Summit was attended by key Islamic financial services industry leaders, from among regulatory and supervisory authorities and financial institutions from among the IFSB member organisations, as well as the local Mauritian financial community.
