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IFSB programmes to facilitate the development of the Islamic financial services industry     
Press Release > 2012

SPEECH: Opening Address by Mr Jaseem Ahmed, Secretary-General of the IFSB at the 9th IFSB Summit

Date posted: 16 May 2012

Date: 16 May 2012

Event / Venue: 9th IFSB Summit - Global Financial Reforms: The Changing Regulatory Model and Islamic Finance | Istanbul, Turkey

Speaker: Mr Jaseem Ahmed, Secretary General, IFSB


I am pleased to welcome you to the 9th Summit of the Islamic Financial Services Board. Our theme for this Summit is Global Financial Reforms: The Changing Regulatory Model and Islamic Finance.

We are delighted to be holding this Summit in the beautiful city of Istanbul. I would like to thank everyone in this city who has made us feel so welcome. I would like especially, of course, to thank H.E. Governor Erdem Basçi of the Central Bank of the Republic of Turkey for his strong support to the IFSB and for hosting our Summit in such a vibrant financial, cultural and intellectual centre.

We hope that the full vibrancy of the global Islamic financial services industry will be on view here in Istanbul during the Summit.

It must be said, however, that we gather in Istanbul during challenging times and, indeed, sombre times.

Ladies and gentlemen, five years into the global crisis the world economy is at a critical stage. Downside risks are elevated, and the IMF has warned that adverse feed-back loops in the Euro economies could threaten financial stability in both the US and emerging Europe, and spill over to emerging markets.

The international economic outlook is thus uncertain at best, with a significant likelihood that the current turbulence will persist for some time.

On the bright side, in contrast to efforts to re-establish a stable growth path in the crisis countries, global regulatory reforms have made significant progress. In particular, the Basel III capital and liquidity framework is substantially in place – with the focus now shifting to the all-important task of implementation of the accords. The Basel Committee is to be congratulated for its achievements in developing the new accords. There are important implications for Islamic finance, and for the IFSB in these accords, which will be addressed at this Summit in Sessions 1 and 2. The bottom line is that the regulatory model is changing. Islamic finance must be prepared for these changes and take steps to strengthen its own stability and resilience to shocks.

Excellencies, ladies and gentlemen;
At the IFSB, we share in the general assessment that Islamic finance has been resilient to the global crisis, but Islamic finance has not escaped the crisis and it is certainly not immune to it.

Thus while Islamic finance continues to grow at impressive rates and to become better integrated with the international economy, profitability is coming under pressure as markets tighten globally and volatility increases. There is concern regarding the spill-over effects of slow growth, or worse, in North America and Europe. Under-developed enabling environments, and weaknesses in the risk and liquidity management infrastructures within Islamic financial institutions, and also at the macroeconomic level, continue to be a cause for concern and a focus of policy action. Constraints to human resource capacity, broadly defined, remains an issue requiring sustained attention. The private sector continues to call for greater consistency in Sharī`ah decisions.

But there are also grounds for optimism, not least because Islamic finance is spreading into new territories. Cross-border financing and investment is increasing. In particular, critical market segments such as the Sukūk market have performed strongly, with the public sector taking the lead in Southeast Asia and in the Middle East through issuances for project and infrastructure financing. Takāful also remains a vibrant sector, one to which the IFSB is giving increasing attention. More broadly, in many emerging market economies, credit and economic expansion has gone hand in hand with financial deepening, including of the Islamic financial sector.

While weaknesses in human resources have been a common point of concern, today we can point to new institutions that have been established, by both the public and private sectors, with the goal of strengthening human capacity and improving knowledge through research and learning programmes.

Additionally, across an increasing number of jurisdictions, we are seeing the emergence of national road maps and strategies for the development of Islamic financial sectors, and for their prudential regulation and supervision. This critically important development is receiving important support from the Islamic Development Bank, a key partner of the IFSB, and indeed, a founding member of the IFSB, which has put in place country strategies to assist in the development of enabling policy environments, thus helping to provide a framework where national strategies can receive benefits from focused technical assistance support. I am hopeful that the World Bank and the Asian Development Bank will also support this effort through their technical assistance operations.

Excellencies, ladies and gentlemen,
The Islamic financial services industry faces numerous challenges at various levels – global, regional and national. In recognising these challenges, and in prioritising those within the IFSB’s mandate, the IFSB Council approved in its recent meeting in Bahrain in March of this year a new medium term strategy for the IFSB covering the period of 2012 to 2015.

The strategy – which we call the IFSB’s Strategic Performance Plan, or SPP in short – is based on consultations with the global industry’s leaders, and on two landmark surveys carried out by the IFSB of its member organisations. In addition to clarifying the progress in implementation of the IFSB Standards for prudential supervision, the surveys also highlighted the specific constraints faced in our member jurisdictions in the aspect of implementation. Finally, the surveys also point the way towards the measures needed to assist national authorities in implementation through comparative studies and research, and through the provision of technical assistance and capacity building.

What we have as a consequence is a results-based strategy that charts a roadmap for the IFSB – a roadmap to engage with its stakeholders in support of the further development of Islamic finance. Over the duration of the SPP, our principal focus will be on the following:

First, to strengthen the stability and resilience of Islamic finance through the development of a range of new standards and guiding principles aligned with the changes in the global regulatory environment.

Our objective is to ensure that the Islamic financial services industry is provided with a level playing field, comparable to conventional finance, and that it is equipped to address the critical issues of liquidity risk management and capital adequacy, drawing on the lessons of the global crisis and on a basis that is derived from, and consistent with, the principles of the Sharī`ah.

Two Guiding Principles were approved by the Council in this regard in March this year, and these were for Liquidity Management and for Stress Testing.

These two Guiding Principles have benefitted from the tremendous response during the public consultation phase in which we received more than 300 written comments from across the globe, including from key partners and members such as the IMF, the World Bank and the ADB.

Two additional, and related standards and guiding principles, are also currently under preparation. These are the revised capital adequacy standard, and the revised guiding principles for the supervisory review process. It is my hope that these two ‘work in progress’ documents will also receive the same high levels of interest and informed feedback from the global community during their public consultation phases, as that of the two GPs that have just been approved.

Second, to strengthen the basis for market development and to spur the development of new Sharī`ah-compliant instruments, the IFSB will enhance its efforts to broaden the range of cross-sectoral prudential and supervision standards and guiding principles to include Takāful and capital markets. A standard for risk management for Takāful undertakings is under preparation. We have additional Standards and Guidance Notes in mind for the Takāful sector by 2015, which aim to assist in better defining the prudential regulation and supervision of this sector.

In relation to capital markets, we propose to work closely with our members, including supervisory agencies for capital markets, and to strengthen our dialogue with IOSCO, with a view towards laying the foundations of a set of commonly agreed guiding principles that will strengthen investor protection and facilitate greater cross-border financing, a critical factor in creating depth and liquidity in Islamic capital markets.

Third, to support the formulation, adoption and implementation of its Standards, the IFSB will be launching targeted research, comparative studies, and customised training, learning and awareness programmes to improve knowledge and strengthen capacity. It will also be seeking to enhance its ability to serve as a platform and focal point, for its members, for the sharing of knowledge on critical issues, including in implementation of Standards and for the strengthening of prudential regulation and supervision.

Finally, reflecting the broader challenges faced by the global Islamic financial services industry, the SPP has launched a new, global initiative, that is the revision of the “10-year Framework and Strategies for the Development of the Islamic Financial Services Industry”. This document, which was a joint effort by the IFSB, Islamic Development Bank and Islamic Research and Training Institute (IRTI-IDB), was initially published in 2006 prior to the global financial crisis. The revision, which is once again to be conducted jointly by the IFSB, IDB and IRTI, is designed to evaluate progress made since 2006, and chart an updated and revised road map in the context of the altered prospects, and the new opportunities, afforded by developments at the global and national economy levels. This effort aims to foster an orderly development of an efficient, sound, resilient and sustainable Islamic financial services industry in the rapidly changing global market, technological and regulatory environments.

Delivering the new SPP will involve focusing and streamlining the IFSB’s operations, a process that is already underway. It will also mean enhancing the IFSB’s capabilities through strategic partnerships with a view to expand the current capabilities in research, training, and the provision of technical assistance, all of which have been identified by our stakeholders as critical to the industry’s development. I am pleased therefore to announce the signing of MOU’s with three institutions for collaboration with the IFSB. These institutions, drawn from the Gulf, Turkey and Asia are, respectively, the Bahrain Institute for Banking and Finance (BIBF), the Statistical, Economic and Social Research and Training Centre for Islamic Countries (SESRIC), and the International Centre for Education in Islamic Finance (INCEIF). The first MOU with BIBF was signed at the IFSB’s Annual Meeting held in Bahrain in March of this year. I am pleased to inform you that the MOUs with SESRIC and INCEIF were signed here in Istanbul yesterday.

Conclusion

Finally, Excellencies, Ladies and Gentlemen, I would like to turn to the wider role of Islamic finance in the world today. Following the first major reports after the global crisis, many policy makers have stressed the importance of diversity in the financial system, to be achieved by greater diversity in the types of financial intermediaries, with a view to reducing overall risk concentrations and vulnerabilities that arise from having similar institutions, portfolios and risk management strategies. These are views that the IFSB supports and, indeed, we believe that the further expansion of the Islamic financial services industry will add to the diversity and hence stability of the global financial system.

But another important contribution that Islamic finance is making to the global economy at this time is through its basic tenets –tenets which promote a rethinking of the ethical basis, and the basis for the legitimacy, of the financial system and the institutions of which it is composed.

Across the world today a wide range of voices have been raised advocating for a greater contribution from the financial sector towards the achievement of what has been called “the good society” or a just society – a society that is based on social and ethical values that are broad based and which, like the goals and values that are embedded in Islamic finance, aspire towards a state of the world in which prosperity is shared.

From this perspective, the principal risk faced today is perhaps not just that of global economic instability and volatility, as worrisome as these are. It is rather that the idea of “shared prosperity” and the ideals of social justice will be marginalised if not extinguished. We cannot let this happen.

Financial stability is a pre-condition to “the good society", whether that society is based on a conventional, Islamic, or mixed financial system.The pursuit of financial stability, however, does not solely depend on regulatory development or prudential standards. It depends also on collaboration and cooperation mechanisms that help all stakeholders towards achieving the common goals of a sound and sustainable financial services industry.

This is what we aspire, and endeavour, to accomplish at the IFSB. In this effort, we rely upon you, our stakeholders, individually and in the aggregate, to work with us and to assist us in this our common objective. To quote the saying of the Prophet (peace be upon Him), “Each one of you is a guardian, and each guardian is accountable to everything under his care”.

Thank you.


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