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IFSB-ADB Conference on Islamic Finance for Asia: Development, Prospects and Inclusive Growth and Roundtable Session for Regulators on 4 - 5 November 2013, Manila, Philippines

Date posted: 14 November 2013

14 November 2013, Kuala Lumpur/Manila - The Islamic Financial Services Board (IFSB) and the Asian Development Bank (ADB) had successfully organised a Conference on Islamic Finance for Asia: Development, Prospects and Inclusive Growth and a Roundtable Session for Regulators on 4 – 5 November 2013 at the ADB Headquarters in Manila, Philippines.

ADB interest in Islamic finance relates to the relevancy of Islamic finance to ADB's member countries, where a large majority of the world’s Islamic finance activities are taking place; the role Islamic finance plays in enhancing inclusive growth and financial stability; and the catalystic role ADB can play in the development of Islamic finance. ADB has so far funded three technical assistance projects for the development of international prudential and supervision standards for Islamic financial services and with the Islamic Development Bank has established a $300 million Islamic infrastructure fund.

Mr. Jaseem Ahmed, the Secretary-General of the IFSB, outlined in his Opening Address the global recognition for Islamic finance as an important means of introducing a more stable form of financing to the international economy. Expressing his thoughts for the role of the ADB in supporting the IFSB’s work programme, he mentioned that the value and potential of Islamic finance is in line with, and supports the ADB’s core mission of poverty reduction through economic and social development. “Islamic finance” he outlined, “is an increasingly important means for financing of physical and social infrastructure that supports economic development and job creation”. Furthermore, “it is an instrument for reaching out to the under-served segments of society”. Mr Ahmed also underlined the need for integrating Islamic finance into public spending and public financing decisions through the issuance of sovereign Islamic securities.

Dr. Ishrat Husain, Dean and Director of Institution of Business Administration, Karachi and Former Governor of the State Bank of Pakistan, in his Keynote Address, outlined the possibility of advancing Islamic finance as an alternative means of financial intermediation and a reliable instrument of promoting inclusive growth and reducing income inequalities in Asia and the world. He assessed that among the attractive features of Islamic finance which lends it credibility for promoting stability include its financing backed by real assets and linkage of investors’ return with the performance of the underlying assets. Quoting several empirical studies on the comparison of Islamic and conventional financial institutions, he outlined the factors behind the relatively strong showing by the former. However, he stressed that Islamic finance should not be “ghettoized but globalised i.e. it should be promoted as an integral part of the global financial system, gradually enlarging and extending its share by benefiting stability and inclusive growth outcomes”.

The first session of the Conference hosted distinguished speakers who provided insights into the growth and internationalisation of Islamic finance, with special emphasis on the emerging markets and Asia. They underlined the need for pursuing more inclusive growth, and provided insights on demand dynamics as well as structures of various government and private sector Sukūk issuances, especially in South East Asia and the GCC regions. Speakers also stressed the need for issuing more short-term liquid instruments, building trust and confidence in market and balancing the interests of investment account holders with that of shareholders.

The speakers of the second session shed light on the importance of continuous strengthening of the legal and regulatory infrastructure, as the recent global financial crisis has proven that “light touch” regulation failed to prevent excessive risk-taking, opportunism and lack of transparency. They laid the emphasis on having an internationally recognised adjudicating body to resolve disputes that arise in cross-border Islamic finance transactions as well as special courts within the judicial system comprising of judges well exposed to the Sharī`ah principles.

The third session outlined that economic development and growth should be accompanied by the social justice and financial inclusion. Islamic finance provides a means to achieving this objective where property is not a means of exclusion, rather of inclusion. However, there is a need to strengthen the infrastructure for financial inclusion, develop supportive regulatory framework and level playing field for Islamic microfinance, SME and micro-Takāful by using tools such as, among others, Awqaf, Qarḍ Al-Hasan and Zakāh for various categories of the poor and vulnerable population. Some best practice examples from Bangladesh and initiatives taken for financial inclusion in Philippines were also explicated.

In the last session of the first day, speakers described a snapshot for Islamic capital markets with special emphasis on Sukūk, Islamic funds and Islamic equities, and touched upon recent developments in Islamic capital markets, especially the increasing interest of western countries, such as the UK and France. They highlighted the necessary ecosystem for Islamic capital market products, which includes tax neutrality, Sharī`ah compliance framework, diversity of players and products as well as governmental support. Lastly, the role of Sukūk in the development of the economic systems and infrastructure building was discussed, with deliberations enriched by sharing country experiences by Turkey and the Philippines, where Islamic capital markets is gaining prominence in their respective financial systems.

The second day of the conference began with discussions on the issuance and implementation of global prudential standards for the Islamic financial services industry, which provides a catalytic role in the standardisation and harmonisation of practices, thereby reducing opportunities for regulatory arbitrage. The speakers lauded the role which the IFSB has played in promoting and facilitating these objectives. The support provided by the ADB for enhancing the prudential framework for the industry was also deliberated. Speakers underscored the need for collaborative and intensified work for the implementation of the IFSB standards using initiatives like organising implementation workshops, enhancing e-learning platforms and collaboration with international organisations. Experience sharing on Pakistan’s implementation of the IFSB standards emphasised the importance of, and suggested the need for, strong commitment from the member countries to accelerate the standards’ implementation process.

In the final session, a panel of distinguished panellists provided their views on the industry’s achievements as well as risks and vulnerabilities facing the industry moving forward. They also provided their insights on the role Islamic finance can play in the economic and social development of emerging markets and Asian economies. Panellists also provided comparative perspective on Islamic and conventional systems and need for improving governance and transparency in the operations of institutions offering Islamic financial services (IIFS). It was underlined that adopting both a holistic approach for all the sectors of the industry and taking a policy approach to Islamic finance at jurisdiction level are critical in tackling the growing risks and challenges for the industry.

The Conference was followed by a Roundtable Discussion for Regulators, in which the global financial crisis and the resilience of Islamic finance were discussed. The speakers noted that there is a need for bringing realism in the products offered by IIFS and developing supportive legal framework and other infrastructure components that could facilitate the introduction of more risk-sharing products. The Roundtable also focused on the role of government and private sector in the promotion of Islamic finance, where speakers and participants noted that the development should focus on meeting the stakeholders’ expectations. The speakers also noted that Sharī`ah does not limit, but rather enhances, the introduction of innovative products and services to meet these changing needs and expectations. The participants were also enlightened by sharing of experiences from various jurisdictions, leading to discussions on measures and challenges in providing a level-playing field for Islamic finance to develop and flourish.

The Conference and Roundtable are among the first joint initiatives by the IFSB and ADB following a Memorandum of Understanding (MOU) was signed on 2 October 2012 to facilitate international cooperation between both organisations in promoting the development of Islamic finance in common developing member countries. The MOU, which includes a technical assistance, allows the IFSB to continue its efforts in capacity building towards facilitating the implementation of the IFSB Standards in the IFSB and ADB’s common developing member countries through the development of an e-learning platform and the organisation of workshops and forums, which will facilitate greater dissemination of IFSB Standards to the global Islamic financial services community; make headway in developing an action plan for the Islamic Capital Market; and continue the IFSB’s Prudential Structural Islamic Financial Indicators Project.

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