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Press Release > 2015

Opening Remarks by Mr Jaseem Ahmed, Secretary-General of the IFSB at the 12th IFSB Summit, Almaty, Kazakhstan

Date posted: 21 May 2015

Date: 20 May 2015

Event / Venue: Opening Remarks by the Secretary-General of the IFSB at the 12th IFSB Summit, Almaty, Kazakhstan

Speaker: Mr Jaseem Ahmed, Secretary-General, IFSB

Excellencies, Distinguished Guests, Ladies and Gentlemen

السلام عليكم ورحمة الله وبركاته and a very good morning to all of you.

I would like to begin by thanking the Honourable Prime Minister of Kazakhstan for launching the Summit through his excellent Keynote Speech.

Allow me to take this opportunity to also express a special thanks and appreciation to H.E. Governor Kelimbetov, and the National Bank of Kazakhstan, for hosting this years event.

We are delighted to be holding this Summit in Kazakhstan, which is a country that is developing a compelling vision for itself, and for its role in the wider world. I refer of course to Vision 2050 which was announced by His Excellency, the Honourable Nursultan Nazarbayev, the President of the Republic of Kazakhstan.

Indeed, Kazakhstan has taken very promising measures to define a roadmap for how it will utilise Islamic finance to support its vision of a Modern Society for All.

The IFSB stands ready to continue its support to NBK in the implementation of the roadmap – in those areas falling under our mandate for the promotion of strong regulatory regimes for the Islamic financial sector.

Ladies and Gentlemen: allow me to say a few words about the IFSB and how it serves its mandate and its stakeholders. The IFSB was established in 2002 by a group of visionary central bank governors from the Middle East, Asia, and Africa. These central bank governors were joined in their efforts by the Islamic Development Bank.

I would like to share with you three key aspects of the IFSB’s mandate. First, it is to issue high quality standards and guiding principles for the regulation and supervision of Islamic finance. We have issued 23 standards and guiding notes since our establishment, most recently the landmark standard on Core Principles which is known as IFSB-17, and the Guidance Note on Quantitative Aspects of Liquidity Management, both of which were approved by the IFSB Council in April this year.

The IFSB’s standards are benchmarked against those of our international comparators, with whom we work closely – namely: the Basel Committee for Banking Supervision, the International Association of Insurance Supervisors, and the International Organization of Securities Commissions.

Second, the IFSB has a vital mandate in building capacity in our member jurisdictions, in particular in the area of assisting them to adopt the standards that we have issued. This is reflected in the priority given to implementation in the IFSB’s Strategic Performance Plan 2012-2015. We are developing a revised Strategic Performance Plan for the IFSB, for the period 2016-2018, in which we will seek to bring a greater level of effort to support our jurisdictions in this area.

And third, the IFSB serves as a platform for international cooperation on issues of stability and resilience in Islamic finance.

The IFSB takes advantage of its wide membership to strengthen cooperation amongst supervisory agencies, the private sector, and other stakeholders towards the common goal of enhancing the resilience and stability of Islamic finance. The sharing of perspectives from different jurisdictions, and the establishment of closer cross border relationships and understandings, are the stepping stones that the IFSB utilises towards joint action on common goals.

Ladies and Gentlemen: The 12th Summit takes place against a background in which there is uncertainty regarding the prospects for global economic growth over the medium term. There is also concern over the possibility of a recurrence of cross border volatility in financial markets. However, at the same time, there is rising interest in Islamic finance – in both traditional jurisdictions, as well as in new jurisdictions.

This reflects the widening recognition that Islamic finance is a viable and alternative form of financing that can serve fundamental goals of national economic development and of social inclusion, while also serving to strengthen the stability and resilience of financial systems. In particular, there has been widespread interest in the use of Sukūk to fund investment in both social and physical infrastructure.

At the IFSB Secretariat, we are pleased to see the G20 has recognised the potential role of Islamic finance, in the context of the Working Group on Infrastructure Financing, which is developing a new framework for public private partnerships for infrastructure financing. The IFSB has been pleased to respond to the request of this important working group by providing a Note on how Islamic finance can be integrated into PPP approaches for infrastructure finance.

Let me also stress the important issue of financial inclusion. There is today a better understanding that the absence of Sharī’ah-compliant financial instruments is a major impediment to the objective of financial inclusion in many countries. We also recognise that Islamic finance offers innovative mechanisms in the form of risk sharing and participation financing that can help SMEs in the critical initial start up phase.

Taken together, these issues suggest that there is great value in the Multilateral Development Banks and other international agencies in mainstreaming Islamic finance into their development and operational agendas.

In this connection, a notable recent development is the International Monetary Fund, which has issued a Staff Discussion Note on Islamic finance, and which is working with an External Advisory Panel, in which the IFSB is pleased to participate.

The IFSB Secretariat welcomes this development, which reflects the emergence of sizeable national Islamic finance sectors in the Middle East and in Asia and Africa, as well as a recognition of the policy and regulatory challenges this poses to national and international authorities.

In addition, I would like to congratulate the Management of the World Bank for recent innovations in which they have assisted their stakeholders to structure Sukūk for the financing of health programmes for immunisation and vaccination of children. These innovations suggest that a MDB can play a strong role in supporting Islamic finance for developmental purposes, even if it does not issue Sukūk on its own balance sheet.

Finally, in this regard, I would like to refer to a recent joint publication of the Asian Development Bank and the IFSB on Islamic Finance in Asia. The publication, which is available at this Summit, is intended to provide guidance to policy makers on the issues, opportunities, and challenges they will face as they mainstream Islamic finance into their national development goals.

Ladies and Gentlemen: The theme of this year’s Summit, “Core Principles for Islamic Finance: Integrating with the Global Regulatory Framework”, provides an opportunity to address some of the key challenges and opportunities that face the Islamic finance and global community. These are: first, how to strengthen the national regulatory and supervisory framework, in a way that is consistent across borders, to enhance the stability and resilience of Islamic finance; second, how to facilitate the integration of Islamic finance into the global surveillance framework that monitors the stability of the global financial system; and third, how to strengthen international linkages in Islamic finance so that a new “Silk Road” emerges, consisting of a network of cross border financing, investment and cooperation, connecting all the regions and jurisdictions of the world that are today pursuing their interest in Islamic finance.

Ladies and Gentlemen: To put these challenges and opportunities in perspective, I would like to take this opportunity to share with you some key findings of the IFSB Stability Report 2015, which will be released today.

First, despite the global economic slowdown, growth is robust across Islamic financial sectors, with the banking sector growth rate at about 17 percent per annum during the post-crisis period 2007-2014. The growth rate of Sukūk issuances is even higher, during this period, at about 19 percent per annum. However, these growth rates are moderating since last year.

Second, as a result of high and sustained growth, there are now 10 jurisdictions in which the Islamic financial sector is of systemic importance, which the IFSB, together with the IMF, defines as a jurisdiction in which 15 percent or more of financial sector assets are Islamic.

Third, Islamic banks continue to be well capitalised with higher levels of high quality capital than mandated by regulatory requirements.

Finally, while profitability, capitalisation, asset quality and other indicators show encouraging trends, the relative scarcity of Sharī’ah compliant high quality liquid assets points to a long term requirement – which is for additional and flexible liquidity management tools – the absence of which poses potential risks to the stability and resilience of Islamic banks.

This summary of key findings from the Stability Report 2015 underscores the immediate and long term challenge, which is to develop Sharī’ah-compliant financial markets and instruments, and financial safety nets, that will aid risk and liquidity management capabilities of financial institutions, while contributing to the ability of the authorities to maintain control over monetary aggregates and risks to financial stability at the economy-wide level. This is a demanding agenda that will be aided by policy road maps for Islamic finance, such as those being prepared and implemented by a number of IFSB member jurisdictions.

The last issue I will address today is the IFSB’s Core Principles for Islamic Finance Regulation, banking sector, which was issued last month as IFSB-17.

The development of the CPIFR was in response to the existence of gaps in the regulatory and supervisory framework in many countries. The Core Principles assists supervisory authorities that are regulating and supervising Islamic finance to identify applicable principles and benchmarks, to fill the gaps in the existing policies and regulations in their jurisdictions.

The CPIFR addresses this difficulty by prescribing the essential elements that must be present in the supervisory regime in order to promote a financially sound sector and provide an adequate level of customer protection.

The Core Principles can be used by both advanced and emerging market jurisdictions – as a benchmark for assessing the quality of their regulatory and supervisory systems and for identifying future work to achieve a baseline level of sound regulations and practices for Islamic finance.

If widely adopted, I believe that the Core Principles will provide the basis for a globally consistent regulatory framework for Islamic finance.

However, the key question is how the adoption of the Core Principles can be facilitated in a practical manner. After all, this is something new in Islamic finance, and needs to be tested. In this regard, we can point to the following options for IFSB member jurisdictions in implementing the core principles: first, through self-assessments of their regulatory and supervisory systems; second, through peer reviews conducted, for instance, within regional settings or by regional organisations; third, through the IMF and the World Bank FSAP; and fourth, as reviews conducted by, or with the assistance of other, third parties.

Ladies and Gentlemen: The IFSB stands ready to support work at the national and international level, to implement the Core Principles in conjunction with other supervisory bodies and interested parties.

I am, therefore, pleased to share with you that the IFSB Council has endorsed the launching of a pilot project phase in which interested member jurisdictions will be supported by the IFSB in their takeup and implementation of Core Principles and its associated assessment methodology.

Ladies and Gentlemen: The approval of the Core Principles for Islamic Finance Regulation represents a very important milestone towards achieving common international regulatory standards for Islamic finance. I would like to take this opportunity to acknowledge the vision of the IFSB Council which has made this possible, and the contributions of many others including my predecessor as SG, Professor Rifaat Abdel Karim, and the then Chairman of the IFSB Techncial Committee, H.E. Dr. Abdulrahman Hamidy, who encouraged the Secretariat to take this proposal to fruition.

The IFSB’s Core Principles reflect the specificities of Islamic finance. They are also benchmarked against the Revised Basel Core Principles. We have received close cooperation from the international standard setting community, with the Basel Committee and the IMF and the WB all particpating in the WG that prepared this standard. I take this opportunity to thank each of these institutions, and the other members of the WG, which includes the IDB and the ADB, for their collaboration with the IFSB.

Ladies and Gentlemen: I would now like to conclude with the following observations: First, we are here today because Kazakhstan exemplifies, in a very special way, a wider phenomenon that can be observed in Central Asia and beyond – a gathering of interest, resolve, and weight of effort to strengthen the basis for integrating Islamic finance into the national and international economy.

Second, in supporting this process, the IFSB envisages that the Core Principles for Islamic Finance Regulation will become a key instrument towards integrating Islamic finance into the global economy, and facilitating its adoption across both advanced and emerging markets in a consistent manner.

Finally, I look forward to a very productive and fruitful Summit in this beautiful setting of the city of Almaty. We have already had a very fruitful day yesterday, at our pre-summit events in which a number of institutions, including the NBK, the WB, MIFC and the IDB made informative presentations on their plans regarding Islamic finance.

We now look look forward with great interest to the outcomes of your deliberations during the next one and a half days, which we intend to publish as Summit Proceedings later this year.

Thank You.

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