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IFSB programmes to facilitate the development of the Islamic financial services industry     
Press Release > 2017

Speech by the Acting Secretary-General of the IFSB at the IFSB Summit 2017 - Reinvigorating the Momentum of Islamic Finance: Solidifying Resilience and Sustaining Growth

Date posted: 23 October 2017

Date : 23 October 2017
Event / Venue : IFSB Summit 2017 – “Reinvigorating the Momentum of Islamic Finance: Solidifying Resilience and Sustaining Growth” | Abu Dhabi, United Arab Emirates
Speaker : Zahid ur Rehman Khokher, Acting Secretary General, IFSB

I am pleased to welcome you to the IFSB Summit 2017.

Allow me to take this opportunity to also express a special thanks and appreciation to H.E. Governor, Mubarak Rashed Al Mansoori and the Central Bank of the United Arab Emirates for hosting the IFSB Summit for the second time in ten years, following the IFSB Summit 2007 held in Dubai.

I would also like to thank everyone in this city who has made us feel so welcome.

Excellencies, Ladies and Gentlemen,

We are delighted to be holding this Summit in the UAE, which is a country considered a key centre of Islamic finance in the Middle East and beyond. Our host country has achieved much since we last gathered here for the 2007 summit. As His Excellency, Governor Mansoori mentioned, UAE has ambitious plans to further strengthen this leading position. In terms of volumes, the country’s Islamic banking, takāful and Islamic capital markets, especially sukūk are among the four largest sectors in the world. With the domestic share of Islamic banking market reaching a fifth and a vibrant sovereign and corporate sukūk issuance market, takāful sector has also shown high growth rates in recent past.

Apart from the central bank, the IFSB has strong working relationship with other regulators in the UAE, which includes Securities and Commodities Authority, Insurance Authority of the UAE and the Dubai Financial Services Authority, which is also the second Full Member of the IFSB from UAE. Similarly, with 9 members from the Islamic banking and takāful community, we aim to further strengthen this relationship with the UAE market.

Excellencies, Ladies and Gentlemen,

The theme of the IFSB Summit 2017 accentuates the timely need for reinvigorating momentum of the Islamic Financial Services Industry (IFSI) to sustain its accomplishments over the past four decades, especially since we last met in the IFSB Summit 10 years ago in the UAE in 2007.

In order to provide a perspective, let me share with you the key accomplishments of this industry in various sectors in past decade and how it has shown sustained double digit performance: Islamic banking has expanded three times of its size from 2007, with a CAGR of 11.6%; Sukūk outstanding have grown over 6 times, with CAGR of 20% and takaful sector has grown 5 times with a CAGR of 19.34% during this period. Apart from these sectors, Islamic finance has made inroads into the mutual fund industry, wealth management, REITs, crowdfunding, pension funds and many more. Similarly, Islamic finance, especially Islamic banking sector, has already become systemically important in over 12 countries with more than 15% market share. Moreover, an increasing interest is being shown by many non-Muslim majority countries to offer Islamic finance products and services in their markets. We can also see emergence of large scale Islamic financial institutions at the domestic level in many countries. Some of these institutions are becoming regional players, expanding their outreach to other countries and regions.

While these developments offer a room for comfort, certainly there is no space for complacency. While there are 12 countries with over 15% market share of Islamic banking, only 6 countries have over 30% market share and only 4 of them have market share of over 50%, There are other 35 OIC countries where market shares are much smaller and even negligible in some cases. takāful sector and sukūk market have not become a significant component of financial systems beyond 15 or so markets and only a few countries have been able to start a regular issuance programme for sukūk. Corporate sukūk market remains underdeveloped and secondary market trading for sukūk is not active except a few selected jurisdictions. The number and average Assets Under Management (AuM) of Islamic funds globally have decreased from 2015 to 2016. Similarly, while emergence of large domestic and regional Islamic banks is a welcome sign, Islamic finance industry has not been able to produce a global brand thus far.

While some of these trends are short term and are expected to go away with the changes in macroeconomic dynamics and business cycle over time, others are structural in nature. For an industry which is established on the moral high ground of offering an ethical, just and inclusive financial system, there is a genuine need for reflection and deliberate ways to expand its appeal and strengthen its value proposition to businesses, individuals and other clients of financial services.

Excellencies, Ladies and Gentlemen,

In moving forward to reinvigorate momentum of the IFSI we have to build a bigger, robust and more transparent market for Islamic finance.

In order to achieve these objectives, I mention a few points in the following:

First, focus on improving legal and regulatory environment to keep pace with this rapidly growing sector. These changes should incorporate unique features of Islamic finance which are well articulated in the standards and guidelines issued by the IFSB and other standard setters.

Second, adopt strategies for enhancing access of Islamic financial services to the large majority of the population and business, especially small and medium enterprises. The introduction of viable, low cost and user friendly Islamic financial products, using the latest technologies, can be an important factor in promoting Islamic financial services.

Third, make the value based theme of Islamic finance products more clearly visible to the end customers. Malcom Gladwell, in his book “The tipping point” considers “stickiness factor” as one of three pillars for an idea to expand exponentially. In his words “to get ideas to pass the barrier, the message must be distinct”. Hence, for Islamic finance to represent itself as a more secure, less risky model of finance, its products and services should appeal at a deeper level to its customers.

Four, more critically, the development of Islamic money markets and associated liquidity infrastructure, remains as challenging in many markets as it was a decade ago. While many exciting developments have taken place in various countries as well as international level (such as establishment of IILM) to issue more, high quality Sharīʻah-compliant liquidity instruments with greater frequency, the situation in a majority of member countries is far from satisfactory. Similarly, little emphasis is being given on linking the government’s sukūk issuance programmes with the national development agenda and broader monetary policy objectives.

Excellencies, Ladies and Gentlemen,

Allow me to say a few words about the IFSB and how it serves its mandate to its stakeholders as the key international standard setting body for prudential regulation to support stability and resilience of the Islamic financial services industry. The IFSB is approaching 15th anniversary of its establishment early next month. The IFSB has gone a long way since its establishment from its initial 9 members to 183 members spanning 57 jurisdictions covering 70 regulatory and supervisory authorities, 7 International Organisation, including IMF, World Bank, ADB and Bank for International Settlements, 6 self-regulatory organisations and 100 private sector members from Islamic financial institutions, industry associations, professional firms, rating agencies and others.

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 and promote stability. We have issued 27 standards as well as guidance and technical notes since our establishment covering all three sectors of our core mandate: Islamic banking, takāful and Islamic capital market sectors.

In past few years, apart from issuing new and revising our earlier standards to align these with Basel III reforms, an IFSB working group is also drafting second standard in our Core Principles series for Islamic capital market segment that will complement IOSCO Core Principles. Our first Core Principals of Islamic Finance Regulation for banking sector (IFSB-17) issued in April 2015 has been well received by the industry. In this respect, the IFSB welcomes the press release by the IMF Board of Governors in February 2017 to make Islamic finance part of its surveillance framework and to consider IFSB Core Principles as a relevant standard for this purpose. The IFSB offers its full support to its members and stakeholders to implement these Core Principles and believes that it will help the national regulators in identifying the gaps in their supervision regimes and facilitate the integration of Islamic finance into the global surveillance framework.

Our research programme, which is closely aligned with our core mandate, has provided insights on Financial Safety Nets covering SLOLR and SCDIS, consumer protection, Sharīʻah non-compliance risk and microtakāful. Currently, we are finalizing our working papers on resolution, recovery and insolvency in IIFS as well as issues in capital requirements of Takaful sector. We have also agreed with the IMF and Arab Monetary Fund to commence, a new empirical study on AML/CFT issues relevant for Islamic finance institutions.

Our annual flagship IFSI Stability Report, which has been issued regularly since 2013, offers developments and assessment of resilience of various segments of Islamic finance by tracking over 50 indicators. It has already become the most referred industry report in Islamic finance by the professionals, international organisations and business media.

Second, the IFSB has a vital mandate in building capacity in our member jurisdictions, in particular for assisting them to adopt the standards that we have issued. Apart from our highly rated FIS workshops programme – where we conduct 9-10 workshop every year in member jurisdictions – we have reinforced these efforts through technical assistance, offering policy advice, preparing e-learning modules (9 standards covering three sectors), translation of standards into French language and outreach programme.

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 organisation of regular events in various regions such as this Summit is part of these efforts.

Our joint publications with our partners are a reflection of this cooperation. Today, the IFSB and World Bank are launching our joint publication on takaful sector, which is a proceeding of joint event with Turkish treasury last year. Similarly, we are also launching today the Arabic and printed version of our joint book with ISRA on financial safety nets, that was published in soft copy last year in English. This book has been printed with the support of another partner, ADB.

This international cooperation is also well demonstrated by our ‘Prudential and Structural Islamic Financial Indicators’ project, called PSIFIs that is benchmarked against IMF’s Financial Soundness Indicators (FSIs). Through this initiative, which now involves 21 countries and three international organisations such as the IMF, ADB and IDB, the IFSB collects, reviews and disseminates quarterly data of Islamic banking systems of these countries on the IFSB website. With 14 quarters of data, covering 35 indicators and over 90% of the global Islamic banking, it is already the most reliable and consistent database of macro-level statistics in Islamic banking industry. After the approval of IFSB Council in April 2017, we are now taking steps to expand this database to Takaful and Islamic capital market sectors.

Excellenceis, Ladies and Gentlemen,

I would now like to conclude with the following observations: First, we are here today because UAE exemplifies, in the GCC, Middle East and beyond — a combination of vision, commitment and action plan to strengthen integration of Islamic finance into the national and international economy.

Secondly, in order to achieve its unique mandate, the IFSB believes in satisfying the high expectations of its members from a diverse pool of countries and across sectors.

Finally, I look forward to a very productive and fruitful Summit in this beautiful setting of the city of Abu Dhabi. We have already had a very fruitful day yesterday, at the pre-summit events in which several institutions, including the IILM, DIEC, MIFC and FAA made informative presentations on their plans regarding Islamic finance.

We now look forward with great interest to the outcomes of your deliberations during the next one and a half days, which the IFSB intends to publish as Summit Proceedings in next couple of months.

Thank You.


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