Wednesday November 23, 2011

IDB to help build sustainable Islamic finance

MANAMA (Bahrain): The Islamic Development Bank (IDB)Group will continue assisting in building a sustainable Islamic financial system and sound regulatory framework both in Bahrain and Malaysia.

"A system of proper corporate governance processes in line with Islamic principles must be in place in our financial institutions," said Khalid Mohammad, chief executive officer of Islamic Corporation for Development of the Private Sector (ICD), IDB.

Speaking at the 18th World Islamic Banking Conference here today, he said there is a lack of regulatory framework in some aspects of the operations, adding that effective prudential supervision of banks is also vital.

The introduction of liquid, equity-based risk sharing and capital adequacy frameworks will shield Islamic institutions from the effects of future economic trouble and will help build a more sustainable financial system, he said.

IDB is actively involved in the establishment of the General Council of Islamic Banks and Financial Institutions in Bahrain, the International Islamic Rating Agency, development of prudential regulatory standards and a shariah compatible avenue for investing in a short-term inter-bank market with the Islamic Financial Services Board.

Mohammad said ICD, the private sector arm of IDB, also played a part in creating the recently established International Islamic Liquidity Management Corporation in Malaysia.

"We have also been contributing significantly to the Islamic banking industry all around the world, in response to the global financial crisis which has had a negative impact on most of its member countries," he said.

The global economic growth prospects are continuing to deteriorate in the majority of the advanced economies, while recent indicators point to a general convergence toward low growth in all economies around the world, he said.

Mohammad said the eurozone authorities are struggling to restore debt sustainability, recapitalising their banks, strengthening measures against financial contagion and laying the foundations for robust economic governance in the region.

However, in the recent financial crisis, the Islamic banking industry has remained relatively intact from the negative consequences of this phenomenon, and has demonstrated an alternative architecture that could help minimise the severity of the crisis, he said.

Global shariah-compliant assets have grown by 30 per cent since 2008, while asset growth in the world's top 1,000 conventional banks have slumped 6.8 per cent.

Islamic banks have raked in US$4.8 billion in net profits, while the Islamic finance Industry has sustained over 20 per cent annual growth since 2000 and achieved US$1 trillion in total Islamic assets last year.

"Islamic banking acts as a new architecture to redesign the conventional financial markets by eliminating the major weaknesses of the conventional system," Mohammad said. - BERNAMA

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