Saturday September 15, 2012
Islamic finance players call for a regulatory framework that does not impede growth
By DALJIT DHESI
There should be a balanced regulation for Islamic finance, one that does not impede its growth or allow for abuse, according to leading industry players.
“We need regulation and the financial regulator must always strive for a balanced regulation so that it is not too rigid as to choke the industry or too slack, thus allowing for abuse,'' he tells StarBizWeek in an email reply.
The kind of regulation needed for Islamic finance for any jurisdictions will be the kind that is found in Malaysia but tweaked and adapted to the specifications of each jurisdictions, he notes.
Furthermore, he says financial regulators must not see the act of regulating Islamic finance as an act of regulating religion but merely regulating commercial transactions just like any other financial transactions.
“I believe, where appropriate, there should still be proper adequate regulations based on the needs of the market but do, however, feel an open and free market economy mechanism is able to provide the required market discipline,'' he adds.
He says intervention by the regulators should take into account the overall long term impact of the efficiency of the market, adding that the potential uncertainties in the changes in Islamic finance regulations could impact the risk management of the industry in the long run.
HSBC Amanah Malaysia Bhd CEO Rafe Haneef, while agreeing that there should a balanced regulation in Islamic finance, says Bank Negara has done the right thing in setting up a comprehensive standard for regulating Islamic banking to ensure prudent banking even though some quarters feel that it is over regulated.
“Malaysia's Islamic fiance industry is one of the most comprehensive in the world in terms of regulatory framework and syariah governance framework. This is because the regulatory framework , among others, clearly spells out the responsibilities of the board, management and syariah committee, etc,” he adds
Asked whether Islamic finance can enhance or promote global financial stability in view of the current global economic environment, Badlisyah says it can, if the ethics in Islamic finance (as enshrined under Syariah) are codified within a country's banking and financial regulatory framework. Without codification of these ethics, the financial market including Islamic finance will still be subject to abuse from human greed, he notes.
He feels Islamic finance biggest contribution in the enhancement and promotion of a more stable global financial market and economy, will be the facilitation of optimal financial inclusion in any nation and the encouragement of a broader and wider distribution of wealth between the poor and the rich and between nations as well as within any nation.
Rafe says besides fulfilling religious needs, Islamic finance helps the financial system to mobilise all surplus savings and enhance the country's economy and gross domestic product growth.
On the difference in risk management systems in Islamic finance compared with conventional banking, Rafe says they are parallel in most areas although there are more constraints in Islamic banking. Some of these constraints include disallowing short selling and speculative transactions, he notes.
Muzaffar feels although there may not be any fundamental differences in managing risks between conventional and Islamic, there is still a need to be vigilant in managing Islamic finance risk, adding there is a need to constantly ensure any specific risk areas that needs to be addressed adequately.
Badlisyah, Rafe and Muzaffar will be among the captains of Islamic finance who will give their views at the third Global Islamic Finance Forum (GIFF) from 18 20 September. It will be hosted by Bank Negara and the event will held at Sasana Kijang. The theme of the Forum is “Internationalisation of Islamic Finance: Bridging Economies”.
GIFF 2012 is a high-level multi-track event that brings together regulators, scholars and financial industry players who are key drivers in the global development of Islamic finance.
This event is organised in collaboration with the Securities Commission, Malaysia, Bursa Malaysia, the Association of Islamic Banking Institutions Malaysia (AIBIM), Malaysian Takaful Association (MTA) and the International Shari'ah Research Academy for Islamic Finance (ISRA). The main coordinator for the event is the Islamic Banking and Finance Institute Malaysia (IBFIM).