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Islamic finance is among the fastest-growing financial segments in the international financial system, with an estimated annual growth of 15% to 20%, and its total assets expected to exceed US$1 trillion, said Bank Negara governor Tan Sri Dato Sri Dr Zeti Akhtar Aziz.
Speaking at the 2007 INCEIF Global Forum held last month at the JW Marriott Hotel in Kuala Lumpur, she noted that growing demand for Islamic financial products in the global market far exceeded the supply of such products and services in Islamic financial institutions.
As the Islamic finance industry evolves, she added, the challenge is to come up with strategies that will ensure its competitiveness, dynamism and sustainability on the international front, which is becoming more complex, competitive and challenging.
One important aspect is the optimization of benefits and opportunities Islamic finance has the potential to provide — subject, of course, to the fundamental requirement that the activities selected are supported by an underlying economic transaction, thereby avoiding emphasis on speculative purposes.
Significant benefits
Zeti also said that the key components of the Islamic financial system, comprising the financial institutions, the markets and the financial infrastructure, had demonstrated their viability and robustness as a form of financial intermediation.
The system’s growing role in mobilizing and channeling the funds to productive investment activities across borders would bring significant benefits to the global economy. For instance, it had the potential to contribute to global growth, given that this would bring about a more inclusive financial integration.
Industry players should therefore build a stronger, competitive and dynamic Islamic financial system that better reflects the internalization of Shariah principles in financial transactions, in its form, spirit and substance.
While the development of products and services that mirrored conventional counterparts is deemed acceptable, Islamic finance needs to progress on its merits so as to maximize the potential benefits of the system.
Another important area for Islamic finance is the investment in research and development. Partnerships among Islamic financial institutions would lead to greater synergy, bringing about new approaches, technologies and even areas of specialization. In addition, they would strengthen the ability to leverage on the industry’s expertise.
Shortage of talent
The bank governor noted that there is now a critical shortage of talent in the Islamic financial industry and that collaboration between training institutions is vital to develop the pool of expertise in Islamic finance that subscribes to common standards.
“Establishing a network of mutual cooperation and collaboration would strengthen the efforts among the institutions of higher learning across regions in the areas of curriculum development, research, training, exchange of ideas and information, and resources in Islamic finance. Such partnerships in connecting the knowledge communities between regions would facilitate this process.”
As the integration process would require greater cooperation among regulators to ensure that the Islamic financial system is not subject to vulnerabilities and abuses, the sharing of information between those involved including across borders is important particularly when financial transactions and activities have become more complex and globalized.
In this regard, regulators need to be continuously connected to confer on key issues and developments they encountered in their respective financial jurisdictions. As such, the Islamic Financial Services Board would be instrumental in facilitating the process.
In conclusion, Zeti said “In our quest to build a viable and sustainable Islamic financial system, the aim is to contribute to the channeling of capital flows to productive investments, create wealth and promote economic activities that conform to the principles and values of Shariah. With this, the Islamic financial system will ultimately bring benefit not just among Muslims but with the rest of humanity, Insyaallah.”
Established in 1959 Bank Negara Malaysia is the central bank for Malaysia. For further information visit www.bnm.gov.my & www.mifc.com |
