KUALA LUMPUR, June 9 (Bernama) — There is a need to extend the focus of developmental efforts in Islamic finance beyond the legal form and towards the economic substance of financial transactions, said the Crown Prince of Perak, Raja Dr Nazrin Shah.
“As the Islamic finance industry advances in emerging markets, it’s imperative that its developmental perspective be given greater emphasis, to fully embrace and reflect the link between Islamic finance and societal needs,” he said in his keynote address at the World Islamic Economic Forum (WIEF) 2011 in Astana, Kazakhstan.
It was delivered on Wednesday at the WIEF’s plenary session, themed “Islamic Banking and Finance in Emerging Markets – Seizing Opportunities, Overcoming Challenges”.
Raja Nazrin told his audience that Islamic finance, which had as its core pillars, social justice and equity, could and should do more to meet the needs of the poor and the marginalised.
He outlined some of the opportunities for strengthening Islamic finance and bringing it closer to achieving the ideals of Islam for a more just and equitable society.
First, he said, there was a need for intensified efforts to promote financial inclusiveness in Muslim countries, observing that the 1.6 billion Muslims accounted for at least 20 per cent of the world’s population and yet only about 14 per cent had access to or use financial services.
He pointed out that the Muslim world accounted for about eight per cent of nominal GDP, yet Islamic finance represented just one per cent of the global financial market.
“Addressing these discrepancies requires global coordination to promote savings mobilisation and develop financial intermediation in markets where they are currently lacking,” Raja Nazrin said.
He also said the second part of the process is to channel savings into investments that would create businesses and jobs, noting that there were opportunities to promote greater capital flow from surplus Muslim countries to deficit Muslim countries.
Nazrin also favoured greater research and development into creating arrangements and structures that may bring about socio-economic improvement.
“There are opportunities to incorporate Islamic principles like zakat, sadaqah, qardhul hassan and the like, to channel trade and long-term financing to small and medium-sized enterprises and enhance models of micro-financing,” he said.
In addition, he said that the development of waqf could enable the endowment of property for social objectives.
“These efforts will not be pursued by financial engineers and investment bankers, but by scholars and economists in emerging markets, supported by facilitative government policies,” he added.