Islamic Banking will globalise with effort

If Islamic banking is to develop into a global alternative to conventional banking, the global financial industry must take responsibility for driving the sector forward and not rely on the regulators to lead the way, a top official said.

Hussain AlQemzi, CEO of Noor Islamic Bank and a leading Middle East authority on Islamic finance, speaking at the International Islamic Finance Summit in Kuala Lumpur, said the pace of development of the Islamic finance sector was too slow and that unless industry practitioners are more willing to challenge the regulators, whether Central Banks, legal structures or Shari’a scholars, the internationalisation of Islamic finance will continue to underperform and not reach its full potential.

“I am not saying that it is the regulators that have held us back. The brake on our development has been applied by ourselves,” said AlQemzi, a seasoned banker with over 26 years of extensive experience working with leading financial institutions in the UAE.

“But unless we, the practitioners, the industry itself, are more willing to challenge the regulators, we will not create the new, innovative products, based on the core principles and values of Islam that will entice customers away from conventional banks.

“It is our joint responsibility to sit together to develop these products and structures. It is our duty to leverage our collective expertise in order to push regional boundaries of understanding closer towards each other.

It is only when we commit to crossing these boundaries will the regulators be able to do what should essentially be their primary role, to protect customers, to reduce risk and to minimise disruption. All other aspects of the industry are our responsibility.”

AlQemzi told his audience of leading Islamic finance professionals, institutional investors and other senior executives from the financial world that in order for the Islamic finance industry to remain competitive, it must continually innovate and adapt.

“If we are to challenge the conventional banks’ entrenched position in international financial deals, we must develop the capacity to structure multi-currency and cross border transactions and to build scale.

To do that we need to build deeper relationships between the key markets and between individual banks, so that we are better placed to compete on a global scale.”

“The time has come for us to stop focusing on our differences as reasons for not doing business. It is time to talk about how Islamic finance can contribute to long-term inclusive, equitable and sustainable economic growth not just in Muslim countries, but in every country across the globe.

Instead of competing with each other, we (the industry) need to work together to build an Islamic finance industry which all of us can be proud to be a part of,” he added.

In order to iron out of the differences in interpretation of Shari’a compliance, between scholars in South East Asia and the Middle East, AlQemzi proposed the establishment of a joint Sharia Board, comprised of Shari’a scholars from both Malaysia and UAE.

 

The board would be mandated with finding common ground between the two schools of thought with the aim of developing new products and services, which would be acceptable to the widest possible customer base.

AlQemzi cited an innovative sukuk launched by Cagamas, Malaysia’s national mortgage company, as a prime example of how offerings can be created that are acceptable to investors in both South East Asia and the Middle East. One third of the inaugural $320 million sukuk was taken up by Middle East investors.

“If Cagamas can do it, it should not be beyond the capabilities of governments and other companies, in both our regions, to create sukuk offerings that are acceptable to the widest possible market,” AlQemzi told conference delegates.

Highlighting forecast high levels of infrastructure spending in both the ASEAN region and Middle East, he said offer Islamic finance an opportunity to establish itself in the global financial market.

“The combination of the asset-backed nature of Islamic finance and the concept of shared business risk make Islamic finance an attractive alternative source of funds.

In addition, sukuk investors typically have an appetite for longer tenors than bank loans and prefer stable predictable cash flow – traits that are typically associated with infrastructure projects,” AlQemzi said.

He added that the Euro zone crisis and the exposure of European banks to sovereign debt would almost certainly depress the European banks’ appetite for financing infrastructure projects, in both Asia and the Middle East. – TradeArabia News Service

http://www.tradearabia.com/news/BANK_208050.html

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