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Lack of experts, no regulatory authority hinder growth of Islamic Finance

Wednesday March 23, 2011 05:00:29 PM, & Agencies

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Jeddah: Acknowledging that the Islamic Finance can play a very important role for the recession-ridden world, economists and bankers gathered at Jeddah Economic Forum said, it is due to the shortage of experts on the subject and absence of a regulatory authority to ensure full Shariah-compliance system that the Islamic Banking & Finance Sector is not growing as fast as it should.


"Islamic Finance is growing but it needs a regulatory authority to ensure full Shariah-compliance", the panelists observed during a session on Islamic Finance and Banking on the final day of the 11th Jeddah Economic Forum March 22.

"The global economic slowdown, witnessed in the past couple of years, was an eye-opener to most of the advanced countries as they felt that they might not have been in such a mess if they had adopted Islamic finance", they added.


Taking the discussion further, Jeddah Chamber of Commerce and Industry Chairman Saleh Kamel felt that Islamic economy had not been treated fairly. “Islamic economy cannot find the place that is due to it unless it is introduced as a subject in schools and universities,” he said.

He said that Islamic banks had been in operation for 38 years but a shortage of experts had delayed their worldwide expansion.

“We require scholars and experts so that all the rules and regulations related to Islamic finance and banking are unified and individual banks or institutions do not have their own interpretations,” he said.

He was, however, hopeful that the value of Islamic financial assets would reach $4 trillion from the current $1 trillion by 2020.


“The Islamic Economy lays the rules and regulations to guard against malpractices like usury and conduct Shariah-compliant financial and banking transactions and this is what makes the system practical,” Kamel added.

Al-Rajhi Bank CEO Abdullah S. Al-Rajhi also said the challenges include the lack of institutional framework, expansion of market and difficulty in managing short-term liquidity.

He agreed with Kamel that there is wide disparity in the application of Islamic banking principles.

“Every Islamic bank has its own Shariah board. That’s why there is contradiction in the number of Islamic products, which reduces the confidence of customers. So, we have to unify Shariah parameters, which now number over 40,” he said, emphasizing the need for a unified Shariah board.

Stating that Islamic finance had expanded globally and not just in Islamic countries, National Commercial Bank CEO Abdulkarim Al-Nasr said, "It had expanded from $260 million in 2000 to more than $1 trillion now and is expected to grow up to $4 trillion by 2020. Islamic insurance alone is expected to reach $25 billion by 2015."

“In fact, Islamic banking represents 95 percent of banking activities for individuals in the Kingdom. They represent 30 percent of the entire banking assets here,” he said, adding that the recent global financial crisis had made Islamic banking more relevant.

Echoing similar feelings, Mutlaq Al-Morshed, executive vice president, corporate finance, Saudi Basic Industries Corp (SABIC) pointed out that innovative ideas such as the CDS (credit derivatives) that J.P. Morgan launched recently would strengthen the Islamic finance sector.

He also referred to the need for experts of Islamic finance who understand Shariah and finance.

“There are a lot of Shariah scholars and financial scholars. But they don’t seem to elated to each other. However, it is being pursued and requires time to be fully witnessed", he added.







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(Photo: Mukesh Kumar)



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