Islamic banks work for acceptance

Rendi A. Witular, The Jakarta Post, Jakarta

An international conference on Islamic banks ended on Thursday with participants agreeing on the need for universal operating standards for an Islamic banking system.

Director of Islamic Research of the Islamic Development Bank Mabid Ali Al-Jarhi said during the conference, industry players and regulators agreed to convene again to establish what will be termed the "international sharia council" tasked with developing standards, products and facilities.

Al-Jarhi explained that today, every country applied different operational standards for its Islamic banks, thus making it difficult for an Islamic bank of a certain country to expand business in other countries.

The three-day conference featured senior officials from the Islamic Development Bank, the International Monetary Fund, the World Bank, the Accounting and Auditing Organization for Islamic Financial Institutions, the International Islamic Financial Market and the International Islamic Rating Agency.

Central bankers of some countries, which have been using the sharia (Islamic law) banking system also participated in the conference.

Al Jarhi said that the agreements reached during the conference would be proposed to the international Basel (Switzerland) banking committee for review.

The conference hopes that the Basel committee can help create standard operational procedures for Islamic banks that are acceptable worldwide, said Al-Jarhi.

The Basel committee is an international task force assigned to outline the standard supervision and capital requirements for banks. The committee's standard procedures, known as the Basel Accord I, are currently used by nearly all banks in the world, since its inception in 1998.

The committee, headquartered in Basel, Switzerland, was formed by the Group of Ten, which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

Currently, the committee is drafting a new accord to replace the older one based on input from financial institutions around the world.

Globally, some 140 Islamic banks and financial institutions in 75 countries manage a total of US$230 billion in funds. They offer a wide range of products and services starting from simple retail products to financing for major infrastructure projects.

The Islamic banking system works in line with the principles of Islamic sharia law. While conventional banks gets interest from borrowers, Islamic banks take a part of the profits made by borrowers for a profit sharing arrangement.