New panel takes Malaysia closer to becoming Islamic banking hub
New panel takes Malaysia closer to becoming Islamic banking hub
Agence France-Presse, Kuala Lumpur
Malaysia takes a step closer to realising its aim of becoming a regional Islamic financial hub next month with the launch of an international panel to set benchmarks for Islamic banking.
Central banks from eight founding members -- Malaysia, Saudi Arabia, Indonesia, Iran, Kuwait, Pakistan, Sudan and the Islamic Development Bank -- will ink a pact November 3 in Kuala Lumpur to inaugurate the Islamic Financial Services Board (IFSB).
The establishment of the IFSB -- an association of central banks, monetary authorities and other institutions responsible for supervising and regulating Islamic banking -- was "in response to the growing significance of the Islamic financial services industry," officials said.
It is the culmination of two years of work by the founding members, with support of the International Monetary Fund and the Accounting and Auditing Organisation for Islamic Financial Instituitions.
Bankers hailed the launch of the IFSB as a major boost to Islamic banking and finance globally, saying it would serve as an avenue to develop uniform intrepretation of Islamic Sharia laws for processes, financing modes and regulatory standards.
"It will give Islamic banking players more credibility and firmer ground to compete against conventional banks either locally or internationally," said SBB Islamic Banking Group manager Nordin Yahaya.
The growing market share for Islamic investments estimated to be worth billions of dollars signified strong demand for Sharia compliant financial products worldwide, he said.
There was "immense potential for business opportunities" with experts estimating the wealth of Islamic nations -- home to one- fifth of world's population -- at around 800 billion to one trillion dollars, he said.
The launch of the IFSB was timely as it would focus on product development, especially globally traded financial instruments accepted by other Sharia boards, he added.
Bank Islam Malaysia managing director Ahmad Tajudin Abdul Rahman said it would improve efficiency in the industry and enhance Malaysia's prospects of becoming a regional centre for Islamic banking and finance.
He said a growing number of non-Muslims were investing in Islamic products, which were deemed more competitive and cost- saving.
The government's plan to issue a new licence to a foreign Islamic bank should serve as a wake-up call for local institutions to beef up their Islamic banking operations to face competition, he warned.
Islamic banking was first introduced in mainly-Muslim Malaysia in 1983, and now has an eight percent share of assets in the banking sector. The government aims to raise the level to 20 percent by 2010.
The system combines Islamic laws against interest payments with modern banking principles.
Malaysia's central bank governor Zeti Akhtar Aziz is chairman of the IFSB steering committee.
According to officials, the IFSB will set and disseminate standards and core principles to supervise and regulate the industry in line with Sharia principles for voluntary adoption by its members.
It will also liaise and cooperate with other standard-setting bodies in the areas of monetary and financial stability, and promote good practices in risk management through research, training and technical assistance.
The November 3 inauguration, at which Malaysian Prime Minister Mahathir Mohamad will deliver a keynote address, will coincide with a special forum entitled "Towards Fostering Financial Stability of the Islamic Financial Industry" to be attended by experts in Islamic finance.
Economists said there has been a boom in Islamic banking in the aftermath of the September 11 terror attacks in the United States as investors pulled funds out of the West.
The Islamic finance market worldwide is estimated to be worth 200 billion dollars and is growing at 15 percent a year, they said.