LONDON: Zarinah Anwar, chairman of the Securities Commission of Malaysia, the securities and capital market regulator, has called on Middle Eastern and Asian countries to spearhead the further expansion of Islamic finance, which in the process would also deepen business and investment linkages between the two regions where the phenomenon is already being practiced on a significant scale. (source)
Anwar, who was addressing a recent conference on Islamic banking in Singapore, explained: “It would seem logical to enhance the cross-border connectivity of Islamic finance by involving two regions that are already adopting it on a significant scale. This appears consistent with recent World Bank work, which found that the corridor approach of agglomeration of economic activities is effective in enhancing growth. By focusing on clusters of economic activities, scale is achieved to build competitiveness and deepen business ties.”
There is already a degree of connectivity between the Islamic finance sectors in the two regions.
But for manifold reasons the level of this connectivity is not commensurate with the true potential of opportunities in the Islamic finance space in both regions.
Cross-border investments by Islamic investors have flowed from the GCC to Malaysia including Kuwait Finance House (KFH) and Mudabala’s investment in the Iskandar Regional Development Project in Johor.
Similarly, several GCC Islamic banks — including Alrajhi Bank, KFH, Qatar Islamic Bank — have commercial Islamic banking licenses and operations in Malaysia.
Several other banks including Alrajhi Bank, Unicorn Investment Bank and only last week Elaf Bank of Bahrain, have also gained International Islamic Banking licenses, which allow them to do investment banking business in foreign currencies only out of Malaysia.
There is also some cooperation in the field of Shariah advisory and human capital development.
However, there have been several impediments, which have prevented GCC-Malaysian/Asian connectivity in Islamic finance as in other areas as well.
Although intra-GCC-Malaysian trade has improved over recent years, the two regions are not traditional trading partners.
As a result, trade and investment information flow is still under-developed between the regions. Businessmen and investors in both directions are not as familiar with each other’s country and market risk dynamics.
In Islamic finance in particular, the erroneous perception in the GCC that the Malaysian Shafie School of Islamic Law is more moderate and therefore more flexible in its interpretations, has created an aura of chauvinism toward the Shariah compliance process in Malaysia, albeit greater convergence is painfully making some progress.
According to SC chairman Anwar, Islamic finance institutions and markets in Asia and the GCC provide opportunities for building scale to expand the growth of the industry.
This is facilitated by the growing expansion in trade and investments within this cluster, which has risen by 12 percent per year since 2006.
There is also increasing Asian foreign direct investments into the oil and petrochemical sectors of GCC economies.
Japanese companies have been investing in the region since the early 1960s.
On the other hand, Kuwaiti and Saudi oil companies are investing in refineries in China.
Other GCC investments are also seen across Asia, for example in the telecommunications sector, driven in part by an extended period of low interest rates and low yields in the US and European markets, as well as the adoption of new policies to manage oil surpluses and to seek higher returns on investments.
Not surprisingly, maintained Anwar, there are therefore enormous opportunities to finance the expanding trade between both regions, the value of which is growing steadily, through Islamic trade instruments.
“At the same time, capital investments among countries in the two regions can be enhanced by the availability of Shariah-compliant structures (such as sukuk) to deepen and broaden the capital markets in this cluster which can then serve as a model for similar clusters to develop within other regions as well as across regions,” she added.
Anwar identified several challenges to expanding Islamic financial services to strengthen cross border business and investment ties between the Middle East and Asia.
These include further broadening the role of Islamic finance globally and to facilitate the wider use of Islamic financial instruments for global trade and investments; deepening the legal, regulatory and risk management framework especially in new markets and across financial centers to ensure effective resolution of disputes and to facilitate restructuring of problem financing instruments; providing clarity and consistency with regards to the interpretation of the Shariah which will go a long way toward assuring the confidence of issuers and investors and preserving Shariah considerations based on the virtues of ethics, shared values and governance; and equal treatment including tax neutrality that apply equally to both Islamic and conventional products, thus ensuring that an investor in an Islamic product receives the same legal and regulatory protection and recourse that would be available to the investor of a conventional product.
In addition, there needs to be more intensive international coordination of regulatory approaches and supervisory oversights, and the exchange of information to ensure satisfactory oversight of the market and the settlement of disputes.
Similarly, regulatory mutual recognition that will enable accessibility and offering of investment products across jurisdictions is also important.
She, however, warned that much remains to be done by lawmakers, regulators and market participants to expand the cross-border growth of Islamic finance.
The global financial crisis, she concluded, demonstrated the need for markets to be founded on sound business principles. In this regard “the principles of Shariah with its inherent prudent and socially-conscious orientation, are consistent with on-going global regulatory and supervisory reforms, and will facilitate the mainstreaming and integration of Islamic finance into the global financial system.”
Source : http://arabnews.com/economy/islamicfinance/article457780.ece
- June 20, 2011
There is already a degree of connectivity between the Islamic finance sectors in the two regions.
But for manifold reasons the level of this connectivity is not commensurate with the true potential of opportunities in the Islamic finance space in both regions.
Cross-border investments by Islamic investors have flowed from the GCC to Malaysia including Kuwait Finance House (KFH) and Mudabala’s investment in the Iskandar Regional Development Project in Johor.
Similarly, several GCC Islamic banks — including Alrajhi Bank, KFH, Qatar Islamic Bank — have commercial Islamic banking licenses and operations in Malaysia.
Several other banks including Alrajhi Bank, Unicorn Investment Bank and only last week Elaf Bank of Bahrain, have also gained International Islamic Banking licenses, which allow them to do investment banking business in foreign currencies only out of Malaysia.
There is also some cooperation in the field of Shariah advisory and human capital development.
However, there have been several impediments, which have prevented GCC-Malaysian/Asian connectivity in Islamic finance as in other areas as well.
Although intra-GCC-Malaysian trade has improved over recent years, the two regions are not traditional trading partners.
As a result, trade and investment information flow is still under-developed between the regions. Businessmen and investors in both directions are not as familiar with each other’s country and market risk dynamics.
In Islamic finance in particular, the erroneous perception in the GCC that the Malaysian Shafie School of Islamic Law is more moderate and therefore more flexible in its interpretations, has created an aura of chauvinism toward the Shariah compliance process in Malaysia, albeit greater convergence is painfully making some progress.
According to SC chairman Anwar, Islamic finance institutions and markets in Asia and the GCC provide opportunities for building scale to expand the growth of the industry.
This is facilitated by the growing expansion in trade and investments within this cluster, which has risen by 12 percent per year since 2006.
There is also increasing Asian foreign direct investments into the oil and petrochemical sectors of GCC economies.
Japanese companies have been investing in the region since the early 1960s.
On the other hand, Kuwaiti and Saudi oil companies are investing in refineries in China.
Other GCC investments are also seen across Asia, for example in the telecommunications sector, driven in part by an extended period of low interest rates and low yields in the US and European markets, as well as the adoption of new policies to manage oil surpluses and to seek higher returns on investments.
Not surprisingly, maintained Anwar, there are therefore enormous opportunities to finance the expanding trade between both regions, the value of which is growing steadily, through Islamic trade instruments.
“At the same time, capital investments among countries in the two regions can be enhanced by the availability of Shariah-compliant structures (such as sukuk) to deepen and broaden the capital markets in this cluster which can then serve as a model for similar clusters to develop within other regions as well as across regions,” she added.
Anwar identified several challenges to expanding Islamic financial services to strengthen cross border business and investment ties between the Middle East and Asia.
These include further broadening the role of Islamic finance globally and to facilitate the wider use of Islamic financial instruments for global trade and investments; deepening the legal, regulatory and risk management framework especially in new markets and across financial centers to ensure effective resolution of disputes and to facilitate restructuring of problem financing instruments; providing clarity and consistency with regards to the interpretation of the Shariah which will go a long way toward assuring the confidence of issuers and investors and preserving Shariah considerations based on the virtues of ethics, shared values and governance; and equal treatment including tax neutrality that apply equally to both Islamic and conventional products, thus ensuring that an investor in an Islamic product receives the same legal and regulatory protection and recourse that would be available to the investor of a conventional product.
In addition, there needs to be more intensive international coordination of regulatory approaches and supervisory oversights, and the exchange of information to ensure satisfactory oversight of the market and the settlement of disputes.
Similarly, regulatory mutual recognition that will enable accessibility and offering of investment products across jurisdictions is also important.
She, however, warned that much remains to be done by lawmakers, regulators and market participants to expand the cross-border growth of Islamic finance.
The global financial crisis, she concluded, demonstrated the need for markets to be founded on sound business principles. In this regard “the principles of Shariah with its inherent prudent and socially-conscious orientation, are consistent with on-going global regulatory and supervisory reforms, and will facilitate the mainstreaming and integration of Islamic finance into the global financial system.”
Source : http://arabnews.com/economy/islamicfinance/article457780.ece
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