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A call for sukuk regulation

/ 8 November 2010

The total assets of the Islamic finance sector in the six-nation Gulf Cooperation Council, which exceed $600 billion, have prompted the calls for regulating the Islamic finance industry and for imparting more training and skills to professionals working in this area, according to the findings of a major survey conducted by Deloitte’s Islamic Finance Knowledge Centre, or IFKC.

The survey, entitled “The Deloitte Islamic Finance Leaders’ Survey in the Middle East: Benchmarking Practices,” provides wealth of statistical findings as well as analysis of the themes.

Addressing a Press conference in Riyadh recently, Hatim El Tahir, IFKC director, said, 66 per cent of the Middle East’s Islamic finance leaders believe that the Islamic finance industry is under-regulated.” He added that one of the core aims of Deloitte’s IFKC is to promote thought leadership and research for the Islamic finance industry.

A panel of Deloitte experts including Daud Vicary Abdullah, a Malaysia-based Islamic finance leader; Youssef G. El Haddad, senior executive partner in Riyadh-based Deloitte and Touche; and Sami M. Al Shorafa, another partner, also addressed the Press meet.

El Tahir said that a majority of Islamic finance leaders are more optimistic than last year about Islamic finance prospects. He added that the Deloitte survey revealed insight from Islamic finance leaders on a wide range of pressing issues and prevailing trends within key areas of regulatory and Shariah compliance — risk management, corporate structuring and capital management strategy, investment and capital markets, as well as human capital management.

“This survey provides a truly regional picture of market sentiment and how Islamic Finance leaders perceive the current economic slowdown, business performance, and the way forward. Although Islamic finance is expected to continue its growth path, the development of the industry’s infrastructure and regulatory framework is of great concern to most executives who took part in this survey,” he added.

Abdullah said that Islamic finance had recorded a growth of 15 per cent annually. “This growth is precisely because of the demand for more Islamic banking and financial products as well as services,” he said and added that Islamic banking was gaining ground in the West and Far East also. Of course, “it is more in demand from Muslims, who will predictably represent half of the world’s population by 2050,” he said.

He said that the survey had products with four key themes including the importance of introducing new or revised regulatory measures, chief among them being Islamic accounting standards and risk management. The importance of adopting best practices and transparency in financial reporting is another theme, while the necessity of adjusting investment strategies through diversification is another point. The fourth key theme is the need for investment in human capital and talent development to cope with the growth and industry challenges.

He said that 80 per cent of Islamic finance leaders surveyed in the Middle East expect levels of corporate structuring and organisational change to increase. Only 35 per cent of Islamic finance executives believe that Islamic banks are properly/adequately capitalised.

El Haddad said, “In the survey, 79 per cent of the respondents support a convergence initiative of the AAIOFI [Accounting and Auditing Organisation for Islamic Financial Institutions] standards with IFRS [International Financial Reporting Standards].”

Al Shorafa said a total of 64 per cent of survey participants agree that Islamic finance institutions are lagging behind on the implementation of risk management systems.

In addition to the findings, the results of two face-to-face interviews conducted with the respective heads of the AAOIFI and the International Islamic Financial Market (IIFM) are published within the report in order to give an update on current concerns on the regulatory and practice front.

GUINEA: The Second International Islamic Business and Finance Summit (Kazan Summit 2010) aimed at promoting Shariah-compliant economic and financial relations between Russian businessmen and the Muslim world, was held in Kazan, capital of the autonomous republic of Tatarstan, in western Russia recently. A two-day investment exhibition was also held on the sidelines of the conference. Organisers of the trade fair — Islamic Business and Finance Development Foundation Linova-Media and Non-Commercial Partnership of Muslim Entrepreneurs “Tarkhan” — said it was a good platform for businessmen from all over the world to share ideas, learn the peculiarities of foreign halal markets, and participate in creating a new market segment in Russia that is estimated to be worth millions of dollars.

Views expressed by the author are his own and do not reflect the newspaper’s policy.

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