IDB calls for common regulatory framework for Islamic finance

Dr Ali called on Islamic finance scholars, representatives of Islamic financial institutions academics all the stakeholders in the industry from around the world for setting up a single legal and institutional framework in creating appropriate legislation and regulation of Islamic financial institutions around the world.

"IDB's highest priority in working towards a 10-year Master Plan for the Islamic Financial Services industry is to create an international body that oversees the legitimacy of Islamic financial institutions and a set of regulations that will be applicable to all in the industry. We will work closely with the Islamic Financial Services Board (IFSB) and all the players in the industry, " said Dr Ali.

Calling on Islamic Finance service providers to expand the overall scope of the sector Dr Ali said the Islamic financial institutions to offer wider range of products and services. "The fast growing Islamic Banking and Financial Services must expand its portfolio of offerings through new and innovative products and services that will meet the requirements of contemporary businesses."

Calling on the Organisation of Islamic Countries (OIC) to take the initiative in enhancing the knowledge base of Islamic finance the IDB president said, the future development of Islamic finance depends on developing new financial services regulatory framework that are based on the best criteria and practices. These criteria and rules should be unifies and should provide unified religious interpretations of all financial transactions in Islam.

The Islamic Finance, which includes, Islamic banking, Islamic Insurance, Islamic Capital Markets and Islamic Infrastructure Finance, according the IDB chief should have a common regulatory framework and regulatory body. However he added that the Islamic non-banking financial institutions should have a separate set of regulatory guidelines, making their activities more flexible to meet the financing requirements of global business. At present, the regulatory challenges include a host of issues such as authorisation and definition of permitted activities, provision of standards and regulations and defining risk management and capital adequacy for the sector. "To make regulations effective, the regulators should work closely with market forces and ensure that the regulations are internationally consistent and comes from an independent source," he said.

In addition to the regulatory issues, IDB views social inclusion as the most important task for the Islamic financial services industry in the next decade. "Islamic financial service industry has the responsibility to work towards the economically week nations. It should work as an institutional mechanism for development and social justice while bringing about all-round development in the Muslim and non-Muslim countries."

Apart from the standard setters, central banks and other financial regulatory authorities too have major roles in making Islamic banking a truely globally acceptable banking and financial services alternative. Currently, the industry is largely made up of more than 300 small to medium sized institutions offering various services including fund management, investment banking services and consumer banking products and services with a total business of over $250b.