www.ifsb.org - Date : 16 May 2012 - Event / Venue: 9th IFSB Summit - Global Financial Reforms: The Changing Regulatory Model and Islamic Finance | Istanbul, Turkey - Speaker : Jaseem Ahmed, Secretary General, IFSB
I am pleased to welcome you to the 9th Summit of the Islamic Financial Services Board. Our theme for this Summit is Global Financial Reforms: The Changing Regulatory Model and Islamic Finance.
We are delighted to be holding this
Summit in the beautiful city of Istanbul. I would like to thank everyone
in this city who has made us feel so welcome. I would like especially,
of course, to thank H.E. Governor Erdem Basçi of the Central Bank of the
Republic of Turkey for his strong support to the IFSB and for hosting
our Summit in such a vibrant financial, cultural and intellectual
centre.
We hope that the full vibrancy of the
global Islamic financial services industry will be on view here in
Istanbul during the Summit. (source)
It must be said, however, that we gather in Istanbul during challenging times and, indeed, sombre times.
Ladies and gentlemen, five years into the global crisis the world economy is at a critical stage. Downside
risks are elevated, and the IMF has warned that adverse feed-back loops
in the Euro economies could threaten financial stability in both the US
and emerging Europe, and spill over to emerging markets.
The international economic outlook is
thus uncertain at best, with a significant likelihood that the current
turbulence will persist for some time.
On the bright side, in contrast to efforts to re-establish a stable growth path in the crisis countries, global
regulatory reforms have made significant progress. In particular, the
Basel III capital and liquidity framework is substantially in place –
with the focus now shifting to the all-important task of implementation
of the accords. The Basel Committee is to be congratulated for its
achievements in developing the new accords. There are important
implications for Islamic finance, and for the IFSB in these accords,
which will be addressed at this Summit in Sessions 1 and 2. The
bottom line is that the regulatory model is changing. Islamic finance
must be prepared for these changes and take steps to strengthen its own
stability and resilience to shocks.
Excellencies, ladies and gentlemen;
At the IFSB, we share in the general assessment that Islamic finance has been resilient to the global crisis, but Islamic finance has not escaped the crisis and it is certainly not immune to it.
At the IFSB, we share in the general assessment that Islamic finance has been resilient to the global crisis, but Islamic finance has not escaped the crisis and it is certainly not immune to it.
Thus while Islamic finance continues to
grow at impressive rates and to become better integrated with the
international economy, profitability is coming under pressure as markets tighten globally and volatility increases.
There is concern regarding the spill-over effects of slow growth, or
worse, in North America and Europe. Under-developed enabling
environments, and weaknesses in the risk and liquidity management
infrastructures within Islamic financial institutions, and also at the
macroeconomic level, continue to be a cause for concern and a focus of
policy action. Constraints to human resource capacity, broadly defined,
remains an issue requiring sustained attention. The private sector
continues to call for greater consistency in Sharī`ah decisions.
But there are also grounds for optimism, not least because Islamic finance is spreading into new territories. Cross-border financing and investment is increasing. In particular, critical market segments such as the Sukūk
market have performed strongly, with the public sector taking the lead
in Southeast Asia and in the Middle East through issuances for project
and infrastructure financing. Takāful also remains a vibrant
sector, one to which the IFSB is giving increasing attention. More
broadly, in many emerging market economies, credit and economic
expansion has gone hand in hand with financial deepening, including of
the Islamic financial sector.
While weaknesses in human resources have
been a common point of concern, today we can point to new institutions
that have been established, by both the public and private sectors, with
the goal of strengthening human capacity and improving knowledge
through research and learning programmes.
Additionally, across an increasing
number of jurisdictions, we are seeing the emergence of national road
maps and strategies for the development of Islamic financial sectors,
and for their prudential regulation and supervision. This critically
important development is receiving important support from the Islamic
Development Bank, a key partner of the IFSB, and indeed, a founding
member of the IFSB, which has put in place country strategies to assist
in the development of enabling policy environments, thus helping to
provide a framework where national strategies can receive benefits from
focused technical assistance support. I am hopeful that the World Bank
and the Asian Development Bank will also support this effort through
their technical assistance operations.
Excellencies, ladies and gentlemen,
The Islamic financial services industry faces numerous challenges at various levels – global, regional and national. In recognising these challenges, and in prioritising those within the IFSB’s mandate, the IFSB Council approved in its recent meeting in Bahrain in March of this year a new medium term strategy for the IFSB covering the period of 2012 to 2015.
The Islamic financial services industry faces numerous challenges at various levels – global, regional and national. In recognising these challenges, and in prioritising those within the IFSB’s mandate, the IFSB Council approved in its recent meeting in Bahrain in March of this year a new medium term strategy for the IFSB covering the period of 2012 to 2015.
The strategy – which we call the IFSB’s
Strategic Performance Plan, or SPP in short–is based on consultations
with the global industry’s leaders, and on two landmark surveys carried
out by the IFSB of its member organisations. In addition to clarifying
the progress in implementation of the IFSB Standards for prudential
supervision, the surveys also highlighted the specific constraints faced
in our member jurisdictions in the aspect of implementation. Finally,
the surveys also point the way towards the measures needed to assist
national authorities in implementation through comparative studies and
research, and through the provision of technical assistance and capacity
building.
What we have as a consequence is a
results-based strategy that charts a roadmap for the IFSB – a roadmap to
engage with its stakeholders in support of the further development of
Islamic finance. Over the duration of the SPP, our principal focus will
be on the following:
First, to strengthen the stability
and resilience of Islamic finance through the development of a range of
new standards and guiding principles aligned with the changes in the global regulatory environment.
Our objective is to ensure that the
Islamic financial services industry is provided with a level playing
field, comparable to conventional finance, and that it is equipped to
address the critical issues of liquidity risk management and capital
adequacy, drawing on the lessons of the global crisis and on a basis
that is derived from, and consistent with, the principles of the Sharī`ah.
Two Guiding Principles were approved by
the Council in this regard in March this year, and these were for
Liquidity Management and for Stress Testing.
These two Guiding Principles have
benefitted from the tremendous response during the public consultation
phase in which we received more than 300 written comments from across
the globe, including from key partners and members such as the IMF, the World Bank and the ADB.
Two additional, and related standards
and guiding principles, are also currently under preparation. These are
the revised capital adequacy standard, and the revised guiding
principles for the supervisory review process. It is my hope that these
two ‘work in progress’ documents will also receive the same high levels
of interest and informed feedback from the global community during their
public consultation phases, as that of the two GPs that have just been
approved.
Second, to strengthen the basis for market development and to spur the development of new Sharī`ah-compliant instruments,
the IFSB will enhance its efforts to broaden the range of
cross-sectoral prudential and supervision standards and guiding
principles to include Takāful and capital markets. A standard for risk management for Takāful undertakings is under preparation. We have additional Standards and Guidance Notes in mind for the Takāful sector by 2015, which aim to assist in better defining the prudential regulation and supervision of this sector.
In relation to capital markets, we
propose to work closely with our members, including supervisory agencies
for capital markets, and to strengthen our dialogue with IOSCO,
with a view towards laying the foundations of a set of commonly agreed
guiding principles that will strengthen investor protection and
facilitate greater cross-border financing, a critical factor in creating
depth and liquidity in Islamic capital markets.
Third, to support the formulation,
adoption and implementation of its Standards, the IFSB will be launching
targeted research, comparative studies, and customised training,
learning and awareness programmes to improve knowledge and strengthen
capacity. It will also be seeking to enhance its ability to serve as
a platform and focal point, for its members, for the sharing of
knowledge on critical issues, including in implementation of Standards
and for the strengthening of prudential regulation and supervision.
Finally, reflecting the broader
challenges faced by the global Islamic financial services industry, the
SPP has launched a new, global initiative, that is the revision of
the“10-year Framework and Strategies for the Development of the Islamic
Financial Services Industry”. This document, which was a joint
effort by the IFSB, Islamic Development Bank and Islamic Research and
Training Institute (IRTI-IDB), was initially published in 2006 prior to
the global financial crisis. The revision, which is once again to be
conducted jointly by the IFSB, IDB and IRTI, is designed to evaluate
progress made since 2006, and chart an updated and revised road map in
the context of the altered prospects, and the new opportunities,
afforded by developments at the global and national economy levels. This
effort aims to foster an orderly development of an efficient, sound,
resilient and sustainable Islamic financial services industry in the
rapidly changing global market, technological and regulatory
environments.
Delivering the new SPP will involve focusing and streamlining the IFSB’s operations, a process that is already underway. It
will also mean enhancing the IFSB’s capabilities through strategic
partnerships with a view to expand the current capabilities in research,
training, and the provision of technical assistance, all of which have
been identified by our stakeholders as critical to the industry’s
development. I am pleased therefore to announce the signing of MOU’s with three institutions for collaboration with the IFSB. These
institutions, drawn from the Gulf, Turkey and Asia are, respectively,
the Bahrain Institute for Banking and Finance (BIBF), the Statistical,
Economic and Social Research and Training Centre for Islamic Countries
(SESRIC), and the International Centre for Education in Islamic Finance
(INCEIF). The first MOU with BIBF was signed at the IFSB’s Annual
Meeting held in Bahrain in March of this year. I am pleased to inform
you that the MOUs with SESRIC and INCEIF were signed here in Istanbul
yesterday.
Conclusion
Finally, Excellencies, Ladies and
Gentlemen, I would like to turn to the wider role of Islamic finance in
the world today. Following the first major reports after the global
crisis, many policy makers have stressed the importance of diversity in
the financial system, to be achieved by greater diversity in the types
of financial intermediaries, with a view to reducing overall risk
concentrations and vulnerabilities that arise from having similar
institutions, portfolios and risk management strategies. These are views
that the IFSB supports and, indeed, we believe that the further
expansion of the Islamic financial services industry will add to the
diversity and hence stability of the global financial system.
But another important contribution that
Islamic finance is making to the global economy at this time is through
its basic tenets –tenets which promote a rethinking of the ethical
basis, and the basis for the legitimacy, of the financial system and the
institutions of which it is composed.
Across the world today a wide range of
voices have been raised advocating for a greater contribution from the
financial sector towards the achievement of what has been called “the
good society” or a just society – a society that is based on social and
ethical values that are broad based and which, like the goals and values
that are embedded in Islamic finance, aspire towards a state of the
world in which prosperity is shared.
From this perspective, the principal
risk faced today is perhaps not just that of global economic instability
and volatility, as worrisome as these are. It is rather that the idea
of “shared prosperity” and the ideals of social justice will be
marginalised if not extinguished. We cannot let this happen.
Financial stability is a pre-condition
to “the good society", whether that society is based on a conventional,
Islamic, or mixed financial system.The pursuit of financial stability,
however, does not solely depend on regulatory development or prudential
standards. It depends also on collaboration and cooperation mechanisms
that help all stakeholders towards achieving the common goals of a sound
and sustainable financial services industry.
This is what we aspire, and endeavour,
to accomplish at the IFSB. In this effort, we rely upon you, our
stakeholders, individually and in the aggregate, to work with us and to
assist us in this our common objective. To quote the saying of the
Prophet (peace be upon Him), “Each one of you is a guardian, and each
guardian is accountable to everything under his care”.
Thank you.
Source: http://www.ifsb.org/preess_full.php?id=193&submit=more - May 16, 2012
