Zeti: Common Rules & Standards Needed For Islamic Finance

Bernama) - A common understanding and acceptance of the rules and standards is required to forge closer linkages among the global Islamic financial markets, Bank Negara Malaysia governor Tan Sri Dr Zeti Akhtar Aziz said Tuesday.

Indeed, cross border transactions require the jurisdictions involved to mutually recognise the validity of respective rules, practices and underlying syariah interpretations, she added.

This is the key for orderly development and for advancing the pace of progress of the international Islamic financial industry, she said in a speech on "Globalisation of Islamic Finance Services - Opportunities & Challenges" at the Fifth Islamic Financial Services Board Summit in Amman, Jordan.

The text of her speech was made available by the central bank here.

While a divergence of opinions in Islamic financial transactions is not a new phenomenon, she felt that it has presented a new set of challenges in todays increasingly more globalised market.

For this, it is important to have a concerted effort in providing greater clarity on the mutually acceptable strategy for the development of global Islamic finance.

According greater mutual respect to global syariah views for Islamic finance will also contribute to the orderly global development of Islamic finance, thus sustaining the overall viability and soundness of the Islamic financial system as it becomes an integral part of the international financial system, she said.

Zeti said that in the current globalised environment, the role of scholars needs to transcend beyond pure advisory or syariah rule-making to a more strategic role in charting industry development, and it could in part be achieved by having global syariah standards for the Islamic financial industry.

A mutually agreeable position could be achieved with the application of mutually recognized principles and processes to deduce the syariah rulings and views, she added.

On Malaysia's role in this respect, Zeti said it has taken a three-prong strategic initiative to promote greater mutual respect syariah views.

One is to recognise the principle of mutual respect in syariah opinions issued in other jurisdictions by recognised syariah committees for transactions undertaken in Malaysia.

Another initiatives is to have a strong resource foundation supported by a pool of qualified and competent syariah talent as well as to accord more emphasis on extensive syariah research in Islamic finance. The third is to provide a platform that promotes active engagement and dialogue among the relevant stakeholders.

Zeti said that in the coming years, it will also be important for adequate focus to be given to the implementation of international prudential standards and sound risk management practices in Islamic financial institutions to ensure the financial stability and integrity of the financial system.

Fundamental to the implementation of the standards is the strengthening of the risk management capabilities of the financial institutions, she added.

In addition, the implementation of these standards needs to be complemented by continuous surveillance to ensure the early identification of new emerging risks and that the institutions undertake to manage the risks.

According to Zeti, the scope of Islamic finance business has expanded beyond retail and trade financing to more sophisticated financial products in response to the changing global customer base.

Such syariah-compliant products include private equity, project finance, the origination and issuance of sukuk, as well as fund, asset and wealth management products, she said, adding that the sukuk market in particular has become an important avenue for international fund raising and investment activities, and has expanded by an annual growth rate of 40 percent.

On challenges, Zeti said the increased competition in the Islamic financial sector has not only intensified the pace of innovation in products and services but also of the operational processes and delivery channels.

These developments have contributed to the increasing complexity of the risk profiles of Islamic financial transactions, she added.