Time to re-position Islamic banking & finance, says Najib

Deputy Prime Minister Datuk Seri Mohd Najib Razak yesterday outlined general work plans to position and re-position Islamic banking and the finance industry to enable it to fully exploit the potential market of one billion Muslims worldwide.
Currently, although the Islamic finance industry is the fastest growing segment among the international financial services, it is still too small when compared to the size of the potential market, he said.
"A key impediment to the growth of Islamic finance is the lack of awareness among the public on Islamic alternative modes of banking, insurance and investments.
"The industry must continuously engage and educate the general public in order to address the problem," Mohd Najib added. Islamic finance, he added also needs further research and study with discourses carried out at all levels and this should involve regulators, practitioners as well as academicians. "Investment in human capital must be further improved. The lack of knowledge in relation to Islamic finance is strongly related to the shortage of qualified experts. "Thus it has affected the innovation of new products and services in the country," he said in his keynote address at the Kuala Lumpur Islamic Finance Forum 2008. "There is also an urgent need to create greater awareness of Islamic finance among market participants through research, education and training," Mohd Najib highlighted. He said despite the divergence of Shariah rulings, its should not be an impediment, as long as they are backed by sound arguments and recognised legal methodologies.
"Any particular area of divergence that is of serious concern should be revisited and reviewed in order to come up with better and more acceptable solutions," said Mohd Najib, who is also the Finance Minister. He also said that the legal and regulatory framework should be resilient and facilitative. "Dispute resolution mechanisms should also be more accommodative in relation to the application of these Islamic legal rules and methods in order to avoid embarrassment to Islamic banking cases as a result of incoherent and anomalous legal judgements," he stated.
Mohd Najib said other related regulations and supervision procedures should also be equally and adequately addressed so as to bring the Islamic banks and financial institutions on par with the international standards. To meet these challenges, he said new supervisory and regulatory procedures must be developed while modifications must be made to the existing structures and procedures.
"However, since the banking sector is highly regulated, any kind of modification must be made with extreme care as the failure of an Islamic bank could undermine depositor and investor confidence. Thus leading the Islamic financial system into a crisis of the whole financial system, just like what we are witnessing currently in the conventional market," he warned.
On the outlook, he said the Islamic banking industry is estimated to grow at a rate of at least 20% between now and 2012, with more than US$600 billion (RM2.16 trillion) held or managed by Islamic institutions and the figure is expected to grow to US$1 trillion over the next couple of years.
According to Mohd Najib, growth has also been seen in the other major components of the Islamic financial system such as Islamic mutual funds, which are estimated to be about US$300 billion, while the global takaful or Shariah compliant insurance contributions are estimated to be about US$5 billion and are estimated to triple by the end of the decade. — BernamaAny source