ISLAMIC FINANCE NEEDS TO INNOVATE TO SUSTAIN GROWTH

By Zakaria Abdul Wahab

SINGAPORE, May 7 (Bernama) -- The Islamic financial services industry which
emerged resilient during the current global economic crisis needs to be improved
further if it wants to be a greater player in the international financial
market.

Islamic Development Bank (IDB) group president Dr Ahmad Mohamed Ali said the
industry still had a long way to go although it showed that with the Islamic
financial principles in place the industry could be stronger and more stable.

Speaking at the two-day 6th Islamic Financial Services Board (IFSB) Summit
beginning here Thursday, he said during the financial crisis in the last three
years the Islamic finance industry was proven to be able to minimise its
exposure to toxic assets and dangerous instruments.

Ahmad said the industry which had grown much since 30 years ago still needed
to learn a lot from the other banking and financial systems.

He said the Islamic financial industry has to address several future
concerns which could affect its growth and resilience post-crisis.

Ahmad said the industry should diversify and provide a wider range of
financial services as it currently was highly concentrated in commercial
banking, comprising more than 70 percent of Islamic assets.

He said there was a need for major Islamic investment banks that provided a
different model of investment banking, and able to have a positive impact on
economic growth without compromising stability and resilience.

He also said that the industry needed a variety of venture capital
institutions, small and medium financing institutions, specialised financing,
leasing, adding that the more the industry was diversified the more it was able
to sustain its growth.

Ahmad said as international regulatory bodies were now critically revising
financial regulations, the Islamic regulatory and accounting standards also
needed to be revised.

He said since Islamic principles address both macro and micro dimensions of
economic activities, regulatory standards of the Islamic financial industry now
needed to reflect this comprehensive approach and translate these principles
into an integrated stability framework.

The bank president also called on the Islamic financial industry to pay more
attention to knowledge services and products, which in the past were neglected
as the attention then was on capital and assets.

He said this was in line with IDB Group's Vision 1440 Hijrah (2020) to make
the organisation a knowledge-based entity in which it would emphasise the
knowledge dimension in its new services.

According to Ahmad, the Islamic financial industry should take steps to
develop new instruments and products that created and improved efficiency.

There was also a growing need for a more standardised approach to the
development of Syariah-based financial products that could cater to the various
current and emerging needs of a dynamic, competitive and sustainable industry,
he said.

-- BERNAMA