The Governor of State Bank of Pakistan (SBP) Dr Shamshad Akhtar has said the competitiveness of Islamic finance in future would depend on how governments and regulators perceive and nurture future development of Islamic finance and develop institutional, regulatory and supervisory frameworks as well as their effective enforcement.
Speaking on “Islamic Finance – Growth, Competitiveness and Sustainability” at the 14th World Islamic Banking Conference in Bahrain the other day, she observed that in the next stage of Islamic finance development there would be a need for more substantive work on Islamic finance in the areas of standardization of contracts and documentation which would reduce transaction costs and risks of litigation; development of dispute resolution mechanism for Shariah compliance matters; and development of more interface between regulators.
However, she said, there is a need for better coordination between bank and non-bank regulators and also for later to launch more initiatives to nurture non-bank Islamic sector. While pointing out the key drivers for enhancing efficiency and competitiveness of Islamic Finance, Dr Akhtar said that financial engineering and innovation is one of the most effective tools of Islamic finance and would be the key driver for attracting global economic and financial players’ interest critical for competitiveness and sustainability of Islamic finance.
Increasingly, scholars, academics and practitioners have worked with global banks to offer wide range of wholesale, retail and trade financing banking solutions, she added. The SBP Governor observed that there is scope for deepening financial engineering and innovation and exploiting its edge to promote equity based financing or structure hybrid debt: equity instruments.
This will allow Islamic banks to offer richer and multiple options to customer, while allowing banks opportunities for proper fund mobilization and asset diversification, she said. Dr. Akhtar said that second driving factor would be global financial centers and their regulators’ support for Islamic finance industry. The third critical driver of Islamic finance is the efforts being launched by central banks to reach understanding on banking regulation and supervision. She added
Dr Akhtar observed that the fourth critical driver of Islamic finance would be the development and adoption of simple and standard legal frameworks. staff report