The Islamic banking industry is set to grow 20 percent annually in the year 2008 and beyond posing many challenges to the policy makers and regulators that how to create a sustainable Islamic financial industry.
The very nature of cross-border capital flows together with the phenomenal advances in information technology and pressures on financial market liberalization has meant that globalization has inevitably impacted on the financial services sector per se.
IFSB, the transnational organization whose mandate is to set prudential and supervisory standards for the global Islamic finance sector, is organizing its 5th annual summit on May 13-14, 2008 in Amman, Jordan on the theme “Financial Globalization and Islamic Financial Services“.
The impressive year-on-year growth of Islamic finance augurs well for the future viability of the sector. Despite the absence of empirical research on market size, the sector is estimated by some to grow at a robust 20 percent per annum over the next few years.
With financial globalization, whether in the conventional or Islamic financial sectors, comes innovation and financial engineering. The pace of innovation is so rapid.
that very often regulatory authorities find it difficult to keep up with new developments in products and the concomitant legislation, technology and market trends.
With more and more IFSB member countries now acceding to the World Trade Organization (WTO) provisions, including those relating to financial market liberalization, and more cross-border opportunities inevitably emerging, it is important for regulators, market players and other interested parties to familiarize themselves with how financial globalization is impacting on Islamic financial services.
The IFSB summit will discuss pertinent topics which include globalization of Islamic financial services: opportunities and challenges. These include supply and demand trends for Islamic finance; growth in different Industry segments; potential returns to innovation and specialized technology; and issue relating to legal infrastructures, regulation and human resources, cross-border capital flows, including the size and patterns of such flows, and the role of Islamic capital markets in facilitating such flows.
Key issues in regional integration of Islamic financial markets, including Islamic capital markets promotion and the catalytic role of governments.
The other areas include standardization, harmonization, mutual recognition and exchange market cooperation to develop national Islamic capital markets and their regional and global integration. These would include Shariah rulings; contracts and documentation; and exchange market alliances, and the way forward in financial globalization and Islamic financial services. These would include the development of national Islamic financial markets and the priorities for standard-setting organizations.
The Summit has important implications in other aspects as well.
International Monetary Fund studies in the past have shown that Islamic finance, by its very nature, may be in a stronger position to absorb the shocks of the global financial system.
At a time when the conventional banking sector is facing a serious credit crunch following investments in sub-prime US housing mortgage loans, which have since collapsed, there may be even more migration to Islamic financial services in certain countries, and more lessons to be learnt for both financial systems.