Speakers at International Bar Association’s (IBA) ‘Islamic Finance in the Middle East’ conference were nearly unanimous about the need to apply some level of consistency in Islamic Finance laws across the GCC countries in order to establish regionally-accepted regulatory standards.
The IBA conference, which attracted close to 70 banking professionals and legal experts, focused on the latest developments of Islamic finance in the Middle East. The conference which was co-chaired by Al Tamimi & Company Advocates and Legal Consultants, one of the leading law firms in the Arabian Gulf region, and Allen & Overy, a leading London-based international law firm.
In his opening remarks, Mr. Husam Hourani, Partner and Head of the Banking and Finance department at Al Tamimi & Company highlighted the increasing interest in Islamic finance: “Today, the Islamic finance sector is playing a significant role in the financial systems in the Middle East as it offers an attractive alternative to conventional finance and a way to diversify investment portfolios and manage risks. Over the last 10 years, we have seen a growth in Islamic product innovation, and an expansion beyond the Islamic countries to Asia, Europe and the United States. Now, global Islamic finance assets are in the range of AED735 billion (US$200 billion) and is estimated to grow by 33 percent to AED4 trillion (US$1 trillion) by 2010.”
“With these developments, there is an urgent need to deepen our understanding and awareness of Islamic finance and ensure that sound regulatory frameworks are implemented on the ground for efficient financial intermediation. The IBA’s conference provided a valuable opportunity for specialists in the Islamic finance industry to exchange ideas and debate ways of broadening this sector to appeal to and attract more investors around the world,” Hourani added.
Moderated by Mr. Essam Al Tamimi, Founder and Managing Partner of Al Tamimi & Company in addition to Hourani, the one day conference agenda included speeches and panel discussions that covered a number of issues included: Islamic banking techniques and their conformity with Sharia Laws, derivatives and Sharia complications; securisation and Sharia compliance; Islamic financing techniques underpinning sukuk structures and GCC laws versus Sharia Law.
“First we are proud to co-chair this prestigious conference which provided an excellent opportunity to keep abreast of new developments in Islamic finance,” said Al-Tamimi. “One of the main topics that we discussed in this conference was the development in the sukuk market in the UAE. While this market is still small compared to the conventional debt market, we believe that there is enormous potential for growth from both local investors and international markets.”
According to a recent study, “The global sukuk bonds market – sukuk bonds are those that comply with Sharia law and are similar to securitized loans – has maintained its climbing pattern in 2007, with total sukuk issuances aggregating to AED137 billion (US$37.3 billion), a growth of 110.7 percent over the previous year. (It is worth noting that the largest sukuk in history – worth AED13 billion (USD$3.5 billion) – was issued in 2007 by Dubai Ports).
Speakers also brought to light the need to design a regional regulatory framework for Islamic finance. They also recognized the need for standardized interpretations in order to raise the sophistication of the industry and make it more attractive to a wider pool of investors.
“Speakers agreed on the pressing need for a proactive regulatory framework to pave the way for enhanced and innovative offerings by Islamic finance. In this respect, proactive dialogue between regulators and practitioners from GCC countries is of utmost importance in order to formulate a visionary framework for the industry in compliance with Sharia principles,” added Al-Tamimi.
The Islamic financial model is based upon risk-sharing between financial institutions and customers. Under Sharia law, charging interest, whether ‘nominal’ or ‘excessive’ simple or compound, fixed or floating is not permitted.
“We believe that the IBA’s conference succeeded in setting the stage for a lively exchange of many important issues in Islamic Finance, although we think that there is much that remains to be accomplished. We hope that those discussions will contribute to the overall effort to raise awareness and promote action among key policy makers in the near future,” he concluded.