Standardisation of Islamic finance industry: Expert calls for setting up watchdog
Standardisation of the Islamic banking policies, procedures and regulatory framework on a global level is important to propel the growth of the industry.
That is the view of BBK investment banking arm Capinnova Investment Bank chief executive officer Jamal Hijres.
"An important effort towards achieving international consistency was the creation of two multilateral institutions, the Accounting and Auditing Organisation for Islamic Financial Institutions and the Islamic Financial Services Board.
"The growth of such institutions will definitely improve and propel the industry at a faster pace.
"The Islamic banking industry is a fast growing sector that offers an array of opportunities yet to be exploited," he said.
"Although the Middle East still represents the biggest share of the total Islamic banking sector, Western countries are gearing towards this new trend that presents a unique opportunity to diversify.
"With a growing market share and a considerable growth rate recorded over the past decade, it is essential for a unified global Islamic banking authority to be established.
"This authority can be entrusted with standardising Islamic banking operations and facilitating communication between the different entities, leading to the full exploitation of the sector’s potential.
"One of the most important challenges faced by the Islamic banking sector is the unavailability of experts in both banking and Islamic issues.
"An Islamic banker must possess a profound knowledge of Sharia rules and principles, in addition to finance.
"The shortage in experienced and qualified scholars is forcing them to field positions on multiple Sharia boards, which in turn increases the risk of a conflict of interest."
"Even though the financial crisis did not affect the Islamic banking industry in particular, the drop in Gulf real estate and oil prices had repercussions on the industry," he said.
"However, now with oil prices back in the normal range it has definitely brought confidence back to the industry.
"While Islamic finance is one of the big success stories in finance today, it is worth looking at the current credit crunch in conventional finance to see how easily one problem can spiral out of control.
"This is something that Islamic finance practitioners need to take on board and make sure they are prepared to expect the unexpected.
"Rigid corporate governance programmes, transparency on compliance, learning from conventional banking successes and failures and achieving greater market penetration are all goals that will help sustain this area of Islamic finance."