|Siniora calls for reformation of Islamic banking
|PM says system is still incapable of active role in local development
Prime Minister Fouad Siniora said on Wednesday that Islamic financial services firms are still incapable of taking an active part in the development of the economies in the countries they are operating in.
Speaking at the opening of the Third Islamic Financial Forum at the Phoenicia Intercontinental Hotel in Beirut, Siniora said that Islamic banks need to alter their financial practices to bring them in line with international standards.
He added that Islamic banks must focus on a strong financial system on the local level.
"Islamic banks must also succeed in the development of first-class and effective Islamic financial markets. In addition, Islamic banks must diversify and introduce new investment instruments that can create more liquidity," Siniora told the conference.
He added that Islamic banks have managed to expand to new markets outside the Islamic world such as Singapore.
In other developments at the forum, Central Bank governor Riad Salameh announced the launching of an Islamic Financial Services protocol.
The new protocol, which was prepared by a group of British experts, is aimed at training bank staff in Islamic banking principles.
The Central Bank granted several licenses to Islamic banks to operate in Lebanon two years ago.
Other speakers at the conference underlined the need to regulate Islamic financial services and improve supervision.
"Recognition and enforcement of these recommended standards by the relevant national regulators would set the stage for making real progress in creating a strong regulatory regime for the Islamic financial services industry," Rifaat Ahmed Abdel Karim, secretary general of the Islamic Financial Services Board (IFSB), said.
Karim said IFSB has revealed a draft of its third standard for corporate governance at the forum and plans to complete new standards dealing with the supervisory review process, transparency and market discipline by the end of the year.
The announcement comes at a crossroads for the $250 billion industry (now spanning 75 countries) after more than a decade of unprecedented growth. On the national and regional levels, the sector is confronting the challenges of adapting the Basel II requirement that govern global markets to the principles of Islamic finance.
"I think in the past Sharia-compliant banking products have had a more emotional, religious value," said Muhammad al-Jasser of the Saudi Arabian Monetary Agency. "This is very important for Muslims, but I think we're past this point now, and now we realize the importance of looking at Islamic banking from a financial engineering perspective."
There was abundant evidence of this paradigm shift at the forum, where most delegates seemed in favor of implementing a uniform, industry-wide set of Islamic banking regulations.
In the current system the criteria dictating Sharia compliance differs according to jurisdiction, so a lot of time is spent debating whether an investment conflicts with Islamic principles. According to Habib Mulla, chief of the Dubai Financial Services Industry, the lack of coordination undermines the sector's ability to compete with conventional banks at the global level.
"We have to standardize products and services for the benefit of all parties," he told The Daily Star on the sidelines of the event. "All districts need to share a consistent understanding of Sharia compliance, not only to save time, but also to maximize the competitiveness of our products."
Mulla urged all players to integrate adequate risk management techniques, corporate governance principles, and enforcement. The dearth of statistical data, and the absence of firewalls between investment and asset management were named as obstacles to progress.
The Daily Star