But in order for these countries to develop further and internationalise Islamic finance, there needs to be an understanding to adopt the existing standards developed by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Islamic Financial Services Board (IFSB), and International Islamic Financial Market (IIFM).
“I think we have reached the situation where we feel the Islamic finance industry is reaching the level of maturity that needs to develop even further. But without proper standardisation globally, and adequate volume of cross-border business, Islamic finance cannot take the next step, which is globalisation,” he told The Edge Financial Daily during an interview at the World Islamic Banking Conference 2018.
Unfortunately, adoption rate of standards among Islamic banks around the world has been regrettably low, said Hamad. Consequently, Islamic banks find it difficult to facilitate cross-border transactions such as trade finance and cross-listing activities.
Hence, Hamad is calling on regulators of Islamic banks in their respective countries to get together and agree on an increased level of standardisation in the industry.
“International standards issued so far needs to be adopted or at least be put back on the table, [for Islamic banks to] discuss them again and agree on them,” he said.
“It is difficult for just one country to take the lead to develop Islamic finance globally. You can do so many things in terms of regulations, but you need the volume of business. One country cannot do this,” Hamad added.
Without proper global-level standardisation, Khalid said “Islamic banks will not be able to compete.
“They will not be able to develop as their businesses will mostly be local and they will not be able to attract good resources.”
During his keynote speech at the World Islamic Banking Conference 2018, CBB governor Rasheed M. Al-Maraj said the Islamic finance industry has achieved reasonable success in establishing its presence around the world, though he noticed there has been a reduced pace of growth of late.
To address this, he said industry players cannot hope for a new growth paradigm while maintaining the status quo.
“If developments in the conventional finance industry are any indicator, it is reasonable to expect that regional and global cooperation can open new doors for the Islamic finance sector,” he said, pointing towards increased standardisation within the industry.
“Shariah standards, accounting standards, prudential standards and best market practices — all [these] need to be developed for the Islamic finance industry with the global audience in mind.”
“What we need now is to convince regulators and market players to adopt AAOIFI, IFSB and IIFM standards in their respective markets,” he added.
Meanwhile, Hamad is of the opinion that in order for the industry to thrive globally, Islamic finance practitioners should position their products as socially responsible and sustainable financing — according to the objectives of shariah or ‘maqasid shariah’, which are very much in line with the goals of being sustainable.
“Islamic finance is closer to sustainable or socially responsible finance, than conventional finance. Unfortunately, the Islamic finance industry did not focus on this. What we have seen over the past years, is that they were competing with conventional finance and they forgot the main objective of Islamic finance, or maqasid shariah,” he said.
While the aim of doing business is to generate profit, aligning Islamic finance with the objectives of shariah will ensure the gain is not at the expense of society, Hamad highlighted. He also stressed that it is within Islamic philosophy to be sustainable, such as sustaining the environment, looking after the poor, and using resources ethically.
And Hamad doesn’t think it’s an issue of branding. “It is an issue of recognising the nature and the objective, which is going back to maqasid shariah,” he added.
But to Bahrain Islamic Bank’s head of corporate and institutional banking, Wesam Baqer, shariah-compliant products — for instance shariah-compliant stocks and leverage sukuk — are not being marketed well when it comes to wealth management.
“There is a huge market for this (wealth management) and we believe [Bahrain Islamic Bank’s] 2019-2022 strategy is to focus on wealth management and transaction banking. Part of transaction banking will be offering different kinds of products for companies which could be a sale of sukuk and leveraging their investment portfolios,” he said when met at the sidelines of the conference.
This article first appeared in The Edge Financial Daily, on December 17, 2018.
The views expressed in this article are the author’s own and do not necessarily reflect Saray Consultancy’s editorial stance.