Thursday, April 23, 2009
DIFC seeks to boost Islamic finance education
By Tamara Walid and John Irish
DUBAI (Reuters) - Dubai International Financial Center plans to set up a board to encourage education in Islamic finance, an industry that is likely to grow by 15 to 20 percent this year despite the financial crisis, it said on Monday.
With large conventional banks increasingly venturing into the Islamic arena, more educational and training resources were needed, Nik Norishky Thani, executive director of Islamic finance at Dubai's financial free zone, told the Reuters Islamic Banking and Finance Summit in Dubai.
The DIFC wants to see an international standard established for courses specifically focused on Islamic banking.
"The first step is actually to bring in education providers that we have good strong links with. We will start with having an Islamic finance education board and this will be the main platform for doing a number of interesting things," Thani said.
The Islamic finance industry has grown into a $1 trillion global industry, guided by ethical investing under Islamic law, but recent poor earnings by Gulf Islamic banks due to huge exposure to the ailing property sector have thrown the regulation of the business into the spotlight.
The DIFC is putting together a guide on sukuk, or Islamic bonds, to help potential investors navigate the types of products that are available around the world.
After an emerging focus on real estate investment trusts (REITS) last year, when the region was still in the midst of a real estate boom, the DIFC was also considering issuing a REITS guide. But Thani said that idea had been shelved pending a recovery in the property sector.
Islamic banks were exposed to the property downturn as the principle of Islamic finance means loans are linked to physical assets such as real estate.
"When the property market is down nobody wants REITS," he said. "We will gauge the demand if there is a need to move in this direction, REITS for example ... but now I think we need to revive the sukuk market."
Despite their exposure to the property downturn, Thani said he did not expect to see any Islamic banks failing as the nature of their business means they avoid speculative investments and toxic debt.
"There is no reason why we will not see 15 to 20 pct growth and I would expect the new players in the market such as Hong Kong to knock on the doors of Islamic finance as a new way of raising capital," he said.
(Editing by Sam Cage and David Holmes)
DUBAI (Reuters) - Dubai International Financial Center plans to set up a board to encourage education in Islamic finance, an industry that is likely to grow by 15 to 20 percent this year despite the financial crisis, it said on Monday.
With large conventional banks increasingly venturing into the Islamic arena, more educational and training resources were needed, Nik Norishky Thani, executive director of Islamic finance at Dubai's financial free zone, told the Reuters Islamic Banking and Finance Summit in Dubai.
The DIFC wants to see an international standard established for courses specifically focused on Islamic banking.
"The first step is actually to bring in education providers that we have good strong links with. We will start with having an Islamic finance education board and this will be the main platform for doing a number of interesting things," Thani said.
The Islamic finance industry has grown into a $1 trillion global industry, guided by ethical investing under Islamic law, but recent poor earnings by Gulf Islamic banks due to huge exposure to the ailing property sector have thrown the regulation of the business into the spotlight.
The DIFC is putting together a guide on sukuk, or Islamic bonds, to help potential investors navigate the types of products that are available around the world.
After an emerging focus on real estate investment trusts (REITS) last year, when the region was still in the midst of a real estate boom, the DIFC was also considering issuing a REITS guide. But Thani said that idea had been shelved pending a recovery in the property sector.
Islamic banks were exposed to the property downturn as the principle of Islamic finance means loans are linked to physical assets such as real estate.
"When the property market is down nobody wants REITS," he said. "We will gauge the demand if there is a need to move in this direction, REITS for example ... but now I think we need to revive the sukuk market."
Despite their exposure to the property downturn, Thani said he did not expect to see any Islamic banks failing as the nature of their business means they avoid speculative investments and toxic debt.
"There is no reason why we will not see 15 to 20 pct growth and I would expect the new players in the market such as Hong Kong to knock on the doors of Islamic finance as a new way of raising capital," he said.
(Editing by Sam Cage and David Holmes)
CIMA first chartered accountancy body with Islamic Finance global qualification
CIMA (the Chartered Institute of Management Accountants) is the first chartered accountancy body to offer a global qualification in Islamic Finance, which the CIMA Centre of Excellence is launching today (5 December).The Islamic finance industry is thought to be worth between £150bn and £250bn, and is growing at an estimated rate of 15 to 20%. In an exciting new development in meeting the needs of its employer and student stakeholders, CIMA today launches a global qualification in Islamic Finance.We believe that this is a first for a chartered accountancy body. To date, few courses are available in this area of finance and normally comprise short one- to three- day events. CIMA's self-study qualification has been developed alongside the International Institute of Islamic Finance, with detailed input from its CEO Dr Mohd Daud Bakar, a renowned Shari'ah scholar.
Robert Jelly, Director of Education at CIMA, says:
'CIMA has identified that there is considerable demand from the global business community to develop the knowledge and skills required to service this increasingly important market. The CIMA Islamic Finance qualification is the first to be created in conjunction with an Advisory Group made up of academics, practitioners and scholars of Shari’ah, and will assist employers in the City of London and other major financial centres throughout the world in equipping their employees to develop financial products.'
CIMA's new qualification is available at certificate level and comprises four modules: Islamic commercial law; Islamic banking and Takaful (insurance); Islamic capital markets and instruments; and accounting for Islamic financial institutions. It is estimated that a student can complete these modules in between 2 – 6 months depending upon prior experience.
The qualification is available across the globe as a series of study guides, revision kits and a microsite and provides students with a thorough knowledge of the theoretical and religious aspects that underpin Islamic finance. On completing the certificate, students will be comfortable with the array of Arabic terminology used throughout as well as the regulations which govern Islamic finance in practice.Notes to editors1. Dr Mohd Daud Bakar is a renowned Shari’ah Scholar whose expertise is in demand around the world. CEO of the International Institute for Islamic Finance, he is currently a member of both the Advisory Council of the Central Bank of Malaysia and the Securities Commission of Malaysia. He acts as Shari’ah advisor for the Accounting and Auditing Organisation for Islamic Financial Institutions, International Islamic Financial Market, BNP Paribas, Dow Jones Islamic Market Indexes, the HSBC Amanah Global Shari’ah Committee, Oasis Asset Management and Unicorn Investment Bank amongst others. Dr. Mohd Daud Bakar also consults on structuring Islamic capital market products such as sukuks.2. CIMA (the Chartered Institute of Management Accountants) is the only international accountancy body with a sole focus on business. It is a world leading professional institute that offers an internationally recognised qualification in management accountancy, focusing on accounting in business, in both the private and public sectors. It is the voice of over 158,000 students and members in 161 countries. CIMA is responsible for the education and training of management accountants who work in industry, commerce and not-for-profit and has more members in the public sector than any other UK based body. CIMA prides itself on the commercial relevance of its syllabus, which is in tune with the activities of high performance organisations, and evolves continually to reflect the latest developments in global business. CIMA has been nominated as a UK superbrand for a second year in a row this year and for the first time in Sri Lanka. According to independent research conducted by the University of Bath School of Management, CIMA’s syllabus and examination structure are the most relevant to the needs of business of all the accountancy bodies assessed. See the CIMA Difference report for further information at www.cimaglobal.com/thecimadifference. CIMA is committed to upholding the highest ethical and professional standards of members and students, and to maintaining public confidence in management accountancy. For more information about CIMA, please visit http://www.cimaglobal.com/3. The Islamic Finance global qualification launch is being held in conjunction with World Accountancy Week, to celebrate IFAC’s (International Federation of Accountants’) 30th year anniversary.
“”
Courtesy By CIMA
CIMA (the Chartered Institute of Management Accountants) is the first chartered accountancy body to offer a global qualification in Islamic Finance, which the CIMA Centre of Excellence is launching today (5 December).The Islamic finance industry is thought to be worth between £150bn and £250bn, and is growing at an estimated rate of 15 to 20%. In an exciting new development in meeting the needs of its employer and student stakeholders, CIMA today launches a global qualification in Islamic Finance.We believe that this is a first for a chartered accountancy body. To date, few courses are available in this area of finance and normally comprise short one- to three- day events. CIMA's self-study qualification has been developed alongside the International Institute of Islamic Finance, with detailed input from its CEO Dr Mohd Daud Bakar, a renowned Shari'ah scholar.
Robert Jelly, Director of Education at CIMA, says:
'CIMA has identified that there is considerable demand from the global business community to develop the knowledge and skills required to service this increasingly important market. The CIMA Islamic Finance qualification is the first to be created in conjunction with an Advisory Group made up of academics, practitioners and scholars of Shari’ah, and will assist employers in the City of London and other major financial centres throughout the world in equipping their employees to develop financial products.'
CIMA's new qualification is available at certificate level and comprises four modules: Islamic commercial law; Islamic banking and Takaful (insurance); Islamic capital markets and instruments; and accounting for Islamic financial institutions. It is estimated that a student can complete these modules in between 2 – 6 months depending upon prior experience.
The qualification is available across the globe as a series of study guides, revision kits and a microsite and provides students with a thorough knowledge of the theoretical and religious aspects that underpin Islamic finance. On completing the certificate, students will be comfortable with the array of Arabic terminology used throughout as well as the regulations which govern Islamic finance in practice.Notes to editors1. Dr Mohd Daud Bakar is a renowned Shari’ah Scholar whose expertise is in demand around the world. CEO of the International Institute for Islamic Finance, he is currently a member of both the Advisory Council of the Central Bank of Malaysia and the Securities Commission of Malaysia. He acts as Shari’ah advisor for the Accounting and Auditing Organisation for Islamic Financial Institutions, International Islamic Financial Market, BNP Paribas, Dow Jones Islamic Market Indexes, the HSBC Amanah Global Shari’ah Committee, Oasis Asset Management and Unicorn Investment Bank amongst others. Dr. Mohd Daud Bakar also consults on structuring Islamic capital market products such as sukuks.2. CIMA (the Chartered Institute of Management Accountants) is the only international accountancy body with a sole focus on business. It is a world leading professional institute that offers an internationally recognised qualification in management accountancy, focusing on accounting in business, in both the private and public sectors. It is the voice of over 158,000 students and members in 161 countries. CIMA is responsible for the education and training of management accountants who work in industry, commerce and not-for-profit and has more members in the public sector than any other UK based body. CIMA prides itself on the commercial relevance of its syllabus, which is in tune with the activities of high performance organisations, and evolves continually to reflect the latest developments in global business. CIMA has been nominated as a UK superbrand for a second year in a row this year and for the first time in Sri Lanka. According to independent research conducted by the University of Bath School of Management, CIMA’s syllabus and examination structure are the most relevant to the needs of business of all the accountancy bodies assessed. See the CIMA Difference report for further information at www.cimaglobal.com/thecimadifference. CIMA is committed to upholding the highest ethical and professional standards of members and students, and to maintaining public confidence in management accountancy. For more information about CIMA, please visit http://www.cimaglobal.com/3. The Islamic Finance global qualification launch is being held in conjunction with World Accountancy Week, to celebrate IFAC’s (International Federation of Accountants’) 30th year anniversary.
“”
Courtesy By CIMA
CIMA Launches Global Qualification in Islamic Finance
9/4/08 PETALING JAYA: The Chartered Institute of Management Accountants (CIMA) becomes the first chartered accountancy body to launch a global qualification for Islamic finance.According to CIMA’s director of education Robert Jelly, the qualification is co-developed with the International Institute of Islamic Finance (IIIF) in order to address the needs of employers in the fast-growing Islamic finance industry.“CIMA has identified that there is considerable demand from the global business community to develop the knowledge and skills required to service this increasingly important market,” said Jelly.
No doubt the Islamic finance industry is growing surpassing the growth of the available pool of talents in this field.“Islamic finance is now a global phenomenon. It goes without saying that the education and training to support knowledge development in Islamic finance must be equally global,” said Dr Mohd Daud Bakar, president and CEO of IIIF.
“The challenge now is to identify a cost-efficient as well as a time-effective way to develop the essential human capital assets that will support and escalate Islamic finance to greater heights,” he added.Launching the self-study qualification was Deputy Finance Minister Datuk Ahmad Husni Hanadzlah, who said that human capital development is crucial in ensuring the development of the industry.
"Financial centres across the globe who possess any aspiration of becoming the lead Islamic Financial Centre would have already inscribed human capital as integral to their strategic development plans,” he said, adding that the number of Islamic financial institutions worldwide has grown to over 300 today in more than 75 countries.
CIMA’s new qualification comprises four modules: Islamic commercial law; Islamic banking and takaful; Islamic capital markets and instruments; and accounting for Islamic financial institutions.
“”
Courtesy By The Edge Daily
9/4/08 PETALING JAYA: The Chartered Institute of Management Accountants (CIMA) becomes the first chartered accountancy body to launch a global qualification for Islamic finance.According to CIMA’s director of education Robert Jelly, the qualification is co-developed with the International Institute of Islamic Finance (IIIF) in order to address the needs of employers in the fast-growing Islamic finance industry.“CIMA has identified that there is considerable demand from the global business community to develop the knowledge and skills required to service this increasingly important market,” said Jelly.
No doubt the Islamic finance industry is growing surpassing the growth of the available pool of talents in this field.“Islamic finance is now a global phenomenon. It goes without saying that the education and training to support knowledge development in Islamic finance must be equally global,” said Dr Mohd Daud Bakar, president and CEO of IIIF.
“The challenge now is to identify a cost-efficient as well as a time-effective way to develop the essential human capital assets that will support and escalate Islamic finance to greater heights,” he added.Launching the self-study qualification was Deputy Finance Minister Datuk Ahmad Husni Hanadzlah, who said that human capital development is crucial in ensuring the development of the industry.
"Financial centres across the globe who possess any aspiration of becoming the lead Islamic Financial Centre would have already inscribed human capital as integral to their strategic development plans,” he said, adding that the number of Islamic financial institutions worldwide has grown to over 300 today in more than 75 countries.
CIMA’s new qualification comprises four modules: Islamic commercial law; Islamic banking and takaful; Islamic capital markets and instruments; and accounting for Islamic financial institutions.
“”
Courtesy By The Edge Daily
Global takaful market could reach $11b
By Rachna Uppal, Staff ReporterPublished: April 14, 2009, 23:11
Dubai: The global market in Sharia-compliant insurance, or takaful, has the potential to reach $11 billion by 2015, but must surmount significant challenges to reach this goal.
The Gulf Cooperation Council (GCC) region will be a leading market for takaful growth. Within the region, Saudi Arabia remains the largest market for takaful.
Takaful managers and experts from around the world met in Dubai yesterday for the fourth World Takaful Conference 2009, against the backdrop of the global economic downturn, from which the industry, like all others, has not been immune.
Yet industry players are optimistic of continued growth in a sector whose potential still remains largely untapped.
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Nasser Al Sha'ali, chief executive of the Dubai International Financial Centre (DIFC) Authority, said: "As Islamic finance enters a new phase of development, takaful is one of the sectors within the industry that holds considerable potential for growth.
"Over the last few years, takaful has grown in profile as an alternative to conventional insurance and transformed itself from a regional to a global industry."
Estimates vary but it is generally accepted that the takaful industry has grown by 20 to 25 per cent in recent years. The Gulf has consistently represented around one third of the global takaful market.
Ahmad Al Janahi, Managing Director at Dubai-based Noor Takaful, and Deputy Group Chief Executive of Noor Investment Group, said: "The global takaful industry is currently estimated at $2 billion and takaful is growing 35 per cent faster than conventional insurance worldwide."
Al Janahi said conventional insurance grew by 41 per cent in the UAE in 2007, but takaful grew by 70 per cent.
"In the short term, the GCC market is a key market for takaful growth& and takaful will continue to grow faster than conventional insurance," according to Gul Khan, global head of wealth management at HSBC bank's Islamic banking arm, Amanah.
A report on the insurance industry in emerging economies by Swiss Re in 2008 reveals that Muslim countries represent 23 per cent of emerging market growth, yet insurance penetration remains comparatively very low.
Insurance penetration in Muslim countries is 1.3 per cent versus 2.8 per cent in emerging markets and well below the developed economies. A fast-growing, young, and well-educated population will be key to growth.
Yet, experts pointed to several persistent challenges stunting growth prospects.
A lack of awareness about the takaful products offered as well as a shortage of relevant skills within the sector need redressal.Outlook: Strong fundamentals Ernst & Young, a global professional business services provider, launched its World Takaful Report 2009 at the 4th World Takaful Conference on Tuesday. The report estimates the global takaful market to reach $ 7.7 billion in 2012 a more conservative estimate than others presented by industry practitioners at the conference. Saudi Arabia remains the largest market for Takaful with contributions totalling $1.7 billion in 2007, and the GCC is the largest market regionally, followed by Malaysia and Sudan. Despite challenges, the report said that the long-term outlook on fundamentals remained strong. These include shifting demographics, and increased earnings, as well as a change in social attitudes towards insurance and growing consumption levels."The financial crisis is a moment of opportunity," said Salmaan Jaffery, director Islamic financial services group, at Ernst&Young.
By Rachna Uppal, Staff ReporterPublished: April 14, 2009, 23:11
Dubai: The global market in Sharia-compliant insurance, or takaful, has the potential to reach $11 billion by 2015, but must surmount significant challenges to reach this goal.
The Gulf Cooperation Council (GCC) region will be a leading market for takaful growth. Within the region, Saudi Arabia remains the largest market for takaful.
Takaful managers and experts from around the world met in Dubai yesterday for the fourth World Takaful Conference 2009, against the backdrop of the global economic downturn, from which the industry, like all others, has not been immune.
Yet industry players are optimistic of continued growth in a sector whose potential still remains largely untapped.
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Nasser Al Sha'ali, chief executive of the Dubai International Financial Centre (DIFC) Authority, said: "As Islamic finance enters a new phase of development, takaful is one of the sectors within the industry that holds considerable potential for growth.
"Over the last few years, takaful has grown in profile as an alternative to conventional insurance and transformed itself from a regional to a global industry."
Estimates vary but it is generally accepted that the takaful industry has grown by 20 to 25 per cent in recent years. The Gulf has consistently represented around one third of the global takaful market.
Ahmad Al Janahi, Managing Director at Dubai-based Noor Takaful, and Deputy Group Chief Executive of Noor Investment Group, said: "The global takaful industry is currently estimated at $2 billion and takaful is growing 35 per cent faster than conventional insurance worldwide."
Al Janahi said conventional insurance grew by 41 per cent in the UAE in 2007, but takaful grew by 70 per cent.
"In the short term, the GCC market is a key market for takaful growth& and takaful will continue to grow faster than conventional insurance," according to Gul Khan, global head of wealth management at HSBC bank's Islamic banking arm, Amanah.
A report on the insurance industry in emerging economies by Swiss Re in 2008 reveals that Muslim countries represent 23 per cent of emerging market growth, yet insurance penetration remains comparatively very low.
Insurance penetration in Muslim countries is 1.3 per cent versus 2.8 per cent in emerging markets and well below the developed economies. A fast-growing, young, and well-educated population will be key to growth.
Yet, experts pointed to several persistent challenges stunting growth prospects.
A lack of awareness about the takaful products offered as well as a shortage of relevant skills within the sector need redressal.Outlook: Strong fundamentals Ernst & Young, a global professional business services provider, launched its World Takaful Report 2009 at the 4th World Takaful Conference on Tuesday. The report estimates the global takaful market to reach $ 7.7 billion in 2012 a more conservative estimate than others presented by industry practitioners at the conference. Saudi Arabia remains the largest market for Takaful with contributions totalling $1.7 billion in 2007, and the GCC is the largest market regionally, followed by Malaysia and Sudan. Despite challenges, the report said that the long-term outlook on fundamentals remained strong. These include shifting demographics, and increased earnings, as well as a change in social attitudes towards insurance and growing consumption levels."The financial crisis is a moment of opportunity," said Salmaan Jaffery, director Islamic financial services group, at Ernst&Young.
FACTBOX: Who regulates the Islamic finance sector?
Mon Apr 13, 2009 3:30pm BST
(Reuters) - Overseen by a patchwork of regulators and religious authorities, the Islamic finance industry has taken major steps to standardize products and reduce the regulatory uncertainty that is seen as impeding development of the market.
The debate over regulations flared last year when compliance of some Islamic bonds with sharia law was thrown into question by the industry auditor, the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI).
Differing interpretations of the sharia also make regulation across jurisdictions a tricky task. For example, some Islamic contracts such as the bai bithaman ajil (deferred payment sale) are approved by Malaysian regulators but rejected by those in the Middle East.
Here is some information about the main bodies tasked with overseeing the sector at different levels, and the challenges they face.
INTERNATIONAL REGULATORS
Islamic Financial Services Board (IFSB)
---------------------------------------
The international standard-setting organization issues guiding notes on standards and principles for the industry's banking, capital markets and insurance sectors.
Its 175 members include 42 regulatory and supervisory authorities, six international inter-governmental organizations and 127 market players and professional firms.
The IFSB working groups, which include representatives from
central banks and national monetary authorities, work with other international bodies, such as the International Association of Insurance Supervisors (IAIS), to streamline the rules around integration of Islamic products such as takaful or Islamic insurance, for example.
Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI)
---------------------------------------
AAOIFI's standards have been adopted in Bahrain, the Dubai International Financial Center, Jordan, Lebanon, Qatar, Sudan and Syria; while its standards are used for guidelines issued by authorities in Australia, Indonesia, Malaysia, Pakistan, Saudi Arabia, and South Africa, according to the auditor's website.
In 2001, AAOIFI and the Bahrain Monetary Authority developed a regulatory framework known as PIRI -- the Prudential Information and Regulatory Framework for Islamic Banks.
Created in consultation with the industry, it aims to help Islamic banks become more than niche players by integrating standards with the Basel Committee on Banking Supervision, established by central bank governors of the Group of Ten countries in 1974.
Despite these steps, analysts say there are still gaps in the industry's financial reporting and accounting.
AAOIFI ruled last year that repurchase undertakings -- a pledge found in most Islamic bonds that the borrower would pay back their face value at maturity -- violates the duty to share risk in sukuk mudaraba and musharaka.
Issuance of the two types of sukuk fell 83 percent and 68 percent respectively last year, ratings agency Moody's said,; with some bankers and scholars attributing the drop to the ruling.
NATIONAL AUTHORITIES
In Sudan, Pakistan and Iran, where Islamic banking is the national system, financial products conform to the sharia as it is defined by local authorities.
In countries where Islamic finance runs in parallel to the conventional system, such as Malaysia and Bahrain, Islamic banks are regulated separately from conventional banks.
Not all such states have applied IFSB guidances, however. This has led to criticisms that the legal and regulatory frameworks are uncoordinated and inadequate.
Insufficient sharia convergence between countries is another factor. While Gulf and Malaysian models are said to be gradually converging, differences of opinion remain between scholars.
Other state regulators have worked with Islamic financial institutions to include them in existing regulatory frameworks.
In the UK, for example, both the Bank of England and the Financial Services Authority (FSA) were involved in the establishment of the first sharia-compliant retail bank in Europe or the United States, the Islamic Bank of Britain, in 2004.
BANK LEVEL
----------
Islamic banks are structured to include a special sharia supervision board made up of scholars.
Analysts say the industry's more general problem -- a shortage of qualified people -- shows up at this level, with some of the top 20 scholars appearing on sharia compliance boards for dozens of different institutions.
Becoming an authority can take 15 years of Islamic legal studies, then years more in financial training. Forbes magazine estimates there are only 260 such scholars in the world, of whom only a handful also have the requisite grip on complex financial instruments to sit on a bank's board.
Specialized academic centers have been set up to address this, such as the Harvard Law School's Islamic Finance Project.
Conventional banks which have added new Islamic services keep sharia-compliant products separate from other products. Consultancies can help banks liaise with sharia scholars, who sit on supervisory boards.
Sources: Reuters, Financial Services Authority (FSA) (http://www.fsa.gov.uk), Islamic Financial Services Board (IFSB) (http://www.ifsb.org), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (http://www.aaoifi.com), Basel Committee for Banking Supervision (http://www.bis.org/bcbs)
(Reporting by Gillian Murdoch in Singapore and Surojit Gupta in New Delhi; Editing by Kim Coghill)
Mon Apr 13, 2009 3:30pm BST
(Reuters) - Overseen by a patchwork of regulators and religious authorities, the Islamic finance industry has taken major steps to standardize products and reduce the regulatory uncertainty that is seen as impeding development of the market.
The debate over regulations flared last year when compliance of some Islamic bonds with sharia law was thrown into question by the industry auditor, the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI).
Differing interpretations of the sharia also make regulation across jurisdictions a tricky task. For example, some Islamic contracts such as the bai bithaman ajil (deferred payment sale) are approved by Malaysian regulators but rejected by those in the Middle East.
Here is some information about the main bodies tasked with overseeing the sector at different levels, and the challenges they face.
INTERNATIONAL REGULATORS
Islamic Financial Services Board (IFSB)
---------------------------------------
The international standard-setting organization issues guiding notes on standards and principles for the industry's banking, capital markets and insurance sectors.
Its 175 members include 42 regulatory and supervisory authorities, six international inter-governmental organizations and 127 market players and professional firms.
The IFSB working groups, which include representatives from
central banks and national monetary authorities, work with other international bodies, such as the International Association of Insurance Supervisors (IAIS), to streamline the rules around integration of Islamic products such as takaful or Islamic insurance, for example.
Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI)
---------------------------------------
AAOIFI's standards have been adopted in Bahrain, the Dubai International Financial Center, Jordan, Lebanon, Qatar, Sudan and Syria; while its standards are used for guidelines issued by authorities in Australia, Indonesia, Malaysia, Pakistan, Saudi Arabia, and South Africa, according to the auditor's website.
In 2001, AAOIFI and the Bahrain Monetary Authority developed a regulatory framework known as PIRI -- the Prudential Information and Regulatory Framework for Islamic Banks.
Created in consultation with the industry, it aims to help Islamic banks become more than niche players by integrating standards with the Basel Committee on Banking Supervision, established by central bank governors of the Group of Ten countries in 1974.
Despite these steps, analysts say there are still gaps in the industry's financial reporting and accounting.
AAOIFI ruled last year that repurchase undertakings -- a pledge found in most Islamic bonds that the borrower would pay back their face value at maturity -- violates the duty to share risk in sukuk mudaraba and musharaka.
Issuance of the two types of sukuk fell 83 percent and 68 percent respectively last year, ratings agency Moody's said,; with some bankers and scholars attributing the drop to the ruling.
NATIONAL AUTHORITIES
In Sudan, Pakistan and Iran, where Islamic banking is the national system, financial products conform to the sharia as it is defined by local authorities.
In countries where Islamic finance runs in parallel to the conventional system, such as Malaysia and Bahrain, Islamic banks are regulated separately from conventional banks.
Not all such states have applied IFSB guidances, however. This has led to criticisms that the legal and regulatory frameworks are uncoordinated and inadequate.
Insufficient sharia convergence between countries is another factor. While Gulf and Malaysian models are said to be gradually converging, differences of opinion remain between scholars.
Other state regulators have worked with Islamic financial institutions to include them in existing regulatory frameworks.
In the UK, for example, both the Bank of England and the Financial Services Authority (FSA) were involved in the establishment of the first sharia-compliant retail bank in Europe or the United States, the Islamic Bank of Britain, in 2004.
BANK LEVEL
----------
Islamic banks are structured to include a special sharia supervision board made up of scholars.
Analysts say the industry's more general problem -- a shortage of qualified people -- shows up at this level, with some of the top 20 scholars appearing on sharia compliance boards for dozens of different institutions.
Becoming an authority can take 15 years of Islamic legal studies, then years more in financial training. Forbes magazine estimates there are only 260 such scholars in the world, of whom only a handful also have the requisite grip on complex financial instruments to sit on a bank's board.
Specialized academic centers have been set up to address this, such as the Harvard Law School's Islamic Finance Project.
Conventional banks which have added new Islamic services keep sharia-compliant products separate from other products. Consultancies can help banks liaise with sharia scholars, who sit on supervisory boards.
Sources: Reuters, Financial Services Authority (FSA) (http://www.fsa.gov.uk), Islamic Financial Services Board (IFSB) (http://www.ifsb.org), Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) (http://www.aaoifi.com), Basel Committee for Banking Supervision (http://www.bis.org/bcbs)
(Reporting by Gillian Murdoch in Singapore and Surojit Gupta in New Delhi; Editing by Kim Coghill)
Islamic finance faces tough choices: law firm
Islamic finance faces tough choices: law firm
Thu Apr 16, 2009 1:17pm EDT
LONDON (Reuters) - Developing common standards for Islamic finance products too soon could damage the fledgling sector's long-term growth, according to Andrew Metcalf, an Islamic finance specialist with law firm King & Spalding.
Speaking at the Reuters Islamic Banking and Finance Summit in London, Metcalfe, a partner in the U.S.-based firm's Middle East and Islamic Finance Practice Group, said the industry faces tough choices between innovating further or standardizing the products it currently offers.
"The industry is at a bit of a crossroads. One path is to take stock of where we're at and develop ... an agreed way of doing things. There are other people who say: 'We don't want to standardize what we do right now, it's not developed enough'," he said.
"Personally I'm in the second camp ... It would hurt the long-term growth of the industry to freeze time now, there's a lot more the industry is capable of doing."
Islamic financial products must be sanctioned by scholars, but their interpretations of Islam's sacred texts varies, creating regional product differences.
The Malaysian school of thought is seen as innovation oriented, while Middle East scholars are seen as more conservative.
Metcalf also said the Islamic finance industry, which forbids investing based on what it sees as unjust gain or taking large risks, needs to decide its position on derivatives, which were starting to be developed prior to the credit crisis.
"Is a derivative more of a gambling concept or does it serve an economic purpose? That discussion has to happen," Metcalf said.
(Reporting by Laurence Fletcher; Editing by Jon Loades-Carter)
Thu Apr 16, 2009 1:17pm EDT
LONDON (Reuters) - Developing common standards for Islamic finance products too soon could damage the fledgling sector's long-term growth, according to Andrew Metcalf, an Islamic finance specialist with law firm King & Spalding.
Speaking at the Reuters Islamic Banking and Finance Summit in London, Metcalfe, a partner in the U.S.-based firm's Middle East and Islamic Finance Practice Group, said the industry faces tough choices between innovating further or standardizing the products it currently offers.
"The industry is at a bit of a crossroads. One path is to take stock of where we're at and develop ... an agreed way of doing things. There are other people who say: 'We don't want to standardize what we do right now, it's not developed enough'," he said.
"Personally I'm in the second camp ... It would hurt the long-term growth of the industry to freeze time now, there's a lot more the industry is capable of doing."
Islamic financial products must be sanctioned by scholars, but their interpretations of Islam's sacred texts varies, creating regional product differences.
The Malaysian school of thought is seen as innovation oriented, while Middle East scholars are seen as more conservative.
Metcalf also said the Islamic finance industry, which forbids investing based on what it sees as unjust gain or taking large risks, needs to decide its position on derivatives, which were starting to be developed prior to the credit crisis.
"Is a derivative more of a gambling concept or does it serve an economic purpose? That discussion has to happen," Metcalf said.
(Reporting by Laurence Fletcher; Editing by Jon Loades-Carter)
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