Lack of harmonisation hampers growth of Islamic finance

BT_Fitri ShahminanFitri Shahminan

THE Autoriti Monetari Brunei Darussalam (AMBD) yesterday pushed for further deliberation on unresolved issues in Islamic finance structures and the lack of harmonisation of Syariah, which continue to hamper the regional and global Islamic finance industry.

Speaking at the opening ceremony of an Islamic finance seminar, the Deputy Managing Director of Monetary and Corporate Services and Development at AMBD, Rosdi Amin Yaakub said “the lack of harmonisation in Syariah continue to hamper progress”.

“I am pleased to note that today’s discussion will focus on the developments and challenges of sukuk securitisation, Islamic hedging instruments and role of Syariah boards in approving these instruments.

“It is my hope that we will be able to move forward and deliver progress,” he said.

According to Rosdi Amin,understanding this will involve further deliberation on unresolved issues in Islamic finance structures relating to documentation, enforceability when entering into legal contracts and inclusion of conventional instruments in Islamic structures.

He also lauded the introduction of ‘Muzakarah Cendekiawan Syariah Nusantara’ in the ASEAN region as a “good platform for Syariah scholars to discuss Syariah matters and strengthen the framework for cooperation and harmonisation.”

“On the international front, International Syariah Scholars Forum (ISSF), held annually in collaboration with Islamic Research and Training Institute (IRTI) and International Syariah Research Academy (ISRA), is also emerging as another reputable platform,” he said.

BT_Deputy Managing Director of Monetary and Corporate Services and Development at AMBD, Rosdi Amin Yaakub.Rosdi Amin said that 2013 has proven to be another outstanding year for the Islamic finance industry with assets estimated at US$1.8 trillion (approximately $2.28 trillion), representing a 16 per cent year-on-year growth.

“The Islamic banking sector continues to dominate, with more than 80 per cent of assets.

“Specifically on sukuk, global issuance in 2013 exceeded US$100 billion for the third year in a row, new issuance recorded was US$119 billion,” said the senior official of the Sultanate’s central bank.

The event, the “6th Islamic Financial Services Board (IFSB) Legal Seminar on Innovation in Sukuk Securitisation and Islamic Hedging Instruments: Developments and Challenges” held at the Empire Hotel and Country Club, is hosted by the Sultanate’s central bank in conjunction with the IFSB Annual Meetings and Side Events 2014.

The IFSB, in a press release, stated that “the Islamic financial services industry has developed significantly over the past decade in terms of sophistication in product structures and development of risk management tools, including hedging products.”

“Islamic capital markets have also grown with the emergence of securitisation transactions, predominantly driven by Sukuk markets, with Islamic hedging instruments also demonstrating an emerging trend,” the press statement read.

“Coupled with the issuance of some international standards for Islamic hedging instruments in recent years, the Islamic hedging market faces new challenges in the wake of global regulatory reforms related to the requirements of central counterparties and exchange traded transactions.”

The IFSB added that a significant feature of the developments in asset securitisation and hedging instruments in Islamic finance is the progress on the issuance of new laws and statutes dealing with Islamic capital markets including its sophisticated instruments.

The current innovations of these instruments calls for a focus on introducing changes in legal systems and enhanced Syariah compliance reviews to reduce uncertainty and boost flexibility in the product offering.

The approaches to structuring and offering Islamic products vary significantly across jurisdictions depending on their governing laws.

“The challenge for these legal systems in different jurisdictions is to act in an accommodative and flexible way, so that this process of innovation and improvements can be facilitated, while maintaining compliance with Syariah rules and principles,” the IFSB stated.

Over 150 delegates from among IFSB members and non-members, including representatives from the financial services industry and the law sector, academicians and students from Brunei and the Asian region, as well as members of the public are participating in the event.

The seminar will be followed by the IFSB’s 6th Public Lecture on Financial Policy and Stability today.

The Brunei Times
Wednesday, March 26, 2014

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