Regulators, chief executive officers, scholars and other leaders from the Middle East, East Africa, Africa and Europe will assess and reflect upon the achievements, challenges and opportunities in the rapidly growing Islamic finance industry, currently amounting to $2 trilliong at a conference in December.

 

The 22nd edition of the World Islamic Banking Conference (WIBC), considered by many as the Islamic financial services industry’s compass for over two decades, will run from December 1 to 3 at the Gulf Hotel in Bahrain.

 

While it cannot be denied that Islamic finance has grown tremendously in the past 40 years from a very small base, there is a growing belief that the industry’s progress should not be assessed purely on asset growth, said a statement.

 

As such, the industry is being called to address several questions, including should there be a shift away from asset and profit growth towards other variables such as Islamic authenticity and social and economic value?; how can Islamic finance advance a truly profit and loss sharing system in parallel to complying with global prudential standards (for example, Basel III)?; and how can the industry develop a new regulatory architecture to support small and medium sized enterprises (SMEs), as well as asset-backed financing in order to complement asset-based structures and public infrastructure investment financing?

 

The momentum for historic discussions on these matters is building up to December’s WIBC, which will include a much anticipated power debate between some of the industry’s preeminent leaders. 

 

They will address the core question of how the current system can converge with its original proposition. 

 

Noor Abid, a leading advisor to the Islamic finance industry for over two decades, said: “Islamic financial institutions (IFIs) need to structure their business models in such a way that the socioeconomic objectives go hand in hand with commercial and profitability goals.” 

 

Acknowledging WIBC as the definitive platform for shaping industry dialogue, he further said: “There are now conclusive studies suggesting that doing good to the society you serve, has the potential to generate positive long term economic performance. 

 

"It is time that IFIs calibrate their objectives and performance measures such that they are able to serve their communities in a positive manner, while aiming for high quality returns.”

 

“One way forward for the development of Islamic finance based on its true principles would be to adopt some of the leading practices from the impact investment communities and incorporate integrated reported initiatives," he added.

 

International standard setting organisations such as the Accounting and Auditing Organization for IFIs (AAOIFI) and the Islamic Financial Services Board (IFSB) have been formative in helping the industry develop a more 'integrated' approach, coupling profitability and values, said the statement.

 

However, while the relevant standard setters may issue appropriate frameworks or standards, it is essential to secure joint commitment from all stakeholders within the system. This is partly because of the sheer challenges of adopting both international and industry standards, it said.

 

There is growing concern about a disconnect between what is required by international prudential standards and the principles of Islamic finance. For instance, Islamic financial institutions have an affinity towards investment management, as well as credit provision to underserved segments. Financing of MSMEs and the risk charges imposed on profit and loss sharing assets by Basel III regulations mean that Islamic banks, while benefiting from greater prudential stability, will drift further away from credit provision to the real sectors.

 

The conference will discuss how to marry standards to ensure global compliance with adherence to core values, said the statement.

 

Another key discussion point to be touched upon this December is financial inclusion. Islamic finance has an opportunity at its hands given that the vast majority of the Muslims do not have access to the banking system. - TradeArabia News Service