As
industry marks key milestone, a line-up of global powerhouses to gather
at 22nd World Islamic Banking Conference to take stock of Islamic
finance’s achievements & shortcomings and to forge roadmap for
future
Manama, Kingdom of Bahrain, 15 September 2015: The
World Islamic Banking Conference (WIBC), considered by many as the
Islamic financial services industry’s compass for over two decades,
continues to live up to its reputation after officially announcing today
that its 22nd annual edition will provide industry leaders with a
unique opportunity to critically assess Islamic finance’s 40-year
history. This coming December, regulators, CEOs, scholars and other
leaders from the Middle East, East Asia, Africa and Europe will assess
and reflect upon the achievements, challenges and opportunities in the
rapidly growing Islamic finance industry, currently amounting to US$2
trillion.
Whilst 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. As
such, the industry is being called to address several questions. Should
there be a shift away from asset and profit growth towards other
variables such as Islamic authenticity and social & economic value?
How can Islamic finance advance a truly profit and loss sharing system
in parallel to complying with global prudential standards (e.g. Basel
III)? 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.
Datuk Professor Rifaat Ahmed Abdel Karim, CEO of International Islamic
Liquidity Management Corporation (IILM), Noor Abid, Board Member of
Kuwait Finance House Group, and Tirad Al-Mahmoud, CEO of Abu Dhabi
Islamic Bank (ADIB), are only a few of the pioneers who will address the
landmark gathering of more than 1500 attendees.
With regards
to the question of convergence, Noor Abid, a leading advisor to the
Islamic finance industry for over two decades, stated: “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 explains further:
“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.”
He concludes
by suggesting next steps: “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”
International
standard setting organizations 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.
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. There
is growing concern about a disconnect between what is required by
international prudential standards (e.g. Basel III) 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 (e.g. micro and small and medium sized enterprises
(MSMEs)). 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.
WIBC 2015 is
set to gather all the key stakeholders - government, regulatory bodies,
central banks, leading Islamic banks, IFIs and multilateral bodies – to
better understand how to marry standards to ensure global compliance
with adherence to core values.
Another key
discussion point to be touched upon this December is financial
inclusion. Indeed, Islamic finance has an opportunity at its hands given
that the vast majority of the Muslims do not have access to the banking
system. Tirad Al-Mahmoud, CEO of ADIB, spoke to the fact that “Islamic
finance can also serve to increase financial inclusion for the 72% of
the Muslims who are unbanked. The challenge that lies ahead is that
there has been no significant plan to reform Islamic banking with the
aim of increasing financial inclusion.”
Making the
case for tapping into this market segment, he continues: “Given that the
global Muslim population represents at least a quarter of the global
population and Sharia compliant assets of US$2 trillion represents only a
small fraction of the total global financial assets, there is
tremendous opportunity for Islamic banks to target this population
thereby increasing financial inclusion.” In Tirad’s view, the way to
increase financial inclusion is for Islamic banks to expand their “reach
outside major urban centres by investing in microfinance initiatives
and through alliances with the relevant governmental institutions.”
Resolutions
of the critical matters that the Islamic finance industry faces will be
moderated by Dr. Sayd Farook, Vice Chairman and CEO of Middle East
Global Advisors, the conveners of WIBC throughout its 22-year history.
As such, it is perfectly apt that this year’s WIBC, focusing on the
industry’s assessment of its 40th anniversary, will take place under the
theme ‘New Realities, New Opportunities’.
WIBC will take place on the 1st, 2nd and 3rd of December at the Gulf Hotel in Manama, Kingdom of Bahrain. 