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The Bank Muamalat tries to provide services purely based on Islamic principles
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By
Kazi Mahmood, IOL South East Asia correspondent
KUALA
LUMPUR, October 23 (IslamOnline) - Malaysia will host the
newly-created Islamic Financial Services Board (IFSB), which will be
the central agency regulating Islamic financial instruments.
This
week, Malaysia has taken steps closer to realizing its aim of becoming
a regional Islamic financial hub with the launch of an international
panel to set benchmarks for Islamic banking.
The
IFSB has the task of promoting the Islamic financial services industry
worldwide, thus propelling Malaysia as the center of Islamic banks in
the world, IslamOnline was told.
Central
banks from eight founding members - Malaysia, Saudi Arabia, Indonesia,
Iran, Kuwait, Pakistan, Sudan and the Islamic Development Bank - will
ink a pact November 3 in Kuala Lumpur to inaugurate the IFSB, Bernama
news agency said.
Malaysia’s
Bank Negara or National Bank governor Zeti Akhtar Aziz has been
appointed as chairman of its steering committee.
The
IFSB would serve as an avenue to develop uniform interpretation of
Islamic Shari’a laws for processes, financing modes and regulatory
standards, Bankers told Agence France-Presse (AFP).
These
standards should give more credibility to Islamic banks to compete
with conventional banks on a global scale.
“In
the present state of things, Islamic banks are just following trends
set by conventional banks, this should stop and Islamic banks should
take a larger role in the financial sectors globally,” a bank
manager at the Bank Islam in Kuala Lumpur told IslamOnline.
The
committee which is currently working on the parameters setting
international prudential standards for regulating Islamic banks have
yet to make public the tools that will make this possible.
The
IFSB would contribute to ensuring the soundness and stability of the
rapidly growing Islamic financial system, Zeti said earlier this year.
Bankers
in Malaysia and elsewhere hailed the launch of the IFSB as a major
boost to Islamic banking and finance globally.
The
IFSB will be headquartered in Malaysia and will be governed by a
council of governors to be made up of founding members. It will be
chaired on a rotation basis in alphabetical order of the member
countries.
Principally,
the board will devise and disseminate standards and core principles as
well as adapt existing international standards for adoption in
compliance with Shari’a principles.
It
will also liaise and cooperate with other standards setting
organizations as well as promote good practices in risk management
through research, training and technical advisory services.
The
decision to host the IFSB in Malaysia was made by a group of governors
and senior officials of central banks, the Islamic Development Bank
(IDB), and the Accounting and Auditing Organization for Islamic
Financial Institutions (AAOIFI), in April this year.
The
growing market share for Islamic investments estimated to be worth
billions of dollars signified strong demand for Shari’a compliant
financial products worldwide, the AFP reported.
Experts
estimate the wealth of Islamic nations at around U.S.$800 billion to
U.S.$1 trillion representing a financial niche that is worthy of
regulating and offers great potential for growth in the future.
Islamic
banking was first introduced in mainly-Muslim Malaysia in 1983, and
now has an eight percent share of assets in the banking sector. The
government aims to raise the level to 20 percent by 2010.
Malaysia
prides itself as having a unique dual banking system while many of its
conventional banks offers “Islamic oriented products” to their
customers.
Besides
the Bank Islam Malaysia there is the Bank Muamalat, another bank with
services purely based on Islamic principles. The Bank Muamalat
resulted from a split within the former Bank Bumiputera Malaysia
Berhad (BBMB).
Overall,
Malaysia can be said to have a complete system in Islamic finance in
terms of money, capital and offshore markets, takaful as well as a set
of regulations in place, the New Straits Times of Malaysia
said.
On
a regional basis, Malaysian banks will also have opportunities in
Islamic finance through their various branches such as in Thailand,
Indonesia and the Philippines.
