At the 9th Annual Summit of the Islamic Financial Services Board (IFSB) held in Istanbul recently and hosted for the first time by the Central Bank of Turkey, emerging countries for once emerged on a higher moral ground, at least in terms of managing their economies and financial systems. While the developed countries are still reeling and divided on how to cope with the aftermath of the global financial crisis and the Eurozone sovereign debt crisis, which has been further complicated by the pro-austerity versus pro-growth political crisis and impasse in Greece, many emerging countries in the MENA region, Asia and even Africa are basking in GDP growth rates ranging from four to eight percent while the economies in developed countries are effectively flatlining struggling to achieve even one percent growth. The reason why the crisis has impacted less on the emerging countries, said Dr. Erdem Basci, Governor of the Central Bank of Turkey, is because they have been more resilient due to the fact that they have almost religiously implemented counter-cyclical economic and fiscal policies, with the result that their public debt stock is less and they are more resilient to external shocks. Countries such as Malaysia and Turkey, which both experienced their own financial crises in 1998 and 2001 respectively, have learnt the hard way to maintain sustainable debt burdens. Dr. Basci stressed the need for making the financial system more inclusive so that it can provide an avenue for better income and wealth distribution in the economy. Indeed, a general consensus was that the intrinsic strengths of the Islamic financial services industry, if fully explored, could help build a robust, resilient and just financial system that not only supports growth and economic activity but also evolves a more inclusive financial system. Jaseem Ahmed, Secretary General of the IFSB, the prudential and supervisory standard setting body for the global Islamic finance industry, had a message for the world at large. In the aftermath of the financial crisis, policymakers have been stressing the importance of diversity in the financial system including greater diversity in the types of financial intermediaries with a view to reducing overall risk concentrations and vulnerabilities that arise from having similar institutions, portfolios and risk management strategies. According to Ahmed, the further expansion of the Islamic finance industry will add to the above diversity and hence the stability of the global financial system. “Another important contribution that Islamic finance is making to the global economy is through its basic tenets – tenets which promote a rethinking of the ethical basis, and the basis for the legitimacy of the financial system and the institutions of which it is composed,” he said. “The principal risk today is not just that of global economic stability and volatility. It is rather that the idea of shared prosperity and the ideals of social justice will be marginalized if not extinguished. We cannot let this happen. Financial Stability is a pre-condition to the good society, whether that society is based on conventional, Islamic or a mixed financial system. The pursuit of financial stability does not only depend on regulatory development or supervisory standards, but also on collaboration that helps all stakeholders achieve the common goals of a sound and sustainable financial services industry.” Ahmed also stressed that under-developed enabling environments, weaknesses in the risk and liquidity management infrastructures within Islamic financial institutions (IFIs), a lack of greater consistency in Shariah opinions, and constraints to human resource capacity continue to be a cause for concern and a focus of policy action. On the positive side, cross-border Islamic financing and investment is increasing, and the Sukuk market has performed strongly led by the public sector in GCC countries and in South East Asia to finance projects and infrastructure. Takaful also remains a vibrant sector, one to which the IFSB is giving increasing attention. Another important sign is the emergence of national roadmaps and strategies for the development of Islamic financial sectors, and for their prudential regulation and supervision. However, the reality, as Ahmed may agree, is that far more countries need to adopt the above strategies including key markets such as Saudi Arabia, Egypt, Algeria, Libya and Oman. The IFSB, he revealed, launched in March 2012 a new medium term strategy for the period 2012-2015, the Strategic Performance Plan (SPP), that will focus on: i) strengthening the stability and resilience of Islamic finance through the development of a range of new standards and guiding principles aligned with the changes in the global regulatory environment; ii) broadening the range of cross-sectoral prudential and supervision standards and guiding principles including capital markets and takaful, this supporting the development of new instruments; iii) educating its stakeholder community about its work and standards so as to support the adoption and implementation of these; and iv) the launching of a revised “10-year Framework and Strategies for the Development of the Islamic Financial Services Industry” which was first developed by the IFSB in collaboration with the IDB and the Islamic Research and Training Institute. __
