Kuala Lumpur - Once was established in Malaysia, IAEI chapter Malaysia is committed to further allude in the promulgating the spirit of Islamic finance. Practically, we commenced to come out with Public Lecture which aims to provide conducive environment in exchanging ideas and thoughts, either related with shariah issues or practices in Islamic finance industries.

Given such tremendous intention in place, we have organized one event which invited an expert researcher from International Financial Service Board (IFSB), located in Kuala Lumpur. He, Dr. Ronald Rulindo, who has been serving IFSB for 5 years, was presenting about ‘Islamic Finance : Progress and Challenges”.

First of all, he elaborated the issue of development in Islamic Financial Services Industry. He briefly mentioned that since 1900 to 2010, Islamic finance has been growing rapidly across the globe beyond traditional countries. The 2010 onwards, Islamic finance shall catch up for being an alternative system side-by-side with conventional system.

Secondly, given Islamic finance is expected to contribute much on economic development, it shall be built according to three pillars, namely promoting financial sector development, encouraging financial inclusion, and establishing financial stability. Till recently, some facts inform that in the area of banking sector, Islamic banking growth outpaced overall banking asset and GDP growth over multiple years and other instruments, such as sukuk and takaful show an increasing trend. In terms of financial inclusion agenda, Islamic banks collaborate with non-bank institutions (NGOs) and finance company (financial institution) engage to establish providers of Islamic microfinance. Some examples showed by Islamic Bank in Bangladesh and Indonesia. Establishment of Rural Development Scheme in Bangladesh has increased household income by 1,21 taka. Similarly, Baitul Mal wa Tamwil has elevated business income by 22.9% notably clients who have received Islamic Microfinancing for more than 2 years and 6 years.

Thirdly, the current challenges for Islamic Finance shall be also addressed correctly which at least covers four aspects. In terms of technical issues including lack of liquidity, limited in investment capacity, high exposure to real estate, and less efficient. In addition, human capital aspect, enumerating such as lack of expert is one of existing barriers. The issues of prudential aspect emerge as well, such as risk management, capital adequacy, corporate and shariah governance, transparency, and supervision. Last but not least, infrastructure challenge remains in place such as legal issues, taxation, dispute resolution and financial safety net.

Fourthly, given some existing challenges in place, The Islamic Financial Service Board (IFSB) has been taking a role in setting international standard. It practically expects to promote and enhance the soundness and stability of the Islamic services covering three main players, namely Islamic Banking, Islamic Capital Markets, and Takaful sectors.    

Fifthly, the challenges in implementation of the standard are no longer easy to tackle because of several causes, namely

• The IFSB relies solely on the voluntary adoption of standards by Regulatory and Supervisory members of the IFSB.
• The obligation on national authorities to ensure that they have sufficient infrastructures, skills and domestic guidelines in order to effectively supervise IIFS operations
• Absence of adequate risk-mitigating tools and infrastructure for IIFS or even risk management culture among IIFS.
• Assurance that the implementation of these standards will not put IIFS at a competitive disadvantage in particular in terms of huge cost implications, lengthy product development process etc.
• Although enhanced disclosure of information is generally perceived as beneficial by the public, its benefit to IAH, given their level of understanding of their rights and obligations, has yet to be proven.

Finally, IFSB shall take many efforts to facilitate implementation of the IFSB standards. In addition, the regulatory authorities should cooperate in adopting the IFSB standards and guiding principles. Thank you. (Dimas Kusuma-Kuala Lumpur (PR IAEI Malaysia))