The financial sector has entered a new phase following the global financial crisis.
“After the global financial crisis of 2008, the financial sector, including Islamic finance, has entered a different phase,” Rasheed M. Al-Maraj, governor of Central Bank of Bahrain (CBB), said in his keynote address at the World Islamic Banking Conference, which opened on Dec. 1 and continues till Dec. 3.
“This year marks the 22nd World Islamic Banking Conference 2015 in Bahrain, a track record which is perhaps unmatched in the 40-year young Islamic finance industry,” Al-Maraj said.
“More and stricter regulations, stronger compliance requirements, larger capital commitment and better risk management are part of the new paradigm,” he added.
The IMF’s decision to include Islamic finance within its surveillance program is a welcome development and yet another endorsement of the importance of Islamic finance worldwide, Al-Maraj said.
The executive president of the Central Bank of Oman, Hamood Sangour Al-Zadjali, the deputy governor of the State Bank of Pakistan, Riaz Riazuddin, and the deputy governor of the National Bank of Kazakhstan, Nurlan Kussainov, also took part in the conference opening ceremony.
Ahmed Khalil Al-Mutawa, chairman of Gulf Finance House (GFH), told Arab News: “This is a very important event for Bahrain and becoming popular with the increasing potential of Islamic finance.”
Mazen Al-Nahedh, group CEO of Kuwait Finance House, said: “This conference is very important because it focuses on the achievements as well as challenges of Islamic finance. The industry faces many challenges such as education, human resources and technology product development for Islamic banks.” Speaking about Shariah compliance and other measures taken by the CBB to enhance the compliance environment, Al-Maraj said: “Stricter fit and proper criterions for Shariah resources, greater controls regarding the Shariah compliance process, and clearer divisions between Shariah compliance and Shariah audit are being introduced.
“A centralized Shariah Board is also being introduced with a broad mandate, which includes overseeing product development by Islamic financial institutions and Islamic windows, strengthening Shariah compliance, providing guidance to the CBB in issuing rules and regulations for the sector, providing guidance to the courts in legal cases involving Islamic financial institutions and acting as the Shariah Board for the CBB,” he added.
The Centralized Shariah Board has been given wide authority to determine the direction of product innovation in Bahrain’s Islamic finance sector and to guide the courts in Shariah related matters concerning Islamic financial institutions, “a unique initiative for any market in the region,” Al-Maraj said. Referring to human resource development, he said it continues to be an important contributing factor in Islamic finance industry’s growth worldwide.
The Waqf Fund, which works under the auspices of the CBB, is a fine example of how the Islamic finance industry in Bahrain has come together for development initiatives that are critical for long-term sustainability and growth of the industry The Waqf Fund is running several programs to upgrade the skills and expertise of Shariah reviewers and auditors, Al-Maraj pointed out.
In fact, he added: “The Waqf Fund is running several programs to upgrade the skills and expertise of Shariah reviewers and auditors.”
A number of training programs have been launched with Bahrain Institute of Banking and Finance, including Advance Diploma in Islamic Commercial Jurisprudence and Advanced Shariah Reviewer Development Program, to broaden the horizon of Shariah resources and plug any knowledge gaps, Al-Maraj said.
Another landmark initiative of the Waqf Fund that has received industry-wide appreciation is the recently concluded Leadership Grooming Program aimed at developing the next generation of Islamic banking industry leaders, he said.
A select group of 37 talented middle management Islamic bankers from Bahrain was chosen for an intensive program delivered by a world leading university in Hong Kong and Toronto.
The customized program was designed to improve leadership skills, strategic thinking and ethical orientation of the participants.
The CBB continues to strongly encourage Islamic banks to merge or acquire other institutions. Given a tougher regulatory environment, challenges to their business model and increased competition from Islamic as well as conventional competitors, the preferred path, particularly for Islamic investment banks, is to merge in order to create institutions of size, Al-Maraj added.
Liquidity management is an important area for Islamic banks, he said, adding that earlier this year the CBB launched a new Shariah-compliant Wakala liquidity management tool aimed at absorbing excess liquidity of local Islamic retail banks.
The agreement has been developed based on IIFM’s standard contract.
“The duration of the Wakala is one week, so it is a handy tool for short term liquidity management of Islamic banks,” Al-Maraj added.
Hammad Hassan, first vice president at Bank ABC, said: “The support Islamic finance industry gets from CBB is tremendous. The Central Bank of Bahrain has taken various initiatives to support Islamic finance and plays a big role in rolling out Islamic finance products.”
By Khalil Hanware
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