(MENAFN - Arab News) There is much talk about the emergence of Islamic finance as an alternative model to the classical neo-liberal market system. But are the Muslim markets where Islamic finance is available up to meeting this challenge?
One Islamic banker, Badlishah Abdul Ghani, CEO of CIMB Islamic Bank, believes that Islamic banking may be in danger of sleepwalking into a major crisis, not because of the credit crunch or the global financial crisis, but because of its internal contradictions and the anomalies between the various jurisdictions. And he suggests that the Asia-Pacific could lead the revolution in Islamic finance over the next decade because of its more developed regulatory and legal infrastructure.
In Asia, several jurisdictions, including a number of non-Muslim ones, have recently been, or are, in the process of beefing up their regulatory and legal framework to facilitate Islamic financial products outright or by providing a level field for equivalent of Islamic financial products compared with conventional products.
For instance, Bank Indonesia, the central bank, a few weeks ago issued four new regulations governing Islamic banks under the provisions of the 1998 Banking Law and the 1999 Central Bank Law, which include new rules on minimum reserves for Islamic banks at the central bank; payments clearing; the creation of an Islamic interbank money market; and the issuance of Bank Indonesia Wadiah-based promissory notes to provide liquidity to the market.
Bank Indonesia Deputy Gov. Subarjo Joyosumarto maintains that the issuance of these four regulations show the most populous Muslim country's commitment to develop a sound Islamic finance legal and regulatory regime.
Similarly in February 2009, Hong Kong financial secretary, John C. Tsang, confirmed in his 2009/10 budget speech that legislation will be sent to the Legislative Council during this year to facilitate tax neutrality between Islamic financial products and equivalent conventional ones "to consolidate Hong Kong's position as an international financial center."
Financial Secretary Tsang added, "Particular measures are needed to improve Hong Kong's regime as a platform for the growing area of Islamic finance. Since the structure of most Islamic financial products involves the sale and re-purchase of assets, such transactions may entail tax liabilities in Hong Kong. Therefore, we plan to submit to the Legislative Council in 2009-10 a proposal to create a level playing field for Islamic financial products vis--vis conventional ones."
Many market players concur that it is up to the Middle Eastern countries to follow the Asian, especially the Malaysian example because Islamic banking activities in the MENA (Middle East and North Africa) region are still regulated on an ad hoc or piecemeal basis depending on which products or asset classes are in vogue.
Saudi Arabia is regarded as the beacon of hope for the leadership of the Islamic finance sector in the GCC. "The Kingdom, of all the GCC markets has been the most spot-on in terms of how it approaches the financial market. The authorities only allow things to happen when it is regulated by SAMA (Saudi Arabian Monetary Agency).
Sometimes people complain that there is over-regulation, but in hindsight that is what saved the Saudi institutions from the financial crisis," explains Abdul Ghani.
New SAMA Gov. Muhammad Al-Jasser is seen as someone who knows the market very well in what it needs. "SAMA has the ability to take on the leadership role and provide the right infrastructure for Islamic finance in the GCC. I sincerely hope they look at how things have been done in Malaysia," adds Abdul Ghani.