Islamic finance industry under-regulated: Survey

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DUBAI — Sixty-six per cent of Middle East Islamic finance leaders believe that the industry is under regulated, a survey report released on Thursday by Deloitte reveals.

Titled ‘Benchmarking Practices’, the report provides a wealth of statistical findings as well as analysis of these themes.

According to other key findings, 80 per cent of Islamic finance leaders surveyed expect levels of corporate structuring and organizational change to increase. Only 35 per cent of Islamic finance executives believe that Islamic banks are properly capitalised.

“As the first of its kind in the Middle East, this survey provides a truly regional picture of market sentiment and how Islamic finance leaders perceive the current economic slowdown, business performance, and the way forward,” Dr Hatim El Tahir, Director of Deloitte’s Islamic Finance Knowledge Center in Bahrain, said in an emailed statement. “Although Islamic finance is expected to continue its growth path, the development of the industry’s infrastructure and regulatory framework is of high concern to most executives who took part in this survey,” added El Tahir.

Two out of three Islamic finance leaders expect a change in the existing business models of Islamic finance in the foreseeable future.

Some 64 per cent of survey participants agree that Islamic finance Institutions are lagging behind on 
the implementation of risk management systems.

Four key themes emerged from the survey. These include the importance of introducing new or revised regulatory measures – chief among them being Islamic accounting standards and risk management. Other themes include the importance of adopting best practices and transparency in financial reporting; the necessity of adjusting investment strategies through diversification; and the need for investment in human capital and talent development to cope with the growth and industry challenges.

“The Islamic Finance Leaders Survey is a key pillar of this aim. By providing essential industry benchmarks, we hope to inspire dialogue and create a basis for the positive growth of the industry in the years to come,” El-Tahir said. Islamic finance will need to move beyond the retail market and develop its capital markets globally to compete better with conventional finance, Daud Vicary Abdullah, global leader of Deloitte’s Islamic finance group, said.

International markets such as Japan and London are actively trying to raise sharia-compliant capital in order to tap liquidity from the Gulf region. Islamic finance still represents less than 1 percent of the global market,” he said. “It’s not yet punching its weight,” he said.

Abdullah said that the economic power is moving further east and currently in the Middle East region, with $600 billion of the $1 trillion Islamic finance industry is coming from the Gulf Cooperation Council.

He said Deloitte is working with three major financial Japanese financial corporations to raise Islamic funds outside of the domestic market and is also working on Islamic finance projects in Italy, Germany
 and Luxembourg.

But the Islamic finance industry will need to address concerns over accounting standards and risk management, the Deloitte survey found, if it wants to reach its growth potential.

Best Regards
ZULKIFLI HASAN
DURHAM, UK

With the Grand Mufti of Bosnia and Herzegovina, Dr. Mustafa Ceric in Sarajevo