The Islamic Financial Services Board (IFSB) has built a solid global reputation as a prudential standard-setting body for Islamic finance, said Bank Negara Malaysia Governor Tan Sri Dato' Sri Dr Zeti Akhtar Aziz in opening remarks at the IFSB's Meet the Members & Industry Engagement Session in Kuala Lumpur in late January. "The initiatives and milestones achieved by the IFSB have indeed paved the way for jurisdictions across the globe to build a solid foundation for the progressive growth of Islamic finance that is underpinned with stability," she said.
Dr Zeti also observed that the IFSB has made significant advancements in taking forward the recommendations made in the Islamic Finance and Global Financial Stability Report 2010 towards achieving financial stability in the national and the international Islamic financial system. "The effective implementation of the standards issued by the IFSB is key towards promoting the soundness and stability of Islamic financial institution. To enhance this prospect, the IFSB has strengthened its role in facilitating greater jurisdictional preparedness in the adoption of these standards through the provision of technical assistance to its members," she said.
"Malaysia is one of the jurisdictions that has adopted and operationalised the prudential standards and the guiding principles that have been issued for the industry. The implementation of these standards and guiding principles support the regulatory framework that we now have in place in our Islamic financial system."
Dr Zeti said that Islamic banks in Malaysia now have the potential to be better able to pursue their role as investment intermediaries through the offering of investment accounts in addition to the entrenched deposit products. The legal recognition of investment accounts in the Islamic Financial Services Act 2013 (IFSA) differentiates between deposit accounts and investment accounts while offering a new investment avenue, one that is being channelled to finance entrepreneurship, she pointed out.
Dr Zeti highlighted the Investment Account Platform (IAP) that is currently being developed for its growing popularity. The IAP will provide a centralised multi-bank platform as a new financing option for entrepreneurs with viable projects as well as an opportunity for the investing public to finance these projects, she noted.
"It is encouraging that to date, eight Islamic banks are offering investment accounts to their customers. More are expected to follow when the value proposition of such investment accounts, with its unique features and the different target market become better understood. The industry-led communication by the Association of Islamic Banking Institutions Malaysia will contribute towards increasing the awareness of customers on the concept and on the key features of investment account. The latest establishment of a consortium developed by four Islamic banks to develop and operate the IAP which is to be launched next month is also another initiative to advance this new offering," she revealed.
Dr Zeti also listed some of the prerequisites for a successful introduction to the investment account. "In the development of the investment account, it will be essential for Islamic banks, investors and entrepreneurs to embrace the different approaches in the management of the risk and return relationships that are embedded in the variations of the shari'ah contracts used in such investment accounts. These relationships need to be well understood by the parties involved and which are aligned with clear contractual and operational requirements.
"The IFSB has an important role in not only providing guidance but also in initiating the convergence of the different practices between IFSB members with regard to the treatment of the investment account - also referred to as profit sharing investment account (PSIA) - in the IFSB standards. More in-depth work can also be explored by the IFSB on the prudential requirements for the investment account to further ensure a conducive environment for such risk-sharing offerings," she said.
The global Islamic financial system is now operating at a time when the international economic and financial environment has become immensely more challenging. New risks that are more complex, with more profound systemic implications are emanating with the increasing forces of financial liberalisation, globalisation, technological advancement, intensified competition, financial innovation and the internationalisation of Islamic finance. Cumulatively, these developments necessitate greater prudential regulation and supervisory oversight to ensure a resilient and sustainable financial system.
Dr Zeti said the role of the IFSB remains instrumental to the industry, especially internationally, and called for members to continue their support for the IFSB. "Greater concerted efforts by members to consistently adopt and implement the prudential standards issued by the IFSB will not only contribute towards preserving financial stability but it will also enhance regulatory harmonisation across jurisdictions," she said.
"Malaysia, as the host of the IFSB will continue to be committed to support its development and its potential as a prudential standard-setting body in the international financial system."
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