The next step of evolution in Islamic finance will involve banking businesses expanding beyond credit intermediaton to investment intermediation, according to Zeti Akhtar Aziz, governor of Bank Negara Malaysia.
The directors and Shariah scholars of Islamic financial institutions need to be adequately equipped with the necessary knowledge so as to have an understanding important for steering the business to the new directions of the industry
Zeti envisages the development of Islamic investment intermediation will come once a new generation of risk-sharing contracts can be applied to investment products and this will enable Islamic finance to help ensure “more inclusive and more balanced growth”.
Islamic finance represents financial contracts between individuals that are compliant with Sharia law. In essence this involves risk sharing and profit sharing between parties and a ban on the payment of interest, at least in its conventional form.
Some parties believe Islamic finance, which does not involve high levels of leverage but includes assets believed to be in excess of $2 trillion, is better aligned than conventional finance with the real economy. “[Islamic finance] has an immense potential role as a transformative agent in the economy, particularly in serving the requirements of the real economy and the broader society,” said Zeti, during an address to the Global Islamic Finance Forum 2014 in Kuala Lumpur today.
Zeti stressed that new laws, such as one passed in Malaysia in 2013, need to be enacted around the world to recognise the role of financial institutions as investment intermediaries for Islamic finance, separate to established rules for the acceptance of Islamic deposits.
She added that technological advances need to be utilised to develop innovative platforms for Islamic investment accounts and products. The development of highly trained Islamic finance executives is also essential to facilitate growth, Zeti said.
New skills and awareness are also required at a senior level. “The directors and Shariah scholars of Islamic financial institutions need to be adequately equipped with the necessary knowledge so as to have an understanding important for steering the business to the new directions of the industry,” she said.
Originally published on www.centralbanking.com