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Malaysia Stresses Need to Standardize Islamic Banks
Malaysia Monday stressed the need for standardizing the Islamic financial institutions.
"We need to standardize the supervisory and prudential standards for the Islamic financial institutions," Finance Minister Daim Zainuddin said Monday at the opening of the KL International Summit on Islamic Banking and Finance here
He said that an international supervisory body known as the Islamic Financial Services Board (IFSB) was proposed to design and issue these standards.
"Malaysia looks forward to playing a key role in this initiative and gladly offers to be the host nation," he said.
Daim said the central banks from Islamic countries should work closely towards evolving a consensus on a uniform set of Syariah standards at least for the more universal products, if not all, to inject greater vitality in the Islamic financial sector.
The finance minister said that guided by the IFSB, managing the unique risk characteristics of Islamic financial institutions will become more structured, prudent and transparent.
Urging Islamic financial institutions to be active in the international financial market, Daim said uniformity and standardization would shape the Islamic banking industry and would lead it to a lucrative global customer base.
He noted that there has been some progress concerning Islamic bonds and that the creation of the secondary market arising from such issues would present active trading opportunities.
According to the minister, today Islamic nations manage funds totaling 170 billion U.S. dollars and that there are more than 150 Islamic financial institutions in 50 countries since Islamic banks were first set up in Dubai and Saudi Arabia 30 years ago.
However, he said that up to now, not a single Islamic bank has made it to the list of 100 world's largest banks in terms of asset size or capital strength.
He said although Islamic countries are home to one-fifth of the world's population, the total amount of funds accounted for only about 10 percent of global funds.
He said Islamic banks should strive to be in the top 100 and merger is another alternative because they must not be marginalized in globalization.
Banking Assets on Rise Malaysia's Islamic banking assets have been on the uptrend since the banking system was introduced in the country in 1994, Bank Negara (central bank) Governor Zeti Akhtar Aziz said Monday.
Assets mobilized by the Islamic banking sector in the country as at the end of December 2000 amounted to 47.2 billion ringgit (US$12.42 billion) against less than 5 billion ringgit (US$1.31 billion) seven years ago, she said in her welcoming address at the opening of the KL International Summit on Islamic Banking and Finance here.
According to the central bank governor, in Malaysia, currently there are two Islamic banks and 33 conventional banks with Islamic windows offering the full range of Islamic financial services, enabling the sector to grow steadily at an annual rate of 48 percent in terms of assets.
And the Islamic banking component in the banking system has accordingly increased to account for 6.9 percent of the market share as at the end of 2000 with deposits and financing mobilized amounting to 35.9 billion ringgit (US$9.44 billion) and 20.9 billion ringgit (US$5.5 billion) respectively.
Zeti said that the success of Islamic banking in Malaysia has spill-over effects in other areas of finance and has led to other initiatives in other related areas such as Islamic insurance and Islamic capital market.
According to the governor, the Islamic debt securities market now accounts for a market share of 19 percent of the total private debt securities issued in the market.
Pointing out that despite these developments, significant potential still remains untapped, she said that the Financial Sector Master Plan, was expected to be released on March 1, 2001, to outline the strategies to be implemented to develop the financial infrastructure for Islamic banking and finance.
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