Framework to evaluate Islamic finance's impact on economy proposed

October 4, 2018 | By | Reply More

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KUALA LUMPUR: A framework to evaluate the impact of Islamic finance on the economy should be the next agenda in shaping its development, said former Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz.

She said the proposed future finance should be both value adding and value-based, whereby value adding would reflect in the contribution in facilitating and supporting economic activity, while value-based could be seen in how it benefits the society.

“The ultimate impact of Islamic finance on the economy is less clear, hence, such value adding and value-based forms of finances give purpose to the role of finance to bring benefits to the economy and the community,” she said when presenting the Royal Award Islamic Finance Lecture today.

The lecture was held in conjunction with the two-day Global Islamic Finance Forum (GIFF) 2018.

Zeti also said assessments on the resilience of the Islamic financial system and the elements that supported such resilience should be conducted based on the track record of the sector.

Representing 12 jurisdictions, Islamic banking assets made up more than 15% of the total banking assets in 2017 while the global Islamic banking assets reached US$1.5 trillion (RM6.2 trillion) and global sukuk outstanding surged to US$400 billion in the same period.

She also noted that the magnitude of financial crisis on the Islamic banking institutions was very much less as compared with conventional banking.

“Comparing the top 10 Islamic banks with the top 10 conventional banks during the financial crisis of 2008-2009, it showed that the combined market capitalisation of Islamic banks did experience a decline by 8.5%, and it was far less than the latter, which declined 42.8% for the period from December 2006 to December 2009,” she explained.

She further said that the aggregate net profits of Islamic banks increased by 9% for the same period, while the conventional banks’ net profits declined by 64%.

Commenting on the harmonisation of Shariah framework and mutual respect in the application of Shariah interpretations and rulings, which has intensified, Zeti said that the Roundtable Meeting of Shariah Advisory Authorities, announced by BNM two days ago, would provide a platform to further streamline the framework for Shariah resolutions across jurisdictions.

“Several jurisdictions have now established such a central Shariah entity, which indeed further strengthened the strategic network for engagement and foster understanding on Shariah interpretations among centralised Shariah authorities,” she said.

Islamic finance is now practised in more than 50 countries and its total assets in 2017 was estimated to have surpassed the US$2 trillion mark. – Bernama

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