Finer regulatory model vital in Islamic finance

KUALA LUMPUR: Islamic finance needs to have a comprehensive, legislatively-based, unified, and dynamic regulatory and supervisory framework.

Former International Monetary Fund executive director and acclaimed economist Professor Dr Abbas Mirakhor said this was the important lesson from the current financial crisis.

“Designing and implementing such a regulatory framework is urgently needed,” he said yesterday at the Securities Commission (SC)-Universiti Malaya (UM) Visiting Scholar Programme Public Lecture.

“The regulatory challenge is far more serious within the framework of Islamic finance than in the conventional system.

“Regulation and supervision in the former system have to consider the risk of violation of finance-relevant doctrinal precepts embedded in the institutional scaffolding in addition to violation of strictly regulatory and supervisory framework ruling the latter’s financial system,” he said.

For strong regulation of the Islamic finance sector, the regulatory authority “needs to have enough mandate to supervise/regulate the policy,” Abbas said, adding that Malaysia was a good example of having a good regulatory authority in Islamic finance.

On whether the global financial crisis was over, he said things were much clearer now on what was exactly happening in the market.

“There is less uncertainty now in the market and I think it is reasonable to predict that recovery can be seen by the end of 2010. However, the pace of the recovery will depend on the speed of economic recovery in the developed and emerging countries,” he said.

He also said the protectionism policy implemented by certain countries like the United States for its economy was not helpful.

“Clearly, a protectionist policy like trade restriction is going to affect the economic recovery,” he said.

The SC-UM Visiting Scholar Programme Public Lecture is part of the effort by SC to develop Malaysia as a global Islamic financial centre. Under this programme, prominent and distinguished academicians are engaged as visiting scholars to deliver a series of public and closed-door lectures, assist in academic research as well as provide consultation on dissertations by post-graduate students at UM.

Link: http://biz.thestar.com.my/news/story.asp?file=/2009/9/30/business/4806777&sec=business