|Islamic finance a reform of financial architecture|
|In The Edge Financial Daily Today 2012|
|Written by Kamarul Anwar of theedgemalaysia.com|
|Monday, 24 September 2012 17:00|
KUALA LUMPUR: Islamic finance sure has got the attention of the world, however it has not usurped conventional banking yet.
Getting Islamic finance to become the globally preferred financial model is a challenge and it will not happen overnight, said Dubai-based investment firm Fajr Capital CEO Iqbal Khan. "But the world's economy is in dire need of a panacea, which is "a fundamental reform of financial architecture," Iqbal told The Edge Financial Daily.
Iqbal believes that Islamic finance has the safer model. He knows that Islamic finance "has a solution but it does not have the ability to implement the solution globally", noting the financial system has not been as globally accepted as the conventional system.
Courage, vision and commitment are required to put Islamic finance at the forefront of the global financial system, according to Iqbal. However, he pointed out that the economic downturn in 2008 made people notice Islamic finance and its benefits.
"Financial crises are never good for business and the economy. But they will affect Islamic banks to a lesser extent," he said. "(Islamic banks) are not involved with subprime mortgages, the US$600 trillion [RM1,830 trillion] derivatives industry, the hedge funds and speculation."
"Thus, financial crises do raise an issue: Is there a case for a new banking model? Is there a case for the economy to undergo a structural reform?" he said. Iqbal cited an example where banks were being bailed out by taxpayers' money in the West due to toxic assets, consisting of structured derivatives, during the global economic crisis in 2008.
Currently, the banks control the financial intermediaries and the economies would collapse if they were in trouble, he said. The payment system, Iqbal suggested, should be with "safer" banks. "And these banks shouldn't be doing 'exotic' things like derivatives," he said.
Iqbal recognises that Malaysia is already playing a leading role in Islamic finance.
"I think it has a very vibrant domestic market and has a very inclusive banking model, which allows people of all backgrounds and religions to use Islamic banking products and services. More so, to the extent that they want to use Islamic finance's offerings," said Iqbal.
Recently conferred The Royal Award for Islamic Finance by Bank Negara Malaysia (BNM), Securities Commission and Malaysia International Islamic Financial Centre (MIFC), Iqbal is a pioneer in Islamic finance and banking.
Iqbal is one of the founders of HSBC Amanah, the bank's Islamic banking spinoff, in which he served as its founding CEO and was involved in its sukuk initiative. Today, HSBC Amanah has a presence in 10 countries, including the UK.
"The UK Prime Minister Gordon Brown brought in reforms and created laws which enabled the introduction of Islamic home finance, syariah-compliant venture capital and SME financing," said Iqbal. "[These changes] allow British Muslims to become more Muslim and more British, with no conflict," he said.
Yet, with these new emerging markets, Iqbal believes Malaysia still has the advantage in sustaining its role as the leader in Islamic finance.
"Malaysia has all the building blocks to maintain the leadership of Islamic finance. From the regulators to the government and BNM, these groups have been giving tremendous support for the growth of Islamic finance," he said.
And the support is so significant that he believes if there is one thing that unites key Malaysian figures — despite their political proclivities — is their aspirations for Islamic finance to grow.
There are, however, challenges for Malaysia to continue growing Islamic finance and the banking sector. The future lies in Malaysia's ability to offer new products and services while also churning out fresh talent to build the next generation, Iqbal advised.
This article appeared in The Edge Financial Daily on Sept 24, 2012.