GCC urged to follow unified Islamic finance regulations
By Santhosh V Perumal Available at: http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=488098&version=1&template_id=48&parent_id=28
The Gulf Co-operation Council (GCC) should have a unified rule under one regulator for Islamic investment products for ensuring lower cost of funds, according to Islamic Wealth Management (IWM) Report 2012.
“The GCC countries could take a leadership role by establishing standards for the registration of Islamic investment products with one regulator,” the Bank Sarasin report said.
The report was launched by Bank Sarasin managing director and head of Islamic Finance Fares Mourad and Monzer Kahf, a leading Islamic finance scholar.
Such unified rule would allow asset managers to market the product to clients across the region, it said.
Currently any offering needs to comply with different regulations in Bahrain, Kuwait, Saudi Arabia, Oman, Qatar and the UAE, resulting in a lengthy and expensive registration process, the report said. “Reducing expenses and increasing the availability would increase competition, benefiting local investors and further the GCC’s development as a centre of excellence for Islamic finance.”
Although unified rules could be done either a state, region or Arab league level, it would be better to have a centralised agency that could interpret the legislations regarding Shariah investments, Mourad said.
Asked whether there was a need for a separate entity for the regulation and supervision of Islamic investments and products, he said “I really would like to have this” but it was for the regulators in the respective jurisdictions to decide.
Kahf said the Islamic Financial Services Board could take the lead in the centralised agency as it consisted of central bankers in the Muslim countries. “Once you have such an agency, there is no need for separate Shariah boards as lawyers specialised in the field could suffix its role,” he added.
The report also took note of the constant criticism of certain Islamic finance structures such as the ‘Tawarruq’, which involves purchasing a commodity with deferred payment and selling it to a third party for cash, hence replicating the effect of a loan.
“Regulations need to be adjusted to allow financial institutions to engineer products that fit the spirit of Islam while meeting legal and regulatory requirement,” it said.
In this regard, the report cited an example of recent co-operation between the halal industry (mostly foodstuffs) and Islamic finance – two sectors with similar goals that have had little contacts.
With issues related to the environment and social practices as well as corporate governance getting more attention, it said there has been more reporting on corporate social responsibility, which is important to Islamic finance.
“There is still much room for improvement with higher standards and a more strategic approach required at the state, company and private level. The Muslim countries face the greatest challenges,” the report said.