DOHA: Islamic financial institutions need strong corporate governance to maintain their integrity and win the confidence of investors and customers, bank chiefs and financial analysts said at a conference yesterday.
The industry was worth $250 billion in 2004 and is growing by 15 per cent every year, Qatar’s Central Bank chief told delegates at a conference. But Abdullah Khalid Al Attiya warned that “corporate governance is key” to the continued growth of Islamic finance. The sector needs “preventative rather than corrective action”, he said on the sidelines of the event.
Central bank governors, bankers and scholars were meeting in the Qatari capital Doha to debate a common set of regulations for the industry.
Standards still vary between different Islamic financial institutions, as well as countries, with each bank or insurance company having its own Shari’ah board to oversee policy.
More importantly from a regulatory perspective, the payment of interest is also banned. Investment profits are distributed by means of regular payments or a lump sum.
The investments differ from conventional deposits from a regulatory perspective because depositors and investors are treated differently under conventional banking regulations.
The Islamic Financial Services Board (IFSB), an umbrella group for Islamic financial regulators formed in 2002, published draft rules on risk management and capital adequacy in March, and will publish drafts on corporate governance early next year.
Rifaat Ahmed Abdel Karim, secretary general of the IFSB, acknowledged the need for unified regulation. He pointed to forthcoming Basel II international banking regulations, which are aimed at bolstering transparency, improving credit risk management and lowering operational risks.                       – Reuters
Last update on: 25-5-2005