Keynote Presentation:

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Keynote Presentation Shariah as Key
Pillar in Overall Islamic Financial Industry
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• Bismillahirrahmanirrahim
• Yang Amat Arif Datuk Sheikh Ghazali Abdul Rahman
• Chairman, Shariah Advisory Council of Bank Negara
  Malaysia
• Distinguished scholars
• Distinguished guests
• Assalamualaikum warahmatullahi wabarakatuh
• It is my honour to be here this morning to
  officiate the International Shariah Scholars
  Dialogue as part of our endeavour to strengthen
  further Islamic finance as a credible, dynamic
  and resilient financial industry in the global
  financial system.

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• As you are aware, this dialogue is a continuation
  of the inaugural Shariah Scholars Dialogue held
  in June last year. As the first dialogue has made
  a breakthrough in gathering prominent scholars to
  engage in a constructive dialogue, Bank Negara
  Malaysia is committed to continuously provide the
  enabling platform for the Shariah community.
• I hope this two-day dialogue would pave the way
  for further progress in fostering the cooperation
  and collaboration among scholars, in particular,
  to address important Shariah issues faced by the
  Islamic financial services industry. It is our
  aim that this kind of dialogue would become the
  platform to deliberate cross border Shariah
  issues and to reach a common agreement to
  facilitate the smooth running of Islamic finance
  globally.

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• Ladies and Gentlemen
• For more than two decades, we have witnessed the
  rapid expansion of the industry, and observed
  bright growth prospects in the Islamic financial
  industry which is now becoming more globally
  integrated. Islamic finance has now gained wide
  acceptance as a form of financial intermediation
  even in non Muslim countries.
• As the pace of development of the industry
  accelerates and as the environment becomes
  increasingly more competitive, the industry is
  continuously faced with more issues and
  challenges in areas such as banking practices,
  legal and product development which requires
  concerted efforts from a host of stakeholders to
  confront and resolve these issues.
• Now I would like to deliberate further some of
  the issues that I have raised earlier.

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• Rapid expansion with bright growth prospects

• Continuously facing issues and challenges

• Confront and resolve issues

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Rapid Expansion

• Greater efforts to develop a comprehensive
  financial system
• Banking, takaful, and financial market
• Growing asset size
• Islamic finance is now globally integrated
• Facilitates cross border trade
• Active involvement of conventional markets in
  Islamic finance
• Islamic bank is governed by its own set of
  international
• regulatory and prudential standards
• Malaysia Islamic finance initiatives

Operates in more challenging environment ...
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Malaysia Islamic Finance Initiatives

• Malaysia as an International Islamic Financial
  Centre
• Attracting players to establish business office
  in Malaysia to set up International Currency
  Business for both banking and takaful business
• Providing support and enabling platform in the
  origination, issuance and trading sukuk both
  Ringgit and multi-currencies
• Liberalizing foreign exchange policy to allow
  multi-currencies sukuk to be issued out of
  Malaysia
• Promoting fund and wealth management
• Granting tax holiday for 10 years under Income
  Tax Act
• Established one stop Executive Committee to
  facilitate the implementation initiatives

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Islamic Finance Internationally Integrated
Greater participation of conventional markets
Major advancement of IFSB

• Globally recognized institution encompassing
  banking, takaful, capital market sectors
• 94 members (including IMF, World Bank, BIS)
• Globally accepted international regulatory and
  prudential standards

• New licenses in non Muslim countries e.g. UK and
  France
• Legal amendment (e.g. tax law) to facilitate
  Islamic finance - UK, Spore
• Tapping Islamic funds through sukuk issuance
• Multinational corporations and multilateral
  agencies e.g. World Bank
• Strong interest from Japan

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Islamic Finance Today

• 300 Islamic financial institutions and more than
  80 takaful operators around the globe
• Islamic assets of Islamic banks and window-based
  conventional banks gtUSD560 billion
• Global market capitalisation of Dow Jones Islamic
  Index gtUSD10 trillion
• 350 Shariah-compliant funds have been established
  globally
• Increase in liquidity in particular from GCC
  countries by USD500 billion from high oil prices
• Great potential demand for sukuk market
• Source Islamic Finance News

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Issues and Challenges...
Given that...
There is this need to...
Confront and resolve issues \

• Fast evolution of Islamic financial system
• Rising competition from well established and
  emerging financial centres
• Untapped potential in the industry

• Continuously review regulatory and legal
  framework to suit Shariah requirements

Modernize and innovate Islamic financial
system within Shariah boundary to meet
customers demand

• Develop and standardize global Islamic banking
  practices promote uniformity to facilitate
  cross border transaction and global convention
  equivalent to ISDA, UCP

• Conduct in depth research and find solution on
  Shariah issues relating to risk mitigation,
  liquidity management and hedging

• Address shortage of talents in particular
  financial savvy Shariah Scholars and Shariah
  savvy financial practitioners

• Continuous adaptation of Islamic financial
  products - is it sustainable?

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Why are there issues on adaptation in Islamic
finance products?
Conventional savvy Islamic practitioners
Expect Shariah scholars to align Islamic
financial products to suit conventional operating
environment
Relegate Shariah as product shaper as compared to
environment shaper

• Need to develop conducive and robust Shariah
  environment
• genuine Islamic financial instruments
• Islamic banking practices and disciplines
• regulatory and legal regime

Shariah scholars key stakeholder to facilitate
this development
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• ...To each among you, We have prescribed a law
  and a clear way. If Allâh willed, He would have
  made you one nation, but that (He) may test you
  in what He has given you so strive as in a race
  in good deeds. The return of you (all) is to
  Allâh then He will inform you about that in
  which you used to differ.
• Surah al-Maidah verse 48

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I hereby officiate the International Shariah
Scholars Dialogue 2006
May we have a successful dialogue, InsyaAllah

• Thank you

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Addressing Scarcity of Shariah Talents
Malaysias contribution...

• Fund for Shariah Scholars in Islamic Finance
• International scholarships to pursue post
  graduate studies in Shariah specializing in fiqh
  muamalat
• International scholarships to Shariah graduates
  to pursue Certified Islamic Finance Professional
  (CIFP)
• Grants (USD1million) for research and development
  in Shariah specializing in fiqh muamalat
• International Centre for Education in Islamic
  Finance (INCEIF)
• Offer world's first professional certification
  programme in Islamic finance
• CIFP Bright Scholarship full time CIFP
  programme at INCEIF
• Offer post graduate studies in Islamic finance

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Issue of non convergence... meeting different
expectations

• Must conform with Shariah tenets
• Instruments
• Legal
• Regulatory

• Constrained by conventional operating
  environment competition
• Subject to legal and tax regime which is not
  designed to cater for Islamic contracts

Practitioners Expectations
Shariah Expectations
Leads to
Current operating environment limits full
adoption of Shariah tenets leading to
accommodative Shariah practices, resulting in non
convergence.
Given this operating environment, what would be
our level of tolerance ?
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• Before I end my presentation, I would like to
  quote the meaning of verse 48 of surah Al-Maidah
  which says that...

• ...To each among you, We have prescribed a law
  and a clear way. If Allâh willed, He would have
  made you one nation, but that (He) may test you
  in what He has given you so strive as in a race
  in good deeds. The return of you (all) is to
  Allâh then He will inform you about that in
  which you used to differ.

It is in this endeavor that we really need to put
our efforts and contribution to support the
development of Islamic finance. Ladies and
gentlemen, Dengan lafaz
I hereby officiate the International Shariah
Scholars Dialogue 2006 May we have a successful
dialogue, InsyaAllah