“The sustained growth steering this segment of the global economy has fueled a greater impact of Islamic finance products on global financial markets,” Khaled Mohammed Al-Aboodi, chief executive officer and general manager of the Islamic Corporation for the Development of the Private Sector (ICD), told the World Islamic Banking Corporation 2010 conference on Thursday.
“The ICD was set up more recently, in 2000, as the private sector arm of the IDB Group to focus primarily on private sector development of its member countries with a view to poverty alleviation and raising the general standard of living in its member countries.”
He added that as a response to the global financial crisis, which has had a particularly negative impact on most of its member countries, the majority being among the most underdeveloped countries in the world, ICD has recently undergone a substantial shift in its operational strategy to address current market failures and expedite certain developmental targets set under the Millennium Development Goals.
“Under its new strategy, ICD will focus more on the development of Islamic finance channels to reach out and spread products to a greater multitude, which will have a greater developmental impact in its member countries,” he said.
“This will be achieved substantially through setting up Islamic banks, investment and Ijara companies, takaful and re-takaful companies, which will serve to strengthen the existing financial system.”
He envisaged the ICD strengthening its partnerships with local financial institutions for the support and development of small and medium enterprises through lines of financing.
He claimed this initiative would promote access to medium-term financing for SMEs, vital for their long-term growth and sustainability.
“In addition, the IDB Group is already working closely with government authorities of various member countries towards the introduction of relevant legislation to accommodate Islamic Finance transactions. ICD is also acting in an advisory capacity to governments of some member countries, particularly in the issuance of sovereign sukuks,” he said.
“The lack of availability of Shariah-compliant instruments for efficient liquidity management is clearly hindering the proper development of Islamic financial institutions in many of ICD's member countries. In this regard, the ICD together with 11 central banks and the IDB signed an accord to establish the International Islamic Liquidity Management Corporation (IILM) as a supranational body to serve the global Islamic finance industry.”
This initiative was first announced by the Islamic Financial Services Board (IFSB) on the sidelines of the IMF-World Bank Group annual meeting in Washington.
This new venture will enhance liquidity management of institutions offering Islamic financial services and also facilitate cross-border liquidity management across the industry.
“In the current financial turmoil, there are great opportunities for Islamic finance to make a marked impact on the global financial markets and on the real economies of member countries, but huge challenges remain for the proper development of Islamic finance,” Al-Aboodi said.
Harmonizing accounting and regulatory standards, getting legal recognition of Islamic finance transactions through proper local legislation, investing in human resources and Islamic finance institutions, promoting increased depth and sophistication of local Islamic finance capital markets would require urgent local policy attention, he added.
“It is clear that a close partnership among local governments, regulators and accounting bodies (IFSB and AAOIFI), private sector enterprises, commercial banks and developmental finance institutions is urgently required where each would play a key role for driving sustainable growth in this challenging climate,” he said.
