In fact, the first official duty which Secretary General Jaseem Ahmed will have to be involved in will be on Tuesday (May 10) when the 8th Annual Summit of the IFSB kicks off in Luxembourg, the first time the event is being hosted in the European Union. The host, Banque Centrale de Luxembourg, is the only European member of the IFSB and also a founding member of the International Islamic Liquidity Management Corporation (IILM) which was launched in October 2010 and which started operations in Kuala Lumpur in February 2011. Luxembourg has also been the laboratory for Islamic finance in Europe with the first Islamic investment company, Islamic Banking Holdings System (Luxembourg) established in 1978, well before the UK for instance started to engage with the Islamic finance industry.
Ahmed will no doubt aim at consolidating on the impressive achievements of his predecessor Rifaat, who was responsible for building up the industry organization from scratch to its present position.
The summit takes place on May 10-13 with the main proceedings on May 12-13 preceded by three traditional pre-summit events - a workshop on Islamic finance and IFSB standards for institutions offering Islamic financial services and Islamic capital markets, and a special session on liquidity management in the Islamic financial services industry - both on May 10; and IFSB country showcases on Malaysia and Luxembourg on May 11 respectively.
Ahmed's task ahead is both exciting and challenging. Perhaps it is not a coincidence that the theme of the 8th summit is “Enhancing Global Financial Stability: Challenges and Opportunities for Islamic Finance”. In the aftermath of the 2008-2009 global financial crisis the global financial industry is in the process of implementing several changes in prudential controls, stricter supervision and better governance — all to promote financial stability and to pre-empt the excesses of the market practice that undermined the system so badly. Although the Islamic financial sector was less affected by the crisis as an IMF Report stressed in 2010, the industry did not escape the economic impact of the crisis.
The challenges for Ahmed are organizational, technical and political. He has to lead the board to its next level of organizational development, which includes greater delegation of responsibilities; recruitment of top senior personnel; introducing greater transparency to the workings of the organization especially to facilitate greater connectivity with its wider stakeholders and not just its immediate equity subscribers and members; implementing greater transparency in the financial and other resources of the board; the adoption of an in-built performance and quality evaluation process; and communicating and articulating the message of the IFSB and the Islamic finance industry to the world.
Rifaat has given the organization a solid foundation and the Malaysian government has generously given a brand new headquarters for the IFSB adjacent to Bank Negara Malaysia. As such it should not be difficult to take the IFSB to the next level organizationally. The only constraint would be a lack of resources.
The technical challenge for the IFSB is to continue its work in regulatory and supervisory issues especially in the context of the new Basel III and how its provisions may impact on the Islamic finance industry. Once again, the IFSB would continue with its mandate to adapt to the international conventions and directives but within the context of the specificities of Islamic financial services. However, this does not mean that the IFSB should simply imitate the directives coming from Basle or elsewhere. If the IFSB platform has something in return to offer the Basle process which is unique and specific to Islamic finance, it should not shy away from articulating this at the highest platforms in the world. After all, there is a genuine case to be considered in the role that Islamic finance can play to contribute to economic growth and global financial stability.
The IFSB unfortunately is constrained by its mandate and its articles of agreement. As such it cannot get involved in non-regulatory or supervisory issues even though they are indirectly linked. These include legal, legislative and policy challenges which in many respects are even more important for the future development and growth of Islamic finance. If a country does not have an Islamic financial legal framework in place; or parliamentary scrutiny and ratification of such laws; or even the government policy to facilitate Islamic finance whether as a general policy or under financial inclusion, how can the Islamic finance industry flourish in that jurisdiction?
The political challenge for Ahmed is the usual in-fighting that comes with the territory of an international organization. As such, how he navigates these challenges will depend on his leadership skills and personality. He has one big advantage compared to say multilaterals such as the Islamic Development Bank which is weighed down by the politics of its membership, which is dominated by Saudi Arabia, Iran, Libya, UAE and Nigeria. The founders of the IFSB made sure that the membership to the organization was not confined to OIC or IDB member countries, but any country or jurisdiction or organization which has facilitated Islamic finance or is practicing Islamic finance through their activities. This has exposed the IFSB to a much wider international and Islamic finance industry audience. As such the vista of the IFSB is much broader which is borne out by its participation in organizations such as the IMF, Basle Committee, Bank of International Settlements; the International Organization for Securities Commissions (IOSCO) and the International Association of Insurance Supervisors.
From another point of view, the IFSB summit in Luxembourg also signals a new dawn for Islamic finance in the European Union, one of the economic and financial powerhouses of the world and an important platform for cooperation with the traditional centers of Islamic finance in the Middle East and Southeast Asia. Banque Centrale de Luxembourg Gov. Yves Mersch like his political masters at the ministry of finance is the most proactive towards facilitating Islamic finance in his country. The challenge for the Duchy is to give much greater clarity and institutionalization to facilitate Islamic finance and to channel this proactiveness to more concrete developments and achievements. It is a question not only of what Islamic finance can give to Luxembourg but also what the Duchy can do to facilitate it.
Apart from a listings and funds domicile hub, Luxembourg could seriously consider spearheading the establishment of a euro-sukuk market. The costs involved could be partly offset through the right cooperation with institutions such as the IDB and its organs; the IFSB, AAOIFI etc. The Luxembourg economy, especially the corporate sector and SMEs could benefit by raising funds say through sukuk or Murabaha syndications; and of course the government or municipalities through the issuance of sovereign and quasi-sovereign sukuk. However, to achieve this, the business case for Islamic finance as an alternative has to be articulated much more forcefully to demystify Islamic finance and to educate the market about its potential advantages.
