‘Islamic banking has role in global finance’

By Alfean Hardy
Islamic finance has a role in shaping the future of the global financial and capital market landscapes, and could very well be the vehicle that brings back the element of trust into the world’s financial system, Malaysia International Islamic Finance Centre's (MIFC) financial ambassador Raja Nazrin Shah said.
In a royal address at the World Capital Market Symposium in Kuala Lumpur yesterday, Raja Nazrin, who is the crown prince of Perak, said that while everyone wanted to believe in the system of finance, "it has apparently let us down".
"It has tried to place mathematics at the centre of a financial system to manage risks and provide reassurances (but) no matter how sophisticated the calculations are, they can never be a substitute for trust.
"Formulas cannot replace the human conscience, and markets will not flourish if people no longer believe in the products being sold or in how the markets work," he added. Raja Nazrin said the five pillars of Islam were ideal in rebuilding the confidence in the financial system by creating belief without reservation and that the challenge ahead was about putting faith into finance.
"Finance requires trust (and) trust is comprised of a set of universal elements like honesty, fairness, justice and clarity, which can be found in all religions," he said.
"The guidance provided by these values is supposed to help in ensuring that responsibility is exercised when making decisions to do with the deployment of capital," he added.
Raja Nazrin said such guidelines were essential given that fact that unlike before, everything was connected and that there was a need for a financial system that had high moral standards built into its structure.
"Today finance is not delineated by the boundaries of a city or even a country.
It’s global and interconnected,and even if one component is weak, the integrity of the system could be at risk," he added. Raja Nazrin said Islamic finance has grown substantially in the past few decades and as seen in the UK, Australia and South Korea, Islamic finance was no longer limited to the Islamic world.
"The world is interested and I believe Islamic finance will be up to the challenge," he said. He warned, however, there was a need for further openness if the industry were to flourish.
"While we have seen rapid growth in the industry so far, I foresee that industry participants will have to be unambiguous in defining their corporate strategies," he said.
"They must share their risk management best practices and document plans and processes so that they may be used for studies evaluating the industry. "Such self-critical evaluation can only help … establish accountability and help the Islamic finance industry and Islamic financial institutions stand apart from those of their conventional peers," he added. (The Malaysian Reserve, Aug 12, 2009, p4)