Wednesday, February 23, 2011

Anxiety over Qatar: It's 'wait and see' over in Malaysia

As Qatari markets are still reeling from its central bank's ban on Islamic banking windows, the Islamic finance industry in Malaysia watches the developments unfold with a measure of trepidation.

Earlier this month, Qatar Central Bank (QCB) issued a circular to convent ional banks with Islamic banking arms in the emirate to close their Islamic operations by end-2011.

Although, in general, Malaysian Islamic banks are not directly impacted by Qatar's announcement, the move took most market players by surprise. For now, though, the industry seems to have adopted a wait-and-see stance as the policy is implemented.

"There has not been clarification from QCB at this stage, so the industry will need to wait and see how QCB will implement this," Deloitte Corporate Advisory Services global Islamic finance leader Daud Vicary Abdullah told The Malaysian Reserve in a telephone interview.
He said QCB had earlier flagged a move in the direction, but had initially indicated that a maximum percentage of Islamic finance business was permissible at a conventional institution.
"The directive to shut it down came as a bit of a surprise," he said.

In a report posted on the website of law firm SNR Denton, it said the circular followed an earlier decision in August 2010 by the regulator requiring the assets of Islamic banking operations to be limited to 15% of a conventional bank’s total assets.
QCB's motives, according to the circular, is to ensure that conventional and Islamic banking operations become entirely segregated, in full compliance with Shariah principles.
To this end, a Malaysian-based lawyer believes that the Qatari regulators would have made the decision "upon due considerations".
"Islamic windows within a conventional banking set-up basically create a shadow-banking operation, ie the formation of a bank-within-a-bank, which makes it quite opaque for the regulators to supervise and monitor the bank's operations as well as the risks associated with it," said Madzlan Hussain, a partner and head of Islamic financial services practice at Zaid Ibrahim & Co.

Perhaps this was amongst the issues bothering the regulator's mind, he said.
In implementing the policy, Madzlan sees the year-end deadline given by the regulator for Islamic windows to wind down as 'challenging', as any such radical change requires the market to be adequately prepared with appropriate infrastructures.
"Here we are not only looking at the market readiness in terms of its human capital and financial capacity to adapt to such change, but quite importantly, whether the public themselves are ready to adapt to such change?" he said.

Reports have indicated Qatar's directive is a step towards emulating Malaysia's comprehensive Shariah framework for its Islamic banks.
Malaysia, which has adopted a dual financial system comprising conventional and Islamic systems under its new central bank laws, has in place an established regulatory and supervisory framework for standalone banks and subsidiaries offering Shariah-compliant products.
Most countries practicing Islamic finance do not yet have such legal framework in place. As such, major policy decisions such as the one made by Qatar should be approached cautiously, said one Islamic banker.
"Surely the regulator does not want to shock the market and cause it to destabilise. There is no one-size-fits-all answer to some of these issues; every policy decisions must take into consideration the specificities of each jurisdiction," the banker said.

(This story appeared in The Malaysian Reserve on 21 February 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)

1 comment:

aparna john said...

Hi,Parties may enter into an agreement in which the foreign party with Business setup in Qatar is allowed to manage the company.Thanks..