Liquidity management and effective Shariah governance are two major challenges faced by Islamic financial institutions (IFIs) today, a global forum was told yesterday.
On the banking front, Islamic banks continue to face challenges on the liquidity management front despite many jurisdictions having introduced certain measures to mitigate its impact.
“Islamic banks still face the challenge in their day-to-day management of cash because of the lack of a comprehensive Islamic interbank money market today,” Bank Islam Malaysia Bhd general manager Norashikin Mohd Kassim told one of the panels at the Global Islamic Finance Forum (GIFF) 2012 hosted by Bank Negara Malaysia (BNM) in Kuala Lumpur yesterday.
At a parallel International Shariah Scholars Forum held under the GIFF umbrella, Shariah scholar Sheikh Abdulrahman Al-Atram said Shariah governance standards issued by international bodies have yet to receive international acceptance.
“The standards are there, but they are not being paid proper attention by Shariah boards and individual institutions,” he told the forum. On this matter, International Shariah Research Academy for Islamic Finance executive secretary Dr Mohamad Akram Laldin said issues related to Shariah governance were now emerging as Islamic finance has now grown in size.
“Malaysia does not have many issues here as we have the framework issued by Bank Negara,” he told The Malaysian Reserve on the sidelines of the forum.
The BNM-issued Shariah Governance Framework for the Islamic Financial Institutions, which took effect on Jan 1, 2011, marked a key milestone in the development of Islamic finance in Malaysia and was another first for Malaysia in the global Islamic finance arena.
In the 50-page document, the central bank said it has developed the framework with “the primary objective of enhancing the role of the board, the Shariah Committee and the management in relation to Shariah matters, including enhancing the relevant key organs having the responsibility to execute the Shariah compliance and research functions aimed at the attainment of a Shariah-based operating environment”.
The framework is applicable to all Islamic banks licenced under Islamic Banking Act 1983, takaful and retakaful operators registered under the Takaful Act 1984, financial institutions licensed under the Banking and Financial Institutions Act 1989 that participate in the Islamic banking scheme, and development financial institutions prescribed under the Development Financial Institutions Act 2002 that participate in the Islamic banking scheme.
On liquidity management, Norashikin said Islamic money market faces issues with regard to lack of instruments, non-standard documents and processes, counterparty or credit risk, and the Shariah-compliant poser.
“Funds must emanate from a Shariah-compliant source and they need to be taken up by a Shariah-compliant source. In most places, there is no infrastructure in place to ensure that the funds are ‘clean’ Shariah-compliant,” she said in her presentation.