President & Chief Executive Officer, SHAPE™ Financial Corp
Partner, Allen & Overy
Executive Director, KPMG, Malaysia
Nik Norishky Thani
Islamic Finance Specialist, Bank Negara Malaysia
Sheikh Nizam Yaquby
Managing Director, Standards & Poor’s Singapore
Director Islamic Indexes, Dow Jones Indexes
scholar, Sheikh Nizam Yaquby warned that not all regulatory bodies are favorable to Islamic financial institutions. Where regulations are proactive and innovative, Islamic financial institutions in markets like Malaysia should be thankful.
Nik Norishky Thani, Islamic finance specialist at Bank Negara Malaysia
, said Malaysian regulators create the right environment and are very proactive. He said Malaysian regulators analyze the best way to meet industry objectives, after listening to what industry players have to say and weigh the pros and cons. He added that these regulators are aware of the pitfalls and are trying to avoid over regulation.
In terms of transparency, the issue is slowly being addressed, according to Tariq al-Rifai, director of Islamic Indexes, Dow Jones Indexes
. “There is a push now towards more transparency, particularly in disclosing how a fund invests,” he said, adding that the industry players need to continually question if transparency has indeed been achieved.
On the question on how Islamic finance differs from the conventional, Tariq said the difference lies in the level of transparency and risk. But this difference is only apparent during bad times. He said that when times are good, people forget about transparency and risk, but when things start to fall apart, they realize the importance of a high level of risk and transparency.
Hooman Sabeti-Rahmati, a partner at law firm Allen & Overy
cautioned that while people are generally aware of legal risk, they see danger in what does not exist, while failing to see perils in what actually does exist. His case in point is The Investment Dar
judgement where in English law, trust is a highly complicated instrument and there is a tendency in Islamic finance to take a conventional document and change it.
On a question on Islamic banks and Islamic banking windows, Sheikh Nizam said windows and Islamic extensions of conventional banks are a new phenomenon and it is good for the industry. He however queries the Shariah
compliant level of these entities and said if mistakes based on compliance are made, the Shariah
board or central bank should be the point of reference to correct them, as proper checks and balances to measure purity can be used.
On dealing with disputes and cross border transactions, Hooman said the conventional banking world has carried on fine so far without having a central dispute authority. He is of the view that if Islamic finance is governed by a proper law that is enforced and complies with the Shariah
, there is no particular need for a central body. However, Sheikh Nizam and Nik Norishky highlighted two active arbitration centers – one in the Dubai International Financial Centre
) and one in Kuala Lumpur.
On the specifics of Shariah
transactions, Surinder Kathpalia, managing director of Standard & Poor’s Singapore revealed that the rating agency does not get into specifics if the transactions comply with Shariah
law. He said Sukuk
is analyzed in a straightforward way, where credit quality of the sponsor and underlying cash flow or assets and guarantee are examined. Sheikh Nizam however added that agency ratings on transactions may not be accurate.
Nicholas Crist, executive director of KPMG Malaysia
said Malaysia is moving to the second level in terms of taxation, as tax deduction has been granted, as has stamp duty exemption which puts the country miles ahead of the rest in the promotion of Islamic finance.
Sheikh Nizam said any established jurisdiction will have the legal and tax system which needs to be taken into account when mixing with Shariah
Nik Norishky then mentioned that the concept of profit and loss sharing still has issues and is not sure if the industry is ready to embrace profit and loss as there may be a lack of expertise and analysis on the matter. For example how can one categorize profit on Murabahah
? While it does not mean from the Shariah
perspective that profit is equal to interest, a loan with interest has the same risk as a sale contract. Hence, legal, tax and risk documents are different and there remains the need to categorize.