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GIEM 65 October 2017

Abdelilah BELATIK

Secretary General of CIBAFI

Welcome to the 65th edition of the Global Islamic Economics Magazine (GIEM).  As always, it is our pleasure to keep you updated with current challenges and prospects in the global Islamic financial services industry (IFSI). The GIEM also serves as the platform for CIBAFI to keep our stakeholders informed about our activities and key initiatives.

As part of its first Strategic Objective of Policy, Regulatory Advocacy, CIBAFI provided comments to the Accounting & Auditing Organization for Islamic Financial Institutions (AAOIFI) on its Exposure Draft (ED) on Financial Accounting Standard (FAS) No. 30 Impairment and Credit Losses comprising key points as well as detailed analysis, and to Basel Committee on Banking Supervision (BCBS) on the Consultative Document on “Simplified alternative to the standardised approach to market risk capital requirements”

In its submission to AAOIFI, CIBAFI pointed out that as FAS 30 covers some of the same topics as IFRS 9, it would be helpful if AAOIFI could provide more guidance and a description of the principal similarities and differences between the two in the areas where they overlap. CIBAFI commented that a number of its members have to use IFRS for some or all of their financial statements, and are naturally concerned to understand where the differences lie. CIBAFI welcomed, in principle, the application of an Expected Credit Loss (ECL) approach in Islamic finance, both on its merits and because of the closer alignment this will create between the Islamic and conventional standards, notably the relevant parts of IFRS 9. CIBAFI comments noted that a number of its members have expressed concern at the exclusion of Mudaraba and Musharaka contracts from the ECL approach in respect of future cash flows. In addition, CIBAFI recommended the standard to provide more elaboration and explanations, especially with regards to details on specific characteristics of Islamic banking products and practices.

Additionally, in its submission to BCBS Consultative Document on “Simplified alternative to the standardised approach to market risk capital requirements”. CIBAFI noted that as Islamic banks are, for the most part, relatively small by global standards and are mainly based in emerging markets, they would be likely to take very little market risk. The fact that they are Islamic, however, means that for Shariah compliance reasons, they will be very restricted in their ability to take short positions or to use derivatives. This is likely to make their market positions simpler still, and those positions are likely to remain simple in the longer term.

Moreover, the design of the reduced sensitivities-based method (R-SbM) is significantly different from the design of the already widely-used Basel II standardised approach. CIBAFI is therefore concerned that the implementation of this method may pose substantial implementation challenges and costs for Islamic banks that already use Basel II approach. In addition, the benefits of implementation are uncertain and yet to be clarified. Therefore, the view of CIBAFI is to prefer a recalibrated Basel II approach, but of course subject to the details of the way this proposal is developed and its implications for capital. In its submission to the BCBS, CIBAFI highlighted the need for the BCBS to align its work recognizing the Islamic financial industry’s considerations. Detailed comments submitted to AAOIFI and BCBS are available on CIBAFI website http://www.cibafi.org.

As part of CIBAFI’s third Strategic Objective of Awareness and Information Sharing, CIBAFI  in collaboration with the Association of the Mediterranean Chambers of Commerce and Industry (ASCAME) and the Chamber of Commerce of Barcelona is organising the 4th Mediterranean Islamic Finance Forum, themed “Islamic Finance: Focus on Strategies for Mediterranean & Africa” on the 23rd  of November 2017, at Casa Llotja de Mar in Barcelona, Spain.

CIBAFI started its Maghreb (Mediterranean) Forums in Tunisia in 2011 and Mauritania in 2012 and Spain 2015 in order to create awareness of Islamic finance in this region as well as to create a so-called “Mediterranean Platform” for discussion on the issues and challenges of new markets. This has been in response to a considerable demand for development of Islamic Finance in the Mediterranean region. Following these three successful Forums, this year, with the objective of enhancing knowledge on critical issues facing the industry in the Mediterranean region, CIBAFI & ASCAME have once again come together to organise 4th Mediterranean Islamic Finance Forum jointly in the framework of the 11th edition of the Mediterranean Week of Economic Leaders.

With increasing interest and high-growth prospects for Islamic finance across both traditional and non-traditional markets in Europe, Africa, and Asia, the Mediterranean region in particular may take the opportunity to gain the momentum of this global trend. The Forum will explore the future of Islamic Banking through innovation and strategic regional & international positioning and shed more light on the strategies for empowering women in Islamic finance development.

CIBAFI will continue to focus on important industry issues and help address them as part of its mandate and support the Islamic finance industry to ensure its continued success. Stay tuned!

جميع الحقوق محفوظة لمجلة الاقتصاد الاسلامي العالمية 2017