Underscoring the global financial crisis, Securities Commission Malaysia chairman ZARINAH ANWAR recommends that governments, regulators, academia and industry players work together on finding solutions to the problems at hand.

In representing its effort to create an international platform for a discourse on topical issues and challenges faced in bringing Islamic finance into the mainstream, Securities Commission Malaysia (SC) recently collaborated with the Oxford Centre for Islamic Studies (OCIS) and hosted the Inaugural SC-OCIS Forum on the “Contribution of Islamic Finance Post Global Financial Crisis”.

Ten panelists comprising regulators, Shariah scholars, Islamic finance practitioners, academics and a legal expert actively discussed two compelling topics on how Islamic financial products can be applied as an alternative to conventional finance and the need for adoption of key principles in Islamic finance including the incorporation of sound enabling features to asset-backed securities.

The panelists were Ahmad Hizzad Baharuddin (director of the Islamic banking and Takaful department, Bank Negara Malaysia), Dr Abbas Mirakhor (former executive director, International Monetary Fund), Professor Dr Habib Ahmed (Sharjah Chair in Islamic Law and Finance, Durham University, UK), Abdulkader Thomas (president and CEO, SHAPE Financial Corporation, USA and Kuwait), Iqbal Khan (CEO, Fajr Capital UK), Davide Barzilai (banking partner, Norton Rose, UK), Andri Aidham Ahmad Badri (partner, Kadir Andri & Partners, Malaysia), Dr Mohamad Nedal Alchaar (secretary-general of the Accounting and Auditing Organization for Islamic Financial Institutions), Mushtak Parker (editor, Islamic Banker, UK) and Rafe Haneef (managing director, Fajr Capital, Malaysia).

OCIS is a recognized independent center of the University of Oxford, established in 1985 to encourage the scholarly study of Islam and the Islamic world. As part of its objective to promote a more comprehensive understanding of Islamic culture and civilization, OCIS is embarking on the study of Islamic finance, according to OCIS director Dr Farhan Nizami.

The cooperation between SC and OCIS, among others, aims at sharing innovative practices in conventional finance and to facilitate paradigm shifts for the sustainable development of Islamic finance by translating visions into actions and driving sustainable human capital development. Another aspect of the forum is to promote networking of individuals, institutions and organizations committed to international financial reform for a more secure financial market and economy.

In her opening remarks at the forum, the SC chairman observed that the global financial crisis requires that every avenue of reconciliation with our recent past and with what the future holds must be explored. The crisis has shown that it is critical for governments, regulators, academics and industry players to work together on finding the solutions to the problems at hand. She stressed that there is much to be done and much to be learnt from working with each other and forums such as this which allow some of the best minds in Islamic finance to meet and debate issues that will enhance the industry.

OCIS’ structured approach towards research, debate and learning combined with the SC’s skills, experience and data will enable further thought leadership to be developed in the area of Islamic finance and the Islamic capital market (ICM) in particular.

The forum was the second tangible and significant outcome of the collaboration between SC and OCIS. Preceding the public forum was a high-level roundtable based on the theme “developing a scientific methodology on Shariah governance for positioning Islamic finance globally”, at which panelists debated on governance standards and protocols on Shariah decision making process and facilitating origination instead of mere adaptation.

Raja Dr Nazrin Shah ibni Sultan Azlan Muhibbuddin Shah, crown prince of Perak state who is also the Malaysia International Islamic Financial Centre’s financial ambassador, graced both the roundtable and the forum. In his keynote address at the forum, he stated that Islamic finance should be more transparent to ensure predictability and confidence and that there should also be a higher level of innovation in Islamic finance as well as strategic and complementary approaches to make Islamic finance more competitive and attractive.

Raja Nazrin also mentioned five strategic approaches to broaden Islamic finance’s acceptability — developing a well defined strategy; being transparent to ensure predictability and confidence; engaging stakeholders; higher innovation; and the institutionalization of Islamic finance by formalizing the processes and practices.

Reiterating that the financial crisis was fuelled by all that is wrong for business and finance, from bad design to unethical sales practices to poor governance, and that the world is recovering from this crisis, Zarinah emphasized a need to focus on the right approach, one that is balanced and fair. For that matter, participants in the market should not be driven solely by profits, or solely by the desire to be charitable.

Importantly, contractual arrangements, relationships with counterparties, governance rules, and the regulatory frameworks set up by securities regulators and other authorities all over the world are the focus of the day. In the quest for new frontiers and extension of the Islamic finance space through rapid innovation and aggressive marketing, it is important to ensure that form does not undermine substance, given that contemporary Islamic finance is relatively new. On the contrary, she highlighted that uncertainty, lack of clarity and conflicting interpretations will not inspire confidence and may even slow down the pace of development.

Accordingly, the SC introduced in 2009 numerous changes to the Capital Market Services Act. Expected to come into force in April, these changes would strengthen the SC’s Shariah Advisory Council (SAC) and thus place the SAC on sound legal footing to ensure its role in the development of the Islamic capital market (ICM).

The law now recognizes the SAC as the central authority for the ascertainment of Shariah principles for ICM. The new provisions also enable a licensed person, the stock exchange or a public listed company (PLC) or other persons to refer matters to the SAC for its advice and ruling which shall be binding on the person or entity concerned. This is a crucial step in ensuring a clear and consistent development path for Islamic finance that ensures certainty whilst protecting investors.

The SC has also made it a requirement for the registration of all Shariah advisers for ICM activities to ensure that Shariah advisers are apprised of latest developments via training programs which SC conducts regularly, and also that they fully meet the standards as stipulated under the Registration of Shariah Adviser Guidelines.

On the aspect of scarcity of Shariah and Islamic finance expertise which accentuates the concern of many that the lack of expertise could hold back further growth in the industry, the SC has been actively promoting learning in the realm of Islamic finance. Beyond merely discussing the issue, the SC has implemented several initiatives at both the national and international levels.

It is noteworthy that initiatives for the development and promotion of the ICM are funded by a grant from the Capital Market Development Fund, enabling the SC to contribute to the advancement of knowledge, promotion of dialogue and discussion as well as training and capacity building. In this regard, the SC has embarked on the ICM Graduate Training Scheme to increase the pool of talent joining the industry.

Last year also saw the publication of SC’s Islamic Capital Market, which is a series of six volumes that cover areas such as Shariah principles, Shariah contracts, taxation and legal documentation.

The SC has also published a book on Sukuk, which is a collection of articles authored by professionals, Shariah scholars and legal practitioners involved in the Islamic finance industry, both on the international and local fronts.

Another important initiative was the visiting scholar program where two international scholars in the area of Islamic finance were brought in last year and attached to the University of Malaya. The SC has also facilitated the secondment of lecturers to the SC’s Islamic Capital Market Department.

At the same time, the SC has organized a number of International Islamic Capital Market Forums (IICMF) to discuss contemporary ICM issues and also the annual Islamic Markets Program (IMP) for international regulators and industry participants. Both programs are designed to be comprehensive studies on current events and developments related to ICM. The next IICMF and IMP programs are expected to be held in the second quarter of this year.

The SC-OCIS Roundtable and Forum is endorsed by the Malaysia International Islamic Financial Centre (MIFC) and the inaugural program was held at the Securities Commission Malaysia on the 15th and 16th March 2010.