KUWAIT, June 24 (KUNA) -- The wide growth and expansion of Islamic Finance have imposed a challenge for economic decision makers worldwide, especially central banks, for legalizing the industry and promoting it to keep pace with the world criteria of transparency and governance.
The International Monetary Fund (IMF) has recently issued a survey under "Islamic Finance: Opportunities, Challenges, and Policy Options" depicting a host of challenges of the industry, as well as offering proposals to countries with Islamic banks.
One major proposal of the study is to establish a Shari'ah Supervisory Board (SSB).
According to the IMF, ensuring Shari'ah compliance in Islamic banking is a major challenge.
The ethicalآbased fastآgrowing sector still lacks regulatory and supervisory frameworks catering to its unique risks, the IMF said, noting that it has so far been governed mostly by frameworks developed for .conventional finance. In addition, crossآborder operations of Islamic financial institutions have expanded considerably without regulatory harmonization.
Regulators do not always have the capability (or willingness) to ensure that banks have in place a sound framework for Shari'ah compliance-nor do they take responsibility for assessing whether Shari'ah advisors are fit and proper, the IMF said.
Moreover, differences in Shari'ah interpretation can lead to a lack of harmonization both within and across borders, which could affect trust in the industry. Thus, it recommends establishing, at the bank level, an independent Shari'ah Supervisory Board (SSB).
Bahrain has recently announced founding a central Shari'ah body to supervise the products of Islamic Finance and set rules to boost governance in the sector.
Does Kuwait need one SSB?
CEO of the Kuwait Finance House (KFH), Mazin Al-Nahedh welcomed the idea, saying such central supervisory body is likely to overcome the differences over financing products of Islamic banking, as it will set the rules to be adopted, Al-Nahedh told KUNA.
IMF's expert Zeid Zidane had told KUNA that central banks in countries with Islamic banking have their internal Shari'ah boards. But they are only confined to examining products of Islamic banks.
The role of such boards has to expand to the whole sector to speed up developing new products and enhance investors' confidence, Zidane added.
The IMF official noted that the Central Bank of Oman announced last October the formation of a SSB, and the UAE said it would have a central supervisory body.
For his part, former head of Islamic economy department at the College of Administrative Sciences, Kuwait University, professor Abdullah Al-Maousherji told KUNA that there are many Kuwaiti institutions that have long history in Islamic banking.
Al-Maousherji welcomed the idea of setting up a central Shari'ah board to be entrusted with supervising Islamic banking in the country. The scholars' body will work under supervision of the Central Bank of Kuwait.
He explained that the remarkable progress of Islamic Finance, both on the local and the international scenes, has necessitated the creation of such Shari'ah supervisor, to counter any future developments, as the world economy has been suffering from structural and organizational crises.
In addition, Al-Maousherji called for issuing a sukuk law, developing new products and varying the sectoral investments of Islamic banks.
He noted that almost half the Kuwaiti banks are Shari'ah-compiled.
Islamic finance has doubled in size over the past four years and is now worth more than USD2 trillion (1.76 .trillion euros) as demand for its products rises rapidly.
The sector constitutes 15 percent of the banking assets in 10 world countries, 50 percent in Saudi Arabia, 30آ40 in Kuwait, 20آ50 in the rest of the Gulf states.
Iran and the Sudan adopts full Islamic systems, the IMF survey has revealed that the Islamic finance faces major challenges if it is to unlock its huge potential and develop safely. (end)