MANAMA: The World Bank plans to support standard-setting bodies of the Islamic finance industry in turning their voluntary standards into binding banking regulations, a bank official said.
The fledgling Islamic finance industry is governed by a patchwork of national banking regulators, its own standard-setting bodies and rulings of scholars interpreting Sharia, or Islamic law.
Bodies such as AAOIFI – the Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions – are providing standards to Islamic banks but they have been adopted by only few national regulators.
James Adams, World Bank vice president for East Asia and Pacific, told Reuters on the sidelines of an Islamic finance conference that the World Bank was in talks with several standard-setting bodies on how to help them turn their rules into national regulations.
Clearly, in today s world standardization would be an asset both in terms of the ability to regulate with consistent standards, but also for the businesses it s an enormous asset if they re able to rely on consistent standards and not be subjected to different standards, he said on Monday.
What we can provide is access to the governments … particularly through the central banks and ministries of finance, so I think our role is very much to work with the standardization organizations to facilitate a dialogue (with governments), Adams said.
Bankers have said that the lack of universal standards in Sharia interpretation and product regulation is a key obstacle for the industry to realize its growth potential.
Acceptance of products can differ substantially between its main regions, the Gulf Arab region, South East Asia and Europe.
The World Bank is seeking to help the $1 trillion industry off the ground with a focus on helping it develop micro finance, in particular in South East Asia.
Its International Financing Corporation (IFC) in October issued a $100 million sukuk, or Islamic bond, and plans to become a regular issuer.
AAOIFI s standards are mandatory for Islamic banks operating in seven countries, but not yet in Indonesia, an important growth market for the industry in South East Asia.
Because we have an active program in Indonesia, we lend about $3 billion a year to the Indonesian government, we feel we can provide a bridge to get a discussion on this, Adams said.
