INCEIF devises 3 new Islamic instruments

By Sharon Tan 

KUALA LUMPUR (8 January 2008) 

The International Centre for Education In Islamic Finance (INCEIF), which was established by Bank Negara, has devised three new Islamic financial instruments and is also working on a new set of wakaf laws, which will enable Malaysia to stay ahead in the Islamic financial world.

According to Professor Dr Murat Cizakca, who is a member of INCEIF’s professional development panel and joint director of research, the sukuk and cash wakaf products are 100% syariah compliant, coupled with the dynamics of Western financial instruments.

I don’t know if it can actually be implemented. Bank Negara is studying them and they will have to decide if it can be used,” Cizakca said after delivering a lecture on the Maqasid Al-Shariat, Rule of Law, Democracy and Capitalism at INCEIF yesterday.

He said Malaysia needed to introduce a new wakaf law, which is 100% syariah compliant and efficient.

“Wakaf is a powerful instrument but the system here is in shambles. It is operating in a system that has been introduced by the British. The Western-inspired system is impeding the wakaf,” he said, adding that the issue was not confined only to Malaysia but also in Turkey.

He added that a new wakaf law was introduced in Turkey in 1967 which gave a boost to the system.

Malaysia, he said, was the forerunner in Islamic finance. “You are competing with the Gulf but because of the better democracy you have here, I have no doubt Malaysia will proceed faster and further,” he said adding that the country also had a healthier and more diversified economy.

Cizakca said although plentiful, existing Islamic financial instruments were not yet “perfect.” He cited the case of sukuk, which obeyed the letter but not the spirit of the law. “The transaction was designed to hide the interests,” he added.

The new proposed products were devised based on comparative financial history, Western financial practices and syariah law, said Cizakca who lectures economic history at the Bahcesehir University in Turkey.

“The challenge is to develop future new financial instruments that are both 100% syariah compliant and as efficient as anything you have in the West,” he said, adding that if such instruments could be developed, Western countries could also be expected to make use of them.

Cizakca said the venture capital instrument, which is based on the mudarabah contract, was widely used in the West especially in the Silicon Valley in the United States. He said the venture capital was an evolution of the mudarabah, based on profit sharing.

He said the West thought they were inventing something new but it was actually a modern version of mudarabah, which had been widely used in India and Europe of late.

Cizakca said if highly efficient Islamic financial instruments could be developed, such products may take precedence over Western ones. (Source: The Edge Daily)

A global demand for Islamic Finance Professionals

An excerpt from the speech of the Governor, Bank Negara Malaysia, 23 March 2006, Kuala Lumpur

The Islamic banking and financial services industry has experienced profound growth in this recent decade. This growth is expected to accelerate further global expansion in demand for Shariah-compliant financial products and services intensify. To sustain and support the future growth of the industry, an important prerequisite is the development of the talent and expertise that is needed to drive innovation and to raise the performance of the industry to greater heights.

The establishment of the International Centre for Education in Islamic Finance (INCEIF) represents an investment in human capital to support the global development of the Islamic financial services industry. Human intellectual capital plays a pivotal role in driving the performance and market competitiveness of the industry. Going forward, it will be the defining factor. The fast pace of innovation in global financial services in general and in the Islamic financial services sector in particular, will demand new expertise and skills. Indeed, there will be an increase in demand for adequately qualified professionals. In this environment, the creation of a substantial pool of talent and expertise is thus indispensable for the future growth of Islamic finance. Strengthening research and development capabilities is also important for enhancing the capacity for innovation to meet the diverse requirements of the rapidly changing global economy.

The establishment of the International Centre for Education in Islamic Finance thus comes from the recognition of this need to invest in human capital to advance the industry forward to greater heights. Bank Negara Malaysia has allocated an endowment fund of RM500 million for this purpose. The income from the endowment fund will be utilised to finance the operations of INCEIF. The objective of INCEIF is to produce high-calibre practitioners and professionals in Islamic finance as well as specialists and researchers in the disciplines of Islamic finance. INCEIF will leverage on the wealth of experience of the Islamic finance industry, both in Malaysia and abroad, to provide its graduates with value added insights and perspectives, in particular for their research programmes. Malaysia’s experience in Islamic finance for over more than two decades will also provide a training environment, including for internships for developing Islamic finance professionals.

The required skill set in Islamic finance is unique. It needs to have the right blend of knowledge of finance with the understanding of the Shariah as being central. The Shariah principles must be embedded in every operational aspect of the Islamic financial institution, including in the design of financial products and financing structures, financial contracts and their execution, liquidity and balance sheet management, risk management as well as asset and wealth management. The upholding of the Shariah principles must permeate from the highest level, including at the broad and senior management levels. Sound policies and practices premised on Shariah principles will evolve the Islamic financial system into a financial system that is distinctively ethical and that which promotes economic justice.