Istanbul: “Islamic finance can contribute to reduce financial risks in the future but the real question is how big is the contribution?” This question was raised by the Country Director for Turkey of the World Bank, Martin Raiser last week.
Speaking at a conference on the International Forum on Financial Systems sponsored by the Anadolu Agency, in Istanbul, Raiser said that as Islamic finance links the provision of resources with a concrete project in the real sector, this can help to reduce the excessive risk taking.
He also touched on the sharing of emerging markets in the global savings, investments and capital funds.
“Emerging markets are no longer about creating financial systems that just mobilize domestic resources or attract resources from the advanced economies. Emerging markets financial systems were increasingly about mobilizing resources in intermediating with others from other emerging markets,” he said.
“Emerging markets need to achieve much greater degrees of regulatory harmonization and that also means the competition for capital amongst emerging markets is going to increase. There will certainly be a much greater role for banks from emerging markets. But it is not clear which emerging market banks are going to win the competition to intermediate capital flows from emerging to other emerging markets,” he added.
He said that Islamic finance is going to be the subject to the need for standardization of its products.
He continued, “If you have two markets that are both interested in Islamic finance and that they are both raising funds domestically but their regulatory standards are not in line with each other, the funds remain trapped in local markets then cross into other markets easily.”
He noted that the major challenge is more standardization and more harmonization of the regulatory framework adding, “Some other challenges that Islamic finance faces in order to benefit from this opportunity is improving rebalancing tax treatment and ensuring adequate equity.”
The International Forum on Financial Systems is organized by Independent Industrialists’ and Businessmen’s Association (MUSIAD), BORSA Istanbul, Statistical, Economic & Social Research and Training Centre for Islamic Countries (SESRIC), Participation Banks Association of Turkey (TKBB) and Islamic Development Bank (IDB).