Saidi Urges Governments To Adopt Islamic Finance Principles

by Lorys Charalambous, Tax-News.com, Cyprus

24 February 2009

Speaking recently on the financial crisis and corporate governance, Dubai International Financial Center’s chief economist Dr Nasser Saidi urged governments to adopt the use of Islamic finance, suggesting that Shariah finance would bring about a more stable global economic structure.

Speaking at the Emerging Market Economies and MENA ESCA Forum in Abu Dhabi, Dr. Nasser Saidi began by stating:

"The sub-prime crisis has led to the extensive collapse of the conventional banking and financial systems leading to a questioning of underlying market mechanisms, corporate governance, regulatory failure and the effectiveness of boards and risk management. Clearly the Basel II framework and self-regulation have failed. We need a new paradigm. Islamic finance, based on partnership, risk sharing and management, embodies the sound principles of corporate governance and ethics and enforces greater transparency and accountability. The global Islamic finance industry was worth around USD729bn in 2007, an estimated USD840bn at the end of 2008 and is expected to grow to some USD3.5 trillion in the next 5 years."

Saidi stated that the coming months would define future economic outcomes, with worldwide revisions to international capital markets and the reform of international financial architecture. Saidi urged government’s officials, particularly GCC countries to contemplate restructuring government investment into Islamic finance instruments, particularly Sukuk.

"Islamic Finance has proved, to date, resilient to financial contagion and crisis. The timing is right for governments responding to crisis to develop and use Islamic finance instruments, primarily Sukuk, as an integral part of public finance, deficit financing and for financing public works and infrastructure. Governments and regulators should seize this historical opportunity to integrate Islamic Finance into the mainstream of banking of finance,” urged Saidi.

Further emphasising areas where Islamic finance has so-far succeeded, Ali Afshar, Senior Vice President at Institutional and Investment Banking added:

"The basic principles of Islamic finance which necessitate transactions being backed by tangible assets, prevent investment in loans, options, derivatives and hedge funds, and thus prohibit speculation, hence making Shari'ah compliant products less exposed to the potential risks resulting from over exposure and speculation as compared to conventional products."

Saidi although emphasising the use of Islamic finance globally, did turn to urge the forum’s participants to focus on improving some areas of Islamic finance, which were lacking to-date, including transparency, the lack of corporate information disclosed in Annual Reports, the lack of communication will shareholders particularly in pre-announcing publication dates, AGM dates and urged companies to invest in publishing annual reports in English, to encourage foreign investment.

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