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Tuesday May 1, 2012

World Bank: Islamic finance full potential can be realised

KUALA LUMPUR: The full potential of Islamic finance could be realised if several challenges are to be addressed, according to World Bank managing director Dr Mahmoud Mohieldin.

The challenges that needed to be addressed include improving regulatory oversight, rebalancing tax treatment, strengthening insolvency framework, promoting standardisation, ensuring adequate liquidity and establishing sound risk-management practices.

“Lack of standardisation and cohesion in Islamic finance, especially in sukuk products, hinders the growth potential of the industry and deprives the market of an organised structure to facilitate secondary trading and liquidity. For example, the industry would benefit from more widely accepted benchmarks and indices,” Mahmoud said in his presentation entitled: Taking Islamic Finance to the Next Level: Key Challenges and Opportunities organised by the International Centre for Education in Islamic Finance (Inceif).

Mahmoud said innovation and knowledge sharing between various market players were essential to facilitate the standardisation and unification of global markets for Islamic financial products.

In many countries, levelling the playing field with respect to the tax treatment of financial instruments was an urgent need. Conventional debt often received advantageous tax treatment, while some Islamic finance products like faced double taxation, he said

“Malaysia and Thailand took fundamental steps to ensure that Islamic financial transactions operate on a level playing field and are treated equally for tax purposes,” he said.

Meanwhile, Inceif signed an agreement with the World Bank to develop education and executive programmes in Islamic finance.

The collaboration, which aims to foster the development and expansion of sustainable and equitable Islamic finance worldwide, is focused on sharing of research, strengthening capacity, sharing of case studies and sharing of knowledge.

Its president and CEO Daud Vicary Abdullah said Inceif’s position as a global knowledge leader in Islamic finance would be strengthened with this collaboration.

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