THE FUTURE OF ISLAMIC FINANCE
BY H.E. TAN SRI ABDUL AZIZ ZAINAL
AMBASSADOR OF MALAYSIA TO FRANCE
ON THE OCCASION OF THE GRADUATION CEREMONY
OF ISLAMIC FINANCE PROGRAMME
AT PARIS DAUPHINE UNIVERSITE
ON TUESDAY, 13 DECEMBER 2011
Salutation,
Thank you for the kind introduction. It is indeed my great pleasure to join you at this happy moment and also to share the excitement of your success. I am also deeply honored to speak before you at this graduation ceremony to officially mark the end of your program. In appreciation, therefore, let me thank the Head of the Course, Associate Professor, Kaouther JOUABER, distinguished members of the faculty, parents, guests and fellow graduates of Paris Dauphine Université for your kind invitation.
Fellow Graduates and Distinguished Guests.
Experience has shown that audience normally does not subscribe to lengthy speeches during graduation ceremonies. Thus, for this very reason, I don’t intend to speak for more than 15 minutes so that we can quickly get done with all the aspects of the ceremony before we proceed to some serious reveling.
Let me begin by congratulating graduates of this course who have successfully spent some 400 hours learning the concepts, techniques and the application of Islamic Financial System. Having acquired and mastered the knowledge and skills in Islamic banking products and its new innovations, I am sure you would agree with me that value propositions of Islamic Financing are relevant, empirically workable as well as viable in todays modern and vibrant economy. You are now ready for employment. Out there the globe is facing a trying moment in dealing with the banking industry, vis-à-vis, very important platform in driving both the domestic and connecting the international economic activities. Your studies therefore had better equipped you with the understanding, provide options as well as guidelines in the decision-making mechanism as the world is entering its fifth year of financial crisis. In the Euro zone, leaders are meeting almost daily trying to bring about solutions to sustain the Euros from weakening while other member nations such as Greece and Portugal are saddled with the problems of debts settlement. The recent downgrading of banks ratings in the US as well as in France brought about new phenomena in the landscape of global financial system, necessitating several adjustments to the financial protocols in order to circumvent further deterioration of the money market strengths. Therefore, the prevailing scenarios that I just mentioned are real challenges confronting the dynamics of the macro-economic as well as micro-economic infrastructures of the financial landscapes, besides other critical issues such as geo-political, social, security, climate change and the like. I am very confident that your competency in Islamic Financing is a great asset to the industry by way of your professional advice or contributions, the least in this case identifying the causes of peril for banks. As graduates of this program, you will now have the privilege of looking at the operations of the global financial systems from a wider perspective. I am not a banker myself neither am I a finance man, nonetheless, from the experiences and successes of Malaysia in the last 10 years actively advocating dual banking systems, I can only suggest that Islamic Financing can be useful as an alternative or a niche to sustain financial stability.
Ladies and Gentlemen,
The reemergence of Islamic financing during the period of the 70’s was viewed with skepticism by western standards for fear of the ‘zero-interest system’ syndrome of the Shariah-Based Islamic Financing Principles. Few people then realized that the banking industry was about products and continuous innovations. Similarly with Islamic banking, it took quite a while for researchers to innovate and establish it as a stimulating and competitive industry. Inevitably, in hardly 10 years, Islamic Financing has grown from strength to strength to gain further momentum as awareness of its strategic benefits and ethical attributes grows steadily making inroads into the mainstream of financial market, growing at around 20% to 30% on the average annually. It is encouraging to note that the rising awareness plus the national will among Muslim Nations have turned Islamic Finance into an industry with USD1 trillion in assets globally. As a commercially driven financial intermediation, Islamic Financing has also registered high growth in global Shariah compliant assets amounting to USD 1.3 trillion (average growth rate of 15% - 20% p.a) and Takaful contribution is expected to reach USD11.2 billion by 2012 (growth rate of 13%). According to reports of Dubai International Financial Centre Authority, it is expected to quadruple to USD4 trillion for the next 10 years taking into consideration that the total Muslim population is estimated to increase from 1.5 billion to 2.5 billion by 2020.
The dynamic development of Islamic Financing also resulted in the expansion of the number of Islamic Institutions in over 75 countries, contributing to the establishment of more than 600 Islamic banks and 90 Takaful companies.
Ladies and Gentlemen,
Since Malaysia is increasingly recognized as having the most developed Islamic market and poised to position itself as an international Islamic Finance hub, allow me to briefly share with you its success story. During your course visit to Malaysia, I am sure you had a better glimpse of the development taking place in my country as a whole, both economically as well as the stability of its political climate. What makes Malaysia prosperous today besides its friendly multicultural/multiracial population of 27 million is its strong political, economic and financial foundation. In retrospective, Malaysia’s Islamic finance milestones could be traced to begin in a small way in 1969 with the establishment of its first Islamic saving institution known as Pilgrim Fund Board, a life-time saving platform to facilitate Muslims to perform their pilgrimage to the Holy City of Mecca.
Motivated by the potential brought about by this initiative, Malaysia decided to establish its First Islamic banks in 1983. When conventional banks were allowed to set up Islamic Banking windows in 1993, Malaysia seriously embarked on operating dual banking systems to the extent that it has today joined the mainstream by internationalizing its Islamic banking prowess, which is supported by firmly established financial infrastructure Institutions, regulations, framework and guideline. Being one of the ‘big-4’ global centers in Islamic Finance, Malaysia therefore is well positioned to take advantage of the market opportunity not only to be one of the pioneers of Islamic Financing but also a gateway to Asia as an International Financial hub. As I don’t intend to labour more about Malaysia’s achievement in Islamic Financing, suffice if for me to reiterate that the potential of Islamic Banking in Malaysia is growing in momentum. Supported by the prevailing resilient financial system therefore, Malaysia is able to adopt an open and highly integrated economy that enabled to boost the total FDI inflow by an impressive 409 % (USD 7billion) in 2010. In terms of GDP growth, Malaysia registered an amazing 7.2% in 2010 and is expected to reach 5% to 6% by the end of this year.
Looking into the future and learning from the experience of Malaysia, particularly as we witness dramatic changes in the Islamic financial landscape, nations when appropriate should consider applying Islamic Finance to foster sustainable growth. It is viable because, Islamic financial system is undergoing a paradigm shift from that of banking centric to becoming more diversified and comprehensive, poised to provide the spectrum of financial products to the range of activities in the economy as required by small businesses to conglomerates and by households to the high net-worth individuals. Diversification in Islamic Financial Institution includes the development of intermediaries that was previously dominated by banks. Products such as investment banking, specialized banking institutions, Takaful capital market intermediaries, micro financial institutions, Islamic money and sukuk markets are proven product innovations and discoveries that can help contribute to sustainable growth and increased international connectivity.
Ladies and Gentlemen,
Much had been said about the macro-economic and micro-economic advantages of Islamic Financial System. It is now up to you to apply the knowledge that you have acquired during your studies here, rejuvenate the synergy of the banking institutions, thus, inevitably paving the way for an economic recovery after the five years of global financial crisis. A breakthrough in the recovery of the prevailing global financial crisis is the aspiration of every nation. Islamic financial system and some of its tenets, therefore, could be a meaningful tool in answering these vexing questions. The misconceptions that Islamic finance is solely for Muslims, or is a ‘mirror’ of conventional finance or a trend that will not last are indeed not true, but only myths. In reality, it is a system recognized with the inherent tenets that are aligned with the sustainable dimensions of ethical finance and responsible financing not only for Muslims but in all fairness for everyone. Therefore, Islamic Finance is not for the future but it is for now to deal with the future. As one of the pioneers to propagate Islamic banking, Malaysia, therefore, is looking forward to expanding its connectivity and collaboration with the rest of the world in several areas, including that of providing the training platform for potential Islamic financial industry players.
To this end, let me take this opportunity also to extend our invitation to the Dauphine University to engage in a kind of collaboration with the Global University in Islamic Finance in Malaysia with the aim of advancing and sharing our knowledge in the management of Islamic Finance.
With that note Ladies and Gentlemen may I have the honour with the Quranic verses of Bismillahirahmanirrahim to officially declare the closing of your program.
Thank you.