Islamic finance urged to align standards to sustain growth

By Suleiman al-Khalidi

AMMAN (Reuters) - The biggest challenge facing the Islamic finance industry's integration into the global financial system was harmonising standards to sustain its continued rapid growth, central bankers and executives said on Wednesday.

The fifth Islamic Financial Services Board (IFSB) summit attended by top bankers, regulators and central bankers, was told that the financial sector, whose assets are growing at an annual pace of 20 percent, required the adoption of global standards of risk management and governance.

Zeti Akhtar Aziz, central bank governor of Malaysia, which seeks to become a global hub for Islamic finance in competition with Dubai and London, said this was essential to shield the industry from future instability.

"The enhanced international dimension of Islamic finance has brought a new set of challenges. That need to be taken into account to ensure it has the capacity to manage risks and regulatory authorities have the necessary tools to respond to any destabilising implications," Zeti said.

Zeti cited "developing robust international best practices in the prudential and supervisory framework that will ensure the resilience and long term sustainability of the industry."

The challenge was pressing as the industry was seeing more cross border transactions, with increasing sophistication and a wider product range of Islamic bonds or sukuk, Islamic securitization and Islamic private equity.

Islamic financial principles stipulate that deals must be based on tangible assets and require tight controls on debt levels, features analysts say offer some protection to investors and ensure corporate accountability.

Islam bans the payment of interest and stipulates that deals must be based on tangible assets -- money cannot be made from money alone.