Bank of Japan (BoJ) Governor Toshihiko Fukui said while Islamic financing is largely untested, it is important because it helps bring diversity and stability to the global financial system.
“Islamic financing has little experience with the stresses that the global financial system can undergo,” Fukui said at a conference in Tokyo about Islam-compliant investments. “Markets and financial systems build durability by weathering various crises. I’ll be watching carefully to see how the industry performs.”
Fukui added Islamic - or 'Shariah-compliant' - financing will help bring stability to global markets by increasing diversity of investment choices.
“Development of the Islamic form of finance will contribute to diversifying the international financial market and transactions” and help fuel an expansion in the market and business opportunities.
Islamic finance is now an essential factor in understanding the international financial mechanism, he said.
However, he also referred to problems with Islamic finance, saying: “Not a few aspects of this form of finance still remain unknown,” including the way of arbitrage trading between Islamic financial vehicles and conventional financial products.
Fukui expressed hope that such global organs as the Islamic Financial Services Board and the Accounting and Auditing Organisation for Islamic Financial Institutions will play even more active roles in pursuing “healthy and stable Islamic financial services”.
Zeti Akhtar Aziz, Governor of Bank Negara Malaysia (BNM), also gave a keynote speech at the conference.
Islamic finance is among the fastest growing financial segments in the world with an estimated annual growth in the region of about 15 to 20 per cent, Aziz told Japan’s Nikkei News.
“The scope of Islamic finance today has been enlarged and diversified with significant product innovation in the recent years.”
Islamic law bans the payment of interest or receipt of interest and forbids investment in the alcohol, tobacco and gaming industries. Islamic bonds, for example, are typically asset-backed securities that pay an agreed profit rate instead of a coupon. (Agencies)
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