Recommendations from the Islamic Finance in Ras al Khaimah Workshop April 12.docx by dhivya.sherly


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									  Recommendations from the Islamic Finance in
    Ras al Khaimah Workshop April 12, 2014
Dubai, UAE, April 13, 2014 -- It is not often that prominent practitioners of Islamic
finance have a chance to meet on the sandy shores of Ras al Khaimah, UAE and here is
the result of the dynamic brain power, which collaborated at this special event produced
by FAAIF Events and Jassim Mahadik presented on the topics of Risks
in Islamic Banking, Sukuk, and Takaful, and Muhammad Ayub discussed the Use of
Derivatives in Islamic Finance and Shariáh Implications. Muhammad Zubair Mughal
explained the Current State of Islamic Microfinance while Camille Paldi talked about the
Issues and Concerns in the Financial Reporting of Islamic Banks and Dispute Resolution
in Islamic Finance. The group made several key conclusions and policy recommendations
for the advancement of the Islamic finance industry.

Jassim Mahadik emphasized the need for the improvement of customer service and
customer care in the Islamic banking industry, stating that the current state of customer
service in Islamic banks may tarnish the reputation of the industry. Mahadik also
expressed concern over the need for proper controls for Shariáh compliance to be
introduced in Islamic banks as well as warned about the damage to the industry
reputation, which technological failure might induce. Mahadik discussed the special
attention, which needs to be placed on the composition and approval of Shariáh boards as
well as the systems, which should be put in place to regulate Shariáh scholars and boards,
such as a centralized Shari’ah Board for each country, region, and the entire global
Islamic finance industry. Jassim Mahadik mentioned that the takaful industry requires
more people skilled in the Muslim actuarial sciences and that Islamic finance
practitioners should take care to adhere to Shariáh guidelines when structuring sukuk.
Mahadik also stated that the deficiency in Shariáh compliant risk management tools is a
major concern for the Islamic finance industry.

Muhammad Ayub discussed the Shariáh compliancy of many risk mitigation tools
including derivatives and stated that in Shariáh compliant risk mitigation tools, risk
cannot be separated from ownership, which occurs in derivatives structures. Ayub
emphasized that the US financial crises resulted from short-selling and the selling of debt
as well as the creation of a side-economy separate from the real economy, resulting from
the separation of risk from ownership, therefore commoditizing risk and allowing it to
multiply and allowing debt to grow disproportionately and separately from the real
economy. Ayub stated that derivatives equate to a speculation tool for maximizing
earnings without adding any value to the real economy. Ayub referred to Adam White,
who said, “All speculative selling of commodity futures is naked short-selling…it can
help fuel speculative manias.” In fact, derivatives have been outlawed in many US states
at different times in history. Ayub said that we need to focus on the real economy and
avoid using non-Shariáh compliant risk mitigation techniques, which leads us into non-
Shariáh compliant activities such as short-selling, sale of debt, riba (interest), and the
commoditization of unbundled risk, where risk is traded and sold in a side-economy
separate from the real economy. Ayub ended by discussing the importance to stick to the
rules and original objectives of Islamic finance, Shariáh, and the Maqasid al Shariáh.

Zubair Mughal then talked about the Microfinance industry, stating that microfinance is
an important tool, which can help to alleviate poverty in the MENA region, Africa,
Caucusus, South Asia, and Southeast Asia. Mughal emphasized that microfinance can be
used by Muslims and non-Muslims alike as a tool of social uplift and income generation.
Mughal and Paldi stated that microfinance could also be utilized in the inner cities and
economically depressed areas of the United States, to bring about economic rejuvenation.
Mughal, Paldi, and Ayub discussed the prospect of introducing a new product called
micro-sukuk or social sukuk, which could be integrated into the microfinance industry.

Camille Paldi discussed the need to bring the financial reporting of Islamic banks into
harmony and stated that a good example of how Islamic banks should conduct their
financial reporting is the Kuwait Finance House Bahrain Disclosure Report, which could
easily be found on google. She stated that Islamic banks should use standards specifically
tailored for Islamic banks rather than using conventional standards, as this may lead to
increased non-transparency in Islamic banking and mislead the stakeholder in the true
financial health of the financial institution. Paldi also discussed the importance of
establishing a unique and specifically tailored dispute resolution system for the Islamic
finance industry and offered a solution of producing a standardized dispute resolution
contract, modeled after the FIDIC contract used in the construction industry, which could
be attached to all Islamic finance contracts. Paldi said this would streamline Islamic
finance dispute resolution as well as encourage completion of contract. In addition, Paldi
suggested creating the Dubai World Islamic Finance Arbitration Center (DWIFAC) and
Jurisprudence Office (DWIFACJO) to monitor and administer the new specialized
Islamic finance dispute resolution process as well as produce a model Islamic banking
law, which could be adopted around the world.

Overall, the Islamic finance Workshop in Ras al Khaimah constituted a successful
meeting of the minds to produce suggestions for the improvement of the Islamic finance
industry. Paldi hopes to produce more events with similar outcomes, however, hopes that
more Islamic finance practitioners and the public would also get involved in such
workshops and brainstorming sessions to guide the advancement of the Islamic finance
industry. Camille Paldi can be contacted at for further information.

Camille Paldi
Dubai, UAE
+971 (0)56 950 0562

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