Dear Ali Sakti,
At the ongoing G-20 summit meeting, while the US and UK are pushing for a global plan for economic recovery and reform, France and Germany are insisting on a new global financial architecture that would create transnational oversight and regulation, plus a crackdown on unregulated hedge funds and tax havens that have strong banking secrecy laws. The G-20 represents about 90% of global gross national product, 80% of world trade as well as two-thirds of the world’s population.
At this all-important meeting of all-important countries, both developed and developing, Islamic finance has only a bit role: the Islamic Development Bank (IDB) and three of its member states — Saudi Arabia, Indonesia and Turkey — are among those participating in sub-Group 4 of the G-20 structure. The upside is that this unit deals with reforming international financial structures.
However, the IDB is demanding a bigger and more prominent voice for Islamic finance on G-20’s main table. Its president, Ahmed Mohamed Ali, said: “The opportunities offered by Islamic finance in promoting global financial stability and financial inclusion are worth assessment by the leadership of the G-20 countries.”
He said it is time that the wider world considers mainstreaming Islamic financial services. And the best way to do this is to accord the relevant Islamic finance stakeholders “observer status” within the main framework of the G-20 and the expanded Financial Stability Forum of the International Monetary Fund (IMF).
Meanwhile, the IDB has taken the initiative to set up its own Islamic finance and global financial stability task force to report on the impact of the global financial crisis on the Islamic financial services industry. This panel, chaired by Malaysian central bank governor Zeti Akhtar Aziz, is publishing documents relating to the intrinsic strengths of Islamic financial services and its potential role in contributing to global financial stability.
These papers will be presented to the G-20 leaders and to the IMF’s Financial Stability Forum to back the call for Islamic finance stakeholders to be involved in the top-level deliberations. Zeti is on the United Nations Secretary-General’s Global Financial Stability Committee as well, which is also looking at drawing up a framework for the financial sector.
The UK government is already moving to restructure its financial system so that it serves the real economy, exactly what Islamic finance does. Now that the world is demanding prudence, good governance and a stable system based on values and principles for the financial sector, the G-20 could do worse than to assimilate Islamic finance into the mainstream financial architecture.
However, in this rush to gain widespread acceptance of Islamic finance, the proponents need to ensure that any cross-system and globalized cooperation with conventional finance has as its platform a new or reformed framework.
If the outcome of the G-20 summit is more of the same and becomes a case of treating the symptoms rather than the disease, it would be better for the Islamic finance stakeholders to bide their time. And in the meantime, put more effort into beefing up the real alternative to the current international financial system so that it can no longer be ignored.