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Money Market Instruments as Key Tool in Developing Liquidity in Islamic Finance

Beirut, 18 May 2006 - Money market instruments are key tools in developing enough depth of liquidity for the Islamic financial services industry, however currently, the industry still has a long way to go before this expectation is satisfied. This was amongst the focal points highlighted by the expert speakers in the session entitled “Systemic Liquidity Arrangements and Macro Policy” in the 3rd Islamic Financial Services Board (IFSB) Summit held at the Phoenicia Intercontinental Beirut, this morning.

Dr V. Sundararajan of Centennial Holdings Inc. USA, Dr. Mohammed El-Qorchi of the International Monetary Fund (IMF), and Mr. Jacques Tripon of BNP Paribas were unanimous in calling for monetary authorities increase efforts in establishing the necessary infrastructure to promote soundness and stability of the Islamic financial system especially through mechanisms such as inter-bank money market and lenders of last resort.

In acknowledging the dire need for a more robust liquidity management arrangement for the Islamic financial services industry, Professor Rifaat Ahmed Abdel Karim, the Secretary-General of the IFSB, explained that the IFSB has already set up an Islamic Money Market Task Force to look into the relevant issues and recommend viable solutions that can help monetary authorities in forming their policy decisions.

In an earlier session on “Prudential Arrangements for the Stability and Development of Islamic Finance”, H.E. Mr Sabir Mohammed Hassan, Governor of Bank of Sudan, called for stronger disclosure regime for Islamic banks in line with the internationally recognized standards in order to reinforce public confidence. His view is supported by Dr Ishrat Husain, the former Governor of State Bank of Pakistan, who emphasized that institutions offering Islamic financial services can only be competitive against their conventional counterparts if they themselves adopt the internationally accepted best practices. Mr. Thomas J. Baxter, General Counsel and Vice President of the Federal Reserve Bank of New York, admitted that while there are a few major regulatory hurdles which need to be overcome before an Islamic bank can be licensed to operate in the US, none of them is insurmountable with carefully thought legal solutions.

The IFSB Summit, themed “Aligning the Architecture of the Islamic Finance to the evolving Industry Needs”, is one of the most prestigious annual gatherings of regulators, bankers, scholars and practitioners in the Islamic financial services industry. Held under the high patronage of H.E. Fuad Siniora, Prime Minister of Lebanon, and hosted by Banque du Liban, the Summit ends today.

The Islamic Financial Services Board (IFSB), which is based in Malaysia, was officially inaugurated on 3rd November 2002. It serves as an international-standard setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. In advancing this mission, the IFSB promotes the development of a prudent and transparent Islamic financial services industry through introducing new, or adapting existing international standards consistent with Islamic Shari’a principles, and recommend them for adoption. To this end, the work of the IFSB complements that of the Basel Committee on Banking Supervision, International Organization of Securities Commissions and the International Association of Insurance Supervisors.

The 88 members of the IFSB include 21 regulatory & supervisory authorities as well as the International Monetary Fund, the World Bank, Bank for International Settlements, the Islamic Development Bank, the Asian Development Bank, and 62 financial institutions from 16 countries.

Press contact:
Ms Siham Ismail
Islamic Financial Services Board
Mobile: 603 2698 4248
Email: siham@ifsb.org

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