IIFM Annual Bahrain Seminar Discusses New Opportunities for Islamic Finance

Manama, Bahrain, 27th December 2017 - The International Islamic Financial Market (IIFM) organized its annual seminar with the support of the Central Bank of Bahrain (CBB) on the pre-conference day of the World Islamic Banking Conference (WIBC) on 4th December 2017 in the Kingdom of Bahrain. The theme of this year's seminar was “A broad spectrum of horizons and opportunities, towards achieving sustainable and balanced growth in the Islamic financial sector”. Stimulating discussions by an experienced line-up of international speakers took place on specific segments of Islamic finance and was witnessed by a packed audience of around 400 Islamic finance industry practitioners.

In an insightful opening address by Mr. Khalid Hamad Abdul-Rahman Hamad, Chairman of IIFM, spoke on the key initiatives undertaken by the IIFM and decoded his vision for the future of the industry at the regional and global level. Stressing on the growing need for standardization across the industry, Mr. Khalid Hamad said, “IIFM has been at the forefront of developing capital and money market as well as trade finance standards for the Islamic finance industry. Standardization is a must for continued and sustainable growth of Islamic finance. We at the IIFM listen carefully to the industry’s demands when deciding about our focus areas. We follow an elaborate process of extensive market consultation while developing a standard. The rigor of this process ensures the quality of the output when the standard is finalized. The adoption of these standards have been increasing and we expect Islamic banks’ leadership as well as regulators to encourage the adoption of these standards in their respective jurisdictions in order to lower their cost of operations and improve efficiency.”

“The advent of FinTech is changing the financial sector paradigm in many ways, blockchain enable smart contracts will reduce costs and improve efficiency. The challenge is to take smart contracts to a point where they can be admissible in courts and used for entry into dispute resolution”, added Mr. Hamad.

IIFM introduced two new focus areas for Islamic finance namely “Opportunity for Islamic Finance in Fintech and the Role of Smart Contracts” and “Standardization of Gold Related Products and Contracts” which were deliberated at this year’s seminar.

Seminar Proceedings

Mr. Lilian Le Falher, Executive Manager-Head of Treasury, Capital Markets and Corporate Banking Group, KFH Bahrain moderated the first session titled “An Overview of the IIFM standards and its contribution in the development of the Islamic finance industry”. In his introductory remarks he highlighted the importance of IIFM standards and the role IIFM standards are playing in the advancement of the Islamic finance industry. He urged the stakeholders to join hands with IIFM by becoming its members as IIFM being a non-profit organization requires support from all stakeholders, particularly financial institutions as they stand to gain a lot from documentation and product standards. The first presentation of the session was by Mr. Ijlal Ahmed Alvi, Chief Executive of IIFM where he briefed the audience on the ready to use IIFM standardized Islamic financial contracts and product templates which provide best global market practice, legal certainty, Shari‘ah harmonization while mapping out the required law reforms in OIC countries. He also explained the comprehensive process followed by IIFM in the development of these international standards through collaborative efforts by bringing stakeholders from various jurisdictions on a common platform. The presentation was followed by remarks from Mr. Khurram Hilal, Managing Director and Head of Group Islamic Products at Standard Chartered Saadiq in Dubai who spoke of a time not too long ago when there were no standardized financial documentation and how it used to be very costly and time consuming to negotiate a single bilateral Islamic financial contract as Islamic financial institutions would have to go through a cumbersome process of internal review and approval from their operations, credit, legal and Shari‘ah departments for each counter-party which would take months. He drew the attention of the audience to the fact that IIFM has managed to address this issue by making available a suite of standard master agreements and product templates which have made the dealing process much simpler, efficient and at the same time is also providing Islamic financial institutions with significant cost savings. Mr. Habib Motani, Partner at London offices of international law firm Clifford Chance LLP was the next speaker and his presentation covered the documentation architecture of Islamic hedging standards. He also went on to explain some of the technical and legal aspects of hedging as well as liquidity management standards. 

In the last presentation of the session, Dr. Peter Werner, Senior Counsel at International Swaps and Derivatives Association (ISDA) highlighted the need for strong regulatory framework and required law reforms as well as importance of close-out netting legislation and legal opinions in the development of financial markets. He emphasized on the need for clarity over insolvency laws, treatment of collateral and enforceability of netting provisions particularly in cross-border transactions. Dr. Werner also gave an overview of ISDA’s law reform efforts in emerging markets and provided the current status of netting legislation in various OIC countries.

Mr. Hammad Hassan, Managing Director of Bank ABC Islamic and Group Head of Islamic Banking at Bank ABC moderated the second session titled “Sukuk Market Trends and Developments” and in his opening remarks mentioned that the Sukuk market is driven by sovereign Sukuk issuers while the corporate Sukuk issuances remain comparatively low. He also spoke about the current legal challenges as a result of the ongoing Dana Gas saga which is negatively impacting the corporate Sukuk issuances in GCC. Mr. Ismail Dadabhoy, Advisor of IIFM then presented the trends in the domestic as well as the international Sukuk market and highlighted some of the challenges that the upcoming sovereign issuers’ need to address. Mr. Moinuddin Malim, Managing Partner of Alternative International Management Services (AIMS) in Dubai commented on the growth of Sukuk in the region being dependent upon successfully developing local currency Sukuk starting from sovereign and quasi-sovereign issuers that will effectively establish a “profit-rate yield curve”. Mr. Khaled Bucheeri, Chief Executive of Bahrain based KBCORP Inc. shared his experience with regards to Sukuk defaults and restructuring process which he explained is very time consuming and takes years to resolve which results in negative impact on the Sukuk market.

The third session was a new addition to IIFM seminar titled “FinTech and Role of Smart Contracts in the Context of Hedging” where thought provoking discussions took place. It was moderated by Mr. Ashar Nazim, Managing Director at Finocracy who opened with a note on the opportunities in Islamic finance with respect to FinTech and the need for preparedness by the industry. He also mentioned new projects being initiated in Bahrain including the regulatory push to effectively manage the growing FinTech needs. Mr. Ismail Dadabhoy then presented on FinTech and Smart Contracts, explaining these new buzz terminologies and suggested some Shari‘ah-compliant products that would benefit from smart contracts particularly hedging products. He also touched on ICMA’s work on developing Directory of FinTech Services. It was followed by a presentation from Dr. Peter Werner on Smart Contracts where he provided definition of smart contract and explained how all contracts cannot be automated due to the nature of certain operational processes in the legal agreements. He further explained the difference between “smart legal contract” versus “smart contract code” and touched  on key issues to be tackled in putting together smart contract for FinTech purposes as covered in ISDA’s recently published white paper. Mr. Habib Motani then summed up the session by focusing on legal matters related to FinTech and Smart Contracts. He suggested that there is an opportunity for Islamic finance in the development of smart contracts.

The seminar concluded with a session on another new topic titled “Gold in Islamic Finance and Product Standardization” where critical discussions on the role of gold in Islamic finance took place and saw an assessment of the AAOIFI Shari’ah standard pertaining to gold in addition to gold-related trading centers and gold products documentation. Mr. Moinuddin Malim moderated the session and in his introductory remarks stated that standards in gold and gold related products are connecting Islamic finance to the real economy. In the first presentation of the session, Mr. Andrew Naylor, Director-Central Banks and Public Policy at the World Gold Council (WGC) presented on the use of gold in Islamic finance and the positive impact since the publication by AAOIFI standard in association with WGC. He pointed out that gold is a highly liquid asset, has outperformed other Islamic asset classes and it is a powerful diversifier and ultimate safe haven asset. This was followed by a presentation from Mr. Habib Motani on conventional gold product documentation and need to develop certain gold documentation and product standards for Islamic finance. Mr. Selman Bayoglu, Treasury Marketing Manager at Kuveyt Turk Participation Bank in Istanbul was the next speaker and he presented on gold products and services currently offered by banks and the need for standardization in wholesale Islamic financial market. He provided details on Gold Accounts,  Gold Forwards, Electronic Gold Transfers, Gold for Central Bank required reserve option mechanism in Turkey. He also pointed out an increase in gold related transactions in wholesale as well as retail market in Turkey. In the last presentation of the session by Mr. Hakan Aytekin, Manager of Precious Metals and Diamonds Market at Borsa Istanbul briefed the audience on services offered by Borsa Istanbul Group with particular emphasis on gold related trading at the stock exchange. He went on to give a detailed presentation on the use of gold in the capital market and the recent issuance of gold indexed Ijarah Sukuk by the Turkish Treasury.

The IIFM Seminar was appreciated by the attendees for creating awareness on selected topics, providing an opportunity to engage in discussions and updating their knowledge of market developments.
 
The presentations and photographs from the IIFM seminar are available on following link:

http://www.iifm.net/current-events/iifm-pre