Interview: Mazin Al Nahedh
What can Islamic financial institutions do to demonstrate their resilience, even in a period of global financial crisis?
MAZIN AL NAHEDH: There is strong relationship between Islamic banking and financial stability. Islamic banks showed a great deal of resilience during the global financial crisis. They managed to implement prudent financial polices, and as a result they were able to overcome challenges that arose during that difficult time. In this way, Islamic financial institutions contributed to greater financial and economic stability.
The business model of Islamic banks, which requires asset backing among other things, helped to limit the adverse impact on profitability in 2008, so that investors, whose confidence was shaken after the 2008 financial crisis, felt more comfortable dealing with Islamic financial products and services.
Moreover, the financial crisis taught us many lessons; it highlighted a number of sector-specific challenges that need to be addressed, including the importance of liquidity risk and the necessity of strengthening liquidity management, in order for Islamic banks to continue growing at a sustainable pace. We have paid great attention to risk management, and we restructured our investments to focus on asset quality and the core banking businesses.
How can Islamic finance contribute to a stable and sustainable development agenda?
AL NAHEDH: The supreme goal of the Islamic finance industry is to achieve sustainable development. Islamic finance possesses models for solidarity-based financing with important features such as social sustainability, especially in its commitment to wider ethical and moral codes.
Kuwait is a centre of excellence in the finance field, where it is a pioneer in sharia studies along with research and development. It has been helped by the level of expertise developed in the field over a number of years. It is noteworthy that Islamic finance in Kuwait dates back to 1977, with the establishment of the first Islamic bank KFH.
The current regulatory and supervisory framework is well suited to the current Islamic banking environment, and Kuwait differs from some other countries in that the law does not allow for Islamic banking windows. In Kuwait companies are either Islamic banks or a conventional banks, they cannot be both. The government also offers significant support for Islamic banking, which we expect to continue, and which helps to ensure stability and the growth of Islamic banking.
What is the likelihood that an independent platform for raising the profile of Islamic finance research will be established?
AL NAHEDH: There is still has a long way to go in this respect. The understanding of Islamic finance products and issues at the global level is not manifested in as wide a range of products as it is in conventional banking. The global media is not paying enough attention to the Islamic finance industry and its importance in the global economy. However, the Islamic finance industry is witnessing significant expansion, and a plethora of global events are held to highlight, recognise and award the excellence of specific Islamic financial institutions.
Certainly it is possible to establish an independent platform for raising the profile of Islamic finance research; however, it should be within a collective framework. By establishing research departments aimed at enriching the principles and theories of Islamic finance, together with studies on applicability, this industry can be greatly improved and can move forward. Raising the profile of Islamic finance research can also have a broader impact on practices in traditional banking if work is done to a high standard and given the proper platform.
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