Sukuk & Capital Market - Islamic Finance News

interview
What the market needs, Afaq says, are more players issuing
paper in order to expand the current issuer base: “The market
needs more players to issue paper. We were very excited that
the government of Turkey had recently issued a sovereign, and
I believe that Malaysia and Indonesia should become repeat
issuers in the market, and new counterparts should also look to
enter the Sukuk market. This is because banks have regulatory
limits on how much exposure they can have to each client as a
proportion of their capital. Therefore we need the issuer base
to expand.”
Islamic treasury: Area of focus
Based on the current issuer and investor trend, particularly
in the GCC and Malaysia, it is evident that there is ample
liquidity to be tapped in the market, and there is still much
Shariah compliant liquidity looking for Islamic assets to invest
in. However, this can only be engaged effectively with the
proper deployment of Islamic treasury products, including risk
management.
Afaq explained: “We are very focused on risk management,
because I believe it is very important to manage risk as the
industry grows in size and scale. In the real economy, Islamic
banking is exposed to these risks, and it is important to keep in
mind that derivatives are not for speculative purposes, and are
essentially restricted to hedging purposes. Risk management
is a very important catalyst to the growth of Islamic finance
as the product suite grows and the gap between conventional
and Islamic finance is breached. Innovation and product
development will remain a key growth driver for the next decade
for Islamic banking. For us to become relevant to the needs of
society and the economy, we must meet the needs of society
and the economy.”
I believe it is very
important to manage risk
as the industry grows in
size and scale
According to Afaq, there are currently two types of treasury
products in the market; one is for the money-market, in which
Malaysia has taken the lead in terms of having a complete
product suite, and was generally a pioneer in this area with
support from Bank Negara Malaysia. “The progress is good
in this area, as a lot of other countries such as the UAE and
Pakistan have now started issuing money-market products,
and the International Islamic Liquidity Management Corporation
(IILM) has also begun work in this area. These are all important
initiatives.”
“Because we operate in the real economy, we are exposed to
the risks in the real economy whether it is exchange rate risk,
yield curve risk, etc.- these are facts of the economy. And this
is true from the perspective of the bank’s balance sheet and
our clients’ viewpoint; because our clients are also exposed
to these risks and need to hedge them. We currently have a
comprehensive product suite covering currencies, rates and
commodities hedging solutions. I believe these are important
for the corporates, because we are offering them end-to-end
solutions, and for Islamic banks, because they are growing
in size, and becoming material to the banking system in the
country. Therefore, they must have risk management tools
to manage the risk. For instance, Malaysia’s Islamic banking
sector currently stands at 20%, and there are aspirations to
double this figure. However, this cannot be done without risk
management tools. We are very focused on this, and it is
essential to the growth of the Islamic market, where we have
balanced growth, with business and risk going hand in hand,”
he added.
Industry initiatives
Afaq believes that the industry is currently already committed to
grow Islamic treasury and risk management products, with the
International Islamic Financial Market (IIFM) actively involved
in drafting standardized commodity Murabahah, and profit-rate
swap documents. “Standard Chartered was on the working
committee for these standards, and as the market grows, these
standards will start as best practice, and then the market will
use them as the base document and either adopt them or
tweak them based on local norms and local regulations. It is
a very good start. We believe that this whole area needs more
attention and more exposure.”
New frontiers
In terms of new markets, Standard Chartered has revealed
its aspirations to tap into the African Islamic banking space in
the medium-term. “The market is growing, and we are excited
about the market there. There has to be a change in regulations
in some markets, and we are currently studying the prospects
there. To successfully launch in the country, you need a
regulatory and legal framework in place. We are currently
talking to different stakeholders in Africa, and as Standard
Chartered is very client-centric, we will choose which products
to launch based on the feedback we receive from the clients.”
Afaq also believes that there is much potential amongst the
Arab Spring countries such as Egypt and Libya. There is a great
opportunity for these countries to rebuild, and Islamic banking
is looking for new markets. Therefore, it appears to be a perfect
match. What timeframe the regulations will be passed and how
welcoming they will be in terms of giving licenses remains to be
seen; but clearly there are opportunities due to their proximity
consulting www.IslamicFinanceConsulting.com
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to the Middle East and a common language.”
Afaq Khan
Chief executive officer
Standard Chartered Saadiq
Building One, DIFC Gate Precinct
Dubai International Financial Centre
Dubai, UAE
Email: afaq.khan@sc.com
Web: standardchartered.com
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saadiq
November 2012 9