KEYNOTE ADDRESS Y.B. DATUK HJ. AHMAD BIN HJ. MASLAN Deputy Minister of Finance “Shariah Audit: Key Pillar of Governance for Islamic Finance” 2014 Shariah Audit Conference Hotel Istana Kuala Lumpur City Centre 20 May 2014, 8.45 am Bismillahirahmannirrahim Assalamualaikum wbt. And a very good morning to Tan Sri-Tan Sri, Dato-Dato Distinguished guests Invited Speakers Members of the Media Ladies and Gentlemen, 1. First of all, I must say that it is an honour to be invited to speak at this 2014 Shariah Audit Conference. 2. I wish to congratulate and commend the organizers, the Institute of Internal Auditors Malaysia (IIA Malaysia) and Islamic Banking and Finance Institute (IBFIM) for the laudable attempt in putting together this event that certainly serves to further promote Islamic finance. It is our hope that this journey of global interest and expansion of Islamic finance would strive on and mark significant success for years to come. 3. The 2014 Shariah Audit Conference is a continuous effort made by the industry’s training institute after a successful inaugural event organized in 2011 by industry’s association i.e. the Association of Islamic Banking Institutions Malaysia (AIBIM), Malaysian Takaful Association (MTA), with the support from Bank Negara Malaysia (BNM). 4. I hope we will benefit throughout the discussion and deliberations of relevant issues and topics of this two-day event. Alhamdulillah, I believe we could achieve the objective of the conference to facilitate the development of Shariah Audit Framework and Audit Programme in line with the objectives of Shari’ah or Maqasid Shari’ah. 5. History tells us that the advent of Islamic finance in Malaysia was announced with the establishment of Bank Islam Malaysia as the first fully-fledged Islamic bank in 1983. 30 years on, the rapid development of Islamic finance in Malaysia henceforth continues to advance at the forefront and chart its path as economy’s new growth area. 6. Our economic performance this year is set to surpass most expectations based on the 1st quarter growth that recorded 6.2%, driven mainly by stronger domestic demand and exports. This higher-than-expected achievement, which even propelled our KL Stock Exchange to a new high of 1,887.07 points as at yesterday, delineates the resilience and strong fundamentals of our economy. And with the on-going Economic Transformation Programme - the brainchild of our Prime Minister YAB Dato’ Sri Mohd Najib Tun Abdul Razak - which continues to create demands while at the same time stimulates economic activities and provides jobs for the people, Malaysia is on the right track to become a developed and high-income nation at the dawn of 2020. 7. This, coupled with the regional performance which we hope will replicate the robust real GDP growth rates of 6.2% among emerging markets in Asia in 2013, provides ample opportunities for Islamic finance industry players to support the region’s expansion with products such as trade financing, wealth management and infrastructure financing. Malaysia, for example, is keen to offer its expertise in Islamic finance, banking services and promotion of halal products to the Philippines, and help our neighbour with its human capital development in this very promising area. And of course opportunities abound in other part of the world too. 8. At the global scale, Islamic banking assets are expected to surpass USD1.6 trillion by 2014, up from an estimated USD1.4 trillion in 2013, having registered a Compound Annual Growth Rate of 19% from 2007 to 2012. Islamic banking assets in Asia account for approximately 14% of global Islamic banking assets. Ladies and Gentlemen, 9. The Government has set the target to increase the share of Islamic financing from total financing in Malaysia from 29% in 2010 to 40% in 2020, and at least one local Islamic financial institution to be among the top 10 Islamic financial institutions in the world in terms of assets by 2020. Malaysia today is the world’s third largest market for Shariah assets (Islamic banks, takaful, sukuk), but mostly through deep penetration in the domestic market. Many large Muslim countries (e.g. Indonesia, Pakistan, Bangladesh, Egypt) are still at an early stage of growth. The Government, through the Ministry of Finance and its agencies, i.e. Bank Negara Malaysia (BNM) and the Securities Commission (SC), is actively stepping up measures to further Malaysia’s aspiration in becoming a centre of intellectual excellence in Islamic finance. For instance, several human capital development institutions including International Shariah Research Academy for Islamic Finance (ISRA), International Centre for Education in Islamic Finance (INCEIF), IBFIM and the Asian Institute of Finance (AIF) were already established to crystallise the aspiration. 10. To this end, we will continue with concerted efforts in cementing Malaysia’s position as the centre of excellence for Islamic finance, research and education. Our priority areas going forward include among other: • Human capital: IBFIM will create globally recognized accreditation and certification programmes (e.g. Certified Qualification in Islamic Finance (CQIF); while together with IIA Malaysia will continue providing training modules on Shariah Audit and Ministry of Education will increase the capacity and quality of Islamic finance higher education institutions with more focus on drawing foreign students; and • Research, development and innovation: ISRA to spearhead innovation in Islamic finance; Islamic financial institutions to increase their R&D budgets and MIFC to increase the prominence of awards programmes Ladies and Gentlemen, 12. I think it is not difficult for any observer to see that Islamic banking is growing at an accelerated pace across different continents. Where it is part of a conventional bank, Islamic banking is usually the fastest growing part of the business of the bank. 13. As banks compete for higher market shares and profits, they need to develop new products, more efficient procedures and new ways of offering their services, hence the need to be more advanced in product innovation. This has transformed the Islamic financial services to become much more complicated and sophisticated than the good old days when Islamic finance was simply murabaha. Nevertheless, as long as it is called Islamic, someone will have to make sure that it is so. Customers look at Shari’ah boards make sure that whatever is called Islamic actually complies with Shari’ah principles and not just Islamic on paper. Shari’ah boards approve new products and participate fully with the management in developing procedures to deliver such products. While annual audits are conducted, strict adherence to the Shariah principles and procedures remains compulsory. Such adherence cannot be assured without systematic Shariah supervisions. An Islamic transaction can become unIslamic by just missing one step of the set Shariah procedures. 15. It is, therefore, high time that compliance plans are promoted, research work in the field of Shariah compliance encouraged and methods of testing Shariah quality developed within each bank. Ladies and Gentlemen, 16. Our common knowledge tells us that audits are performed to ascertain the validity and reliability of information and also to provide an assessment of a system’s internal control. In order for IFIs to uphold its transparency in their operations towards the public, they must be audited based on Shari’ah principles, in addition to the conventional audit. Here in Malaysia, we have the Shari’ah Governance Framework as the guidelines for the purpose of carrying out Shari’ah audits. 17. Shari’ah audit is indeed a key pillar in IFIs’ corporate governance, which is the very essence of Islamic finance in building and maintaining confidence of stakeholders and shareholders of IFIs. That is to say, all transactions, practices and activities of IFIs are in compliance with Shari’ah principles. Over and above the traditional corporate governance that emphasises the relationship between shareholders, board of directors, management and stakeholders, corporate governance predicated upon Shari’ah principles include maintaining the relationship with God the Almighty. 18. This is where Shari’ah audit becomes very imperative as it ensures products and services offered by IFIs do not involve any element which is contrary to Shari’ah. 19. In performing their duties, Shari’ah auditors are not spared from challenges. There may exist several more out there, but suffice it for me to share here three of them. First, if the criteria used in conventional banking and finance audit are usually based on the International Financial Reporting Standards, for Shari’ah auditing, the citeria are limited to the written opinion of the Shari’ah Advisory Council, product manuals and also standard operating manuals. Second, to audit IFIs, Shari’ah auditors must establish a systematic and thorough audit programme because Islamic financial products and services are different from the conventional ones. Third, it is high time for specialised education and training programmes on Shari’ah audits so as to fulfil the needs of IFIs and regulators, due to the fact that at present most Shari’ah auditors do not posses accounting and auditing qualifications. Ladies and Gentlemen, 20. In conclusion, the Government believes that the IFIs can fulfill the growing need of its customers and will therefore provide the fullest support for the growth of the Islamic finance industry. The crucial building blocks and regulatory infrastructure are already in place. I am also heartened by the dedication and commitment of the pioneering industry professionals, and their positive attitude to enhancing their professionalism augurs well for the future of the industry in Malaysia. 21. The resilient growth we experience until today, thanks to several strong-performing economic sectors, which I believe also include Islamic financial services, will not last if the country falls into irresponsible hands. The Government of the day is proven capable of fulfilling the needs of the people, and will continue to serve the nation to the best of its ability. 22. And I also mentioned about challenges to Shari’ah Auditors. Worry not, while challenges exist, they are meant to be overcome. This conference is the right springboard in this regard. 23. During the 6th World Islamic Economic Forum, our Prime Minister said in his opening speech: “Muslim countries must continue to play a leading role in transforming the sector from being considered niche banking into something widely accepted as central to long-term world economic stability. Malaysia has spent 30 years developing Islamic finance. I am pleased to say we have successfully developed it in parallel with our conventional banking system.” Our conference here today is putting us in right that direction. 24. In closing, I wish to congratulate the Organising Committee for successfully making this event a reality and may everybody here have a productive and fruitful conference. 25. Ladies & gentlemen, I hereby declare today’s Shari’ah Audit Conference officially open. Thank you and Wassalamualaikum warahmatullahi wabarakatuh.
Posted on: Tue, 20 May 2014 02:44:13 +0000
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