Manama: The leadership of Islamic financial institutions has to show exceptional professional competence and integrity to convince their stakeholders that they deserve to lead the industry to the next level of growth, Rasheed Al Maraj, the Governor of the Central Bank of Bahrain, said at a major Islamic banking conference in Bahrain.

“A leadership that does not possess a global mindset cannot possibly establish and manage a global Islamic financial institution,” he said at the 25th World Islamic Banking Conference 2018 attended by 1,300 people from 50 countries.

“A multinational institution has to compete at the global level for human resources, finances and competitive advantage. Its leadership must provide a global vision and demonstrate its own capability to compete with the best-in-class worldwide. This is the only way to attract and retain a globally competitive workforce.”

Al Maraj stressed that leadership was one of four pre-requisites to expect that regional and global growth in the Islamic finance sector. The others are standardisation, good governance and risk management and compliance.

“Sharia standards, accounting standards, prudential standards and best market practices need to be developed for the Islamic finance industry with the global audience in mind,” he said.

“The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has been doing excellent work on Sharia and accounting standards while Islamic Financial Services Board (IFSB) has developed risk management and capital adequacy standards which conform to global best practices. International Islamic Financial Market (IIFM) has made valuable contribution towards standardising money and capital market contracts as well as financing contracts,” he said.

“The recent endorsement by the IMF of the IFSB’s proposed core principles for Islamic finance regulation and their assessment methodology for financial sector assessments is a great news for the global acceptance of Islamic finance. What we need now is to convince regulators and market players to adopt AAOIFI, IFSB and IIFM standards in their respective markets.”

“People tend to forget the lesson learned from the global financial crisis. During the last decade the top ten global banks have paid over $250 billion in fines and penalties and have had to fire hundreds of thousands of their employees to reduce costs and sustain themselves,” Al Maraj said.

“This is the price for laxity in compliance, lack of appropriate controls and poor risk management. A far-sighted leader should never opt for a quick buck while ignoring the long-term consequences. If there is one lesson that Islamic banks can learn from their conventional peers it is this.”

Islamic finance is no longer an infant industry and Bahrain next year will celebrate the 40th anniversary of the establishment of the first Islamic bank in the country.

However, he warned that although Islamic finance has achieved size, scale, market share and customer attention in many markets around the world, success is always a function of what has been achieved compared with what has been expected.

“My expectations from the Islamic finance industry have not been met fully. The progress towards Maqasid-e-Sharia remains painfully slow, which in my opinion should have been the single most important indicator of real success,” he said.

Islamic finance has followed a fragmented growth pattern since the start with various countries in the Middle East and South East Asia taking the lead.

“These country specific models have achieved reasonable success as measured by the share of Islamic finance in the respective markets. I would like to argue, however, the reduced pace of growth suggests that we cannot hope for a new growth paradigm while maintaining the status quo.”

Other themes on the agenda of the two-day conference include the role of Islamic finance in financing long-term investments, Economic Growth & Sustainable Finance, Fintech Panel: Digitisation Journey of a Global Bank, the role of financial centres in fostering the development of Islamic finance in Africa, Global Economic Outlook & Impact on Regional Economy, and Study on Cross-Jurisdictional Issues on Sharia Standards & Practices.