The Saudi Arabian lender National Commercial Bank has recently participated in the Islamic Finance Forum organized by Harvard University in the United States of America. The forum is a renowned annual event that brings together top scholars, researchers and analysts, with economists and industry leaders in Islamic Finance from around the world.
Held in its tenth session this year, the forum’s agenda was focused on discussing the role of Islamic finance in the global economic development, shedding light on the latest challenges facing the growth of the industry and defining the competitiveness and opportunities inherent in Islamic finance as a potential alternative for the conventional financial system.
NCB is a three-year sponsor of the forum, extending its support to the event’s organizer, the Islamic Finance Project (IFP), under the Islamic Legal Studies Program (ILSP) at Harvard Law School, Cambridge, USA.
Commenting on the sponsorship, Abdulrazak ElKhraijy, Executive Vice President and Head of Islamic Banking Development Group, commended the efforts exerted by the organizers and their relentless contributions to the development of Islamic finance over more than a decade of time. He explained that the Harvard’s Islamic Finance Forum provides a distinctive platform for exchanging knowledge and experiences amongst industry leaders, scholars and researchers specializing in the Islamic Finance field from around the world, which in turn accelerates the pace of development in the industry.
ElKhraijy explained that the care NCB bestows on such events comes in total harmony with the role it plays as one of the world’s pioneers in Islamic banking and the importance the Bank attaches to providing innovative financing solutions compatible with the provisions of Islamic Sharia.
He further indicated that “NCB has been a major contributor to the industry’s advancement in the past, bringing forward best practices in Islamic banking and sharing our hands-on experience in international conventions in order to support the growth of Islamic banking services worldwide; a mission we proudly take on ourselves and we support all efforts pouring towards the same direction”.
Representing NCB in the forum’s panel discussion, Abdulrazak ElKhraijy, presented a paper under the title “the Contributions of Islamic Finance to Economic Growth” wherein he explained the industry’s role in the development process, saying “the developmental contributions of the Islamic banking industry are not limited to the direct economic development, but transcends that to embody the social and moral aspects of development as well; elements that are not currently included in the ‘Human Development Index’ of the UN.”
He added “It’s known that Islamic finance is but a part of an integrated system underpinning Islamic economics. This system is based on a strong social and moral foundation that abides by general principles and core values set by Islam which aim at preventing exploitative and unfair practices such as profiteering with interest or investing in activities that are prohibited for their detrimental effect on societies, or transactions that involve uncertainty(Gharar) speculations(Maisir). Besides that, the system gains its solid grounding from the institutionalization of Sadaqah (Voluntary Charity), Zakat (Obligatory Levy on Wealth) and Waqf (Voluntary Giving in Cash or Asset) which aim at creating a just and equitable society; a key factor in realizing total development.” “To this extent, it may not be proper to look at Islamic Banking using the same criteria and parameters as applicable for ‘Conventional’ or even ‘Social Responsible Investment’ banks. We need to adopt a holistic perspective in assessing the developmental role of Islamic Finance.”
Commenting on the role Islamic finance plays in the modern global economy, ElKhraijy stated that “the global Islamic Finance industry has grown exponentially in the past years and has succeeded in attracting the attention of economists, bankers, policy makers and financial regulators across the world, especially in the wake of the global financial crisis. In 2011 alone, the Islamic finance industry grew by 24.4% to reach a $1.084 trillion dollars, while the global Sukuk issuance increased by more than 60% up to 84.5bn.”
“This significant growth rate in the industry was a pull factor for many financial institutions” Elkhraijy said “however, we remain aware of the fact that the industry is relatively new in the international financial arena and its infrastructure and constituents are still under construction. There are lots of challenges facing the industry on all fronts, be it in liquidity management (asset-liabilities management), risk or in the area of skills and capabilities necessary to compete effectively with conventional banks. Moreover, there’s a need to create a robust regulatory and institutional framework that facilitates the introduction of a varied range of Sharia-compliant banking products that can be competitive and a real alternative to what the conventional banking industry offers in terms of facilities and services that meet the changing needs in the market.”
He continued “In the past few years Islamic banking has surely proven its presence and worth but there’s still a long way to go to reach a full implementation of the principles of Islamic economics in its ideal and integrated way that we aspire to. The journey requires continuous work, perseverance and concerted efforts to develop the essential components underlying the industry.”
ElKhraijy expected a continued momentum in the growth of Islamic banking and an increasing popularity of Islamic finance in various countries around the world, and said “we have seen during our participations in such international conventions a growing desire to change by financial institutions and there is a certain level of persistence in the search for real alternatives offered by Islamic finance which may help economies avoid the series of financial crises that hit various parts of the world on a cyclical basis, a matter that became widely believed to be natural and an inevitable reality under the existing global financial system.”
While affirming that the transition to a full Islamic financial system is possible and promising to many financial institutions, Elkhraijy stressed that there is a kind of consensus that this transition should be gradual and should take its due time and a considerable amount of coordinated efforts, both at the business and the regulatory levels, to ensure complete readiness for the requirements of such systematic change; a change that can be considered fundamental to a large extent.
During his participation in the Harvard forum, ElKhraijy shared NCB’s experience in Islamic financing in Saudi Arabia and the contributions the Bank made in embodying the principles of Islamic economics and introducing Islamic Banking business models and practices that provided the industry with practical benchmarks, helping many financial institutions around the world in adopting similar practices.
The Islamic Finance Project was established in 1995, and for the past sixteen years it has been part of a ground-breaking academic research, publications, and other initiatives in Islamic finance. The project has worked with numerous private as well as governmental institutions, such as the US Treasury Department, the Federal Reserve Bank, and other US government agencies and regulators who have expressed interest in Islamic finance in the US. The project has hosted many forums and seminars on Islamic finance and sponsored many publications and workshops both at Harvard and other prestigious academic institutions. The speakers in the Harvard Islamic Finance Forum included distinguished speakers from heads of states and ministers, to central bank governors, besides industry leaders and academics. The Islamic Finance Project’s initiatives have attracted great interest in the project’s work from faculty members and students in various fields of study at Harvard and other leading universities around the world.