New instruments must be developed but they need to be standardised in order to be accepted, according to H.E. Dr Ahmad Mohamed Ali Al-Madani, President of the Islamic Development Bank.
Speaking exclusively to Islamic Business & Finance on the sidelines of the 3rd World Islamic Banking Conference Asia, Al-Madani stressed the importance of standardising new products. “We live in a rapidly changing world, and we have to look into all the different aspects to enable the industry to grow.”
Al-Madani observed that being innovative does not mean losing the essence of Shari’ah. “There is a balance,” he said. “We must preserve the principles of Islamic banking, and we must meet the growing, evolving needs of the people.”
Earlier in his keynote speech, Al-Madani explained new Islamic instruments that facilitate trade and liquidity management, such as Salam, in which the price is paid in advance and the commodity is delivered in the future, need to be standardised in order to gain wider acceptance and adoptability across countries.
“An internationally organised Salam market will enhance trade of commodities and help connect producers with consumers across borders, without allowing for harmful speculation associated with the conventional commodities futures markets. Since Shari’ah requires the upfront payment of the full price in Salam, among other conditions, this substantially reduces the room for unproductive speculative behavior. It is widely believed that such speculation has played a major role in the recurring recent food crisis.” He added, “An organised Salam market, furthermore, would allow for new forms of Sukuk to develop, adding to the depth and size of the existing Sukuk market.”
