Kuala Lumpur, 21 April 2016 - The 13th Islamic Financial Stability Forum (IFSF) was successfully organised by the Islamic Financial Services Board (IFSB) on 12 April 2016 as part of its Annual Meetings and Side Events 2016, which were held in Cairo, Egypt on 10-12 April 2016, hosted by the Central Bank of Egypt.
The theme of Forum was Consumer Protection in Islamic Finance, and the main presentation was by Professor Volker Nienhaus, Former President, University of Marburg, Germany, and IFSB Consultant. Ms. Nariman Abdulla Kamber Al Awadhi, Chief Manager, Consumer Protection Unit, Central Bank of the United Arab Emirates and Mr. Khairul Nizam, Chief Operating Officer, Finance Accreditation Agency, Malaysia, acted as discussants to the presentation.
In his Opening Speech, H.E. Mr. Tarek Amer, Governor of the Central Bank of Egypt, stated that with the growth and globalisation of Islamic finance, the need for consumer protection has become more important and should be an integral part of Islamic finance regulation. He highlighted that one lesson learned in the aftermath of the Global Financial Crisis is that consumer protection is directly related to financial stability. He also added that transparency, impartiality and liability are important features of any consumer protection regime and therefore should be put into the agendas of international organisations and supervisory authorities. Similarly, financial literacy also supports the cause of consumer protection. He pointed out that while there are existing standards for consumer protection, adoption of these standards is uneven across countries.
Professor Nienhaus, in his presentation, which was based on IFSB Working Paper 03, Financial Consumer Protection in Islamic Finance, stated that while most of the issues in consumer protection - such as preventing systemic financial risks, selling of unsuitable financial products, unfair treatment by the financial institutions - cover both conventional and Islamic segments of the financial system, there are some issues and risks pertinent to Islamic finance sector, such as Shariah non-compliance risk. He stressed that regulators and supervisors in Islamic finance should focus on these unique risks in line with the progress taking place to address the common issues applicable to both sectors. He then expounded the main neo-classical and behavioural theories, as well as the precepts of Fiqh al-Muamalat, which justify policy interventions to protect the consumers. He stressed that regulation is necessary due to information asymmetries, limited information-processing capacities, cognitive biases and other behavioural factors. Apart from regulation, policies towards improving the financial capacity of consumers, setting up mechanisms to increase information dissemination and financial education are also important. He stressed that Shariah governance framework is of crucial importance to address unique issues and risks of consumer protection in Islamic finance.
Ms. Nariman Abdulla Kamber Al Awadhi of the Central Bank of the UAE, mentioned that the consumer protection issues have multiple facets and due to their complexity, are therefore not easy to put into a policy agenda. She added that the key challenge is integrating trust and faith into the financial system. She underlined that the Central Bank of the UAE covers consumer protection issues in conventional and Islamic finance under a single regulatory framework. She pointed out that for Islamic banks, the issues related to early settlement are the major area of customer complaints. She concluded her presentation by underlining that financial literacy should be an indispensable element of consumer protection policies.
Mr. Khairul Nizam of the Finance Accreditation Agency, Malaysia, touched the topic from the lens of Islamic finance consumers. He stated that one of the most important concerns in an Islamic banking from the point of the view of a consumer is Shariah compliance of the deposits and investment accounts. Here, perceptions of reputation and integrity of the Islamic banks come into play, and he underlined that convincing consumers on the banks Shariah compliance, as well as the fairness and equity on the rate of return depends on the perceptions, and competency, of the regulators. He also pointed out that the consumers can be very irrational and these cognitive biases should be taken into account by regulators.
The IFSF is a high-level platform open to regulatory and supervisory agencies, and international multilateral organisations, from among the IFSB members to discuss current and pertinent regulatory issues faced by the Islamic financial services industry. The Forum is held twice annually in conjunction with the meetings of the IFSB Council.
About the Islamic Financial Services Board (IFSB)
The IFSB is an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets, and insurance sectors. The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. Towards this end, the IFSB works closely with relevant international, regional and national organisations, research/educational institutions, and market players. The members of the IFSB comprise regulatory and supervisory authorities, international inter-governmental organisations, market players, professional firms and industry associations. For more information about the IFSB, please visit www.ifsb.org.
© Press Release 2016
