The United Nations Economic and Social Commission of Western Asia (UN-ESCWA) and the Central Bank of Bahrain have joined hands to organize a key event on 5-6 September 2007 at the Manama Ritz Carlton Hotel.
The two-day “Regional Forum on the Role of Islamic Financial Institutions in Financing for Development” will be attended by government representatives from Arab countries, executive directors of Islamic banks, governors of several Arab central banks, heads of several Arab capital markets, experts in Islamic banks and financial institutions, researchers from the World Bank and the International Monetary Funds (IMF), as well as academics from Lebanon, Jordan, United Arab Emirates, Saudi Arabia, Bahrain, Indonesia, Malaysia and representatives of the United Nations Department of Economic and Social Affairs (UN-DESA).
Speakers at the opening session will be HE Sheikh Ahmed bin Mohammed Al Khalifa, Minister of Finance in Bahrain; HE Rasheed Mohammed Al Maraj, Governor, Central Bank of Bahrain; and HE Bader Al-Dafa, UN Under-Secretary-General and Executive Secretary of UN-ESCWA. The latter’s appearance will be the first in a UN conference following his appointment at the helm of UN-ESCWA.
The Forum is intended to analyze the role of Islamic institutions in financing and mobilizing domestic resources for development. It will also be an opportunity for the heads of capital markets and executives of Islamic banks to evaluate their experiences and shed more light on this emerging and fast growing phenomenon.
The Forum’s topics will focus on the role of Islamic financial institutions as stimulators of domestic savings; the role of Islamic financial institutions in development finance in developing countries and the instruments they use in project finance; the relationship and cooperation between Islamic financial institutions in the Arab countries and in South-East Asia; the relationship of Islamic banks with conventional banks; the future prospect and expansion of Islamic financial institutions in light of globalization and the repatriation of Arab investment funds to the Middle East and the sharp increase in oil revenues.
The subject of the Bahrain Forum goes in line with the UN-ESCWA role in monitoring the implementation of the “Monterrey Consensus” adopted in 2002 by the International Conference on Financing for Development. The “Monterrey Consensus” promotes activities that encourage growth of financial resources to assist developing countries in meeting their UN Millennium Development Goals (MDGs) by the deadline of 2015. One of the six leading actions of the “Monterrey Consensus” includes measures to stimulate domestic financial resources. A key domestic financial resource is private domestic savings, traditionally channeled through banks and capital markets for use by private and public sector investors. Finding innovative ways to promote domestic savings and facilitate access to savings by investors is important for economic growth and development.
The “Regional Forum on the Role of Islamic Financial Institutions in Financing for Development” is to take place just before the regional preparatory meeting for UN-ESCWA member countries on the implementation of the “Monterrey Consensus” to be held during the first quarter of 2008. The latter will prepare UN-ESCWA member countries to the Mid-term review of the “Monterrey Consensus” scheduled for the third quarter of 2008 in Doha, Qatar. The final report and the recommendations of the Bahrain Forum will add value to the regional preparatory meeting.
It is worth noting that the number of Islamic banks has increased sharply in the last two decades. Their current number is estimated to have topped 300 banks in over than 75 countries; about 40 per cent of them are in the Middle East. Their estimated assets range between $US 250 billion and over $US 400 billion. Moreover, it was estimated that as high as $US 300 billion were available at Islamic funds waiting for investment opportunities. The market share of these banks in the Gulf Cooperation Council (GCC) countries was estimated at 20 per cent in 2005 and expected to reach 50 per cent in 2010.
Although the idea behind the launching of Islamic institutions and capital market instruments was to meet the needs of Muslim savers looking for investments that are compatible with the Shariah, these institutions have attracted not only Islamic investors but conventional investors as well. In addition, these institutions, as it is the case with conventional financial institutions, have benefited from globalization and liberalization of financial markets since the 1990s. This large volume of funds, if channeled to development finance, will have a significant positive impact on the economic developments of a large number of developing countries and could add another tool for development finance for these countries, given proper governance and regulation of this emerging financial sector to insure investor and saver confidence
Although their activities are not as wide as those of the conventional banks and financial institutions, these financial instruments have managed to provide many services that were previously unavailable to Muslim savers and investors. This includes fund mobilization, asset allocations, joint projects, micro finance and others. Furthermore, these institutions have stimulated savings from Muslim citizens in a large number of countries not only in the Islamic countries but also in other countries as well. However, they still suffer from several constraints and face many challenges specially their relatively small size and the lack of unified regulations.
Owing to the importance of the emerging Islamic institutions and capital markets instruments as sources of development finance, several meetings and conferences have been organized worldwide to assess and evaluate their performance, impact and prospect. However, as yet, it is not known the extent of the role of these institutions and capital markets in providing funds for long term investment. Therefore, the analysis and discussions of the full impact of the Islamic financial sector on the development of developing countries remain of great importance.