World Bank: Emerging markets must enable Islamic finance

ISTANBUL

Emerging markets must create valid legal conditions, a “level playing field,” to gain access to Islamic finance at the international level, Zamir Iqbal, head of the World Bank Global Islamic Finance Development Center, has told Anadolu Agency.

Speaking at a G20 forum on Islamic finance in Istanbul, Iqbal said: “Islamic finance uses the techniques of securitization. This means that a good enabling environment for structured finance is needed.”

Securitization, or structured finance, is the process of taking assets that produce income and using them to create a security. In Islamic finance, all securities are linked to income-producing assets.

Iqbal pointed out that emerging markets should have a proper securitization law before they can issue into the international markets for securitization – that is, the legal conditions must be right for the domestic market.

“It is possible for emerging markets to make use of other countries for international issuance, even when the domestic legal conditions are not there. But that provides only limited market access; making conditions right at home is better before trying to work outside the home country,” Iqbal said.

“The correct legal structure is what is needed; how to create proper ownership of the assets so that they can be wrapped into a securitization of the type used in Islamic finance,” Iqbal explained.

“You need a law to transfer ownership of the assets to the special purpose vehicle (a company created for the sole purpose of holding the assets). This should create a level playing field, meaning that the tax conditions for this process should be fair.

“Some emerging markets still have not done this; yet it should be easy to do,” Iqbal said.

“International investors need these legal conditions in place, as they will look at the economics and the risk in an Islamic finance issue, without concern for the theological aspects of it. The legal conditions that govern it will be very important to them,” Iqbal said.

The Turkish presidency has done much to bring these issues to the fore in the G20, Iqbal said. When the presidency passes to China, the interest in Islamic finance should continue, he added.