Assalaamualaikum
A very good evening to you all!
A very good evening to you all!
I am very pleased to be here this evening to officially launch Century Bank, our first full-fledged Islamic Bank in Mauritius, and the 20th bank in our financial landscape. As a regulator, I feel comforted that our banking sector is expanding – the more so when we hear about bank failures in other parts of the world. I am doubly pleased because this auspicious occasion gives me the opportunity to look back and share with you our approach to develop Islamic Banking in our jurisdiction, which I do not hesitate to say has been a very prudent but proactive one.
When I joined the Bank in 2007, we were in what I could call a standing position - there was this Steering Committee on Islamic Financial Services which had been constituted as far back as 2005 and which was meeting on and off. The Steering Committee had made proposals to have the legislative framework reviewed and amended to facilitate the introduction of Islamic Banking in Mauritius. But not much seemed to be happening! Within a few months, a Malaysian expert on Islamic finance – known in Islamic finance jargon as a “scholar” – arrived and helped to get things moving. The proposals were finalised rapidly and the Finance Act 2007 brought the necessary amendments to legislation in June 2007. It made provision for banks to operate either as a full-fledged Islamic bank or alternatively, to offer Islamic banking services through a window operation.
All of you know that modern Islamic finance started roughly some 40 years back and that the assets of Islamic finance institutions have been growing at double-digit rates for over a decade. According to the rating agency, Moody’s, total Islamic finance industry’s assets under management is nearing the trillion dollar mark. In the global financial crisis, Islamic banks have fared better than conventional banks except for the near-default of some Dubai-based entities which were saved in extremis. Islamic banking is now expanding out of its niche, becoming a market that could rival the conventional sector in many countries. Currently concentrated in the Middle East, North Africa, and Southeast Asia, Islamic banking is spreading to Sub-Saharan Africa, Central Asia, and Western Europe. For a country which is second to none in its pluralism, with our multiple identities, multiple ethnicities, multiple religions, multiple languages and cultural affinities with the world, we just could not stay away from Islamic banking. We need to develop our own niche market and strive to become a regional hub for Islamic finance.
But it is one thing to have the legislative framework in place; it is quite another to make Islamic banking become a reality, in a financial sector with so many well-established banks. So we decided to set up a Working Group on Islamic Banking to work on guidelines. We wanted it to be a simple and standard regulatory framework, within which, Islamic banking could develop and integrate in a seamless manner with the conventional financial system. The Working Group was a broad-based one and included representatives of the banking industry – that was our way of taking everybody on board. We finalised those guidelines and issued them to the industry in June 2008.
In the meantime, we sought affiliation with the Islamic Financial Services Board (IFSB), a sort of hybrid IMF-BIS for Islamic finance. This built on a chance meeting I had with IFSB’s Secretary-General, Professor Datuk Rifaat Ahmed Abdel Karim, in the margins of a BIS meeting in Basel in June. We wanted to give credibility to our efforts in promulgating Islamic finance and benchmark our regulatory framework with international norms. In November 2007, the Bank was duly admitted as an Associate Member of the IFSB. We were extremely pleased in May 2009 to host with the IFSB a Seminar on Islamic Capital Markets in Mauritius – in joint collaboration with the Financial Services Commission. This event aimed at bringing Mauritius to the attention of the global Islamic finance community and sensitizing the Mauritian public as well. I think we succeeded even if for some – c’était mettre la charrue devant les boeufs! (Putting the cart before the horse) In the same month, we were admitted as full member of the IFSB – another major step towards the implementation of a comprehensive Islamic financial services industry in Mauritius.
In my discussions with other central banks which were as keen as us to get a piece of the action, we were increasingly aware that there were not sufficient high-quality Sharia-compliant instruments available for liquidity management purposes. To address the shortcomings, the IFSB coordinated the establishment of an International Islamic Liquidity Management Corporation (IILM) in October 2010, and the Bank of Mauritius became a founder-member, along with ten other central banks and two multilateral organisations (the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector). The new corporation, the IILM, will issue investment-grade instruments to facilitate liquidity management for institutions offering Islamic financial services and cross-border investment flows. We contributed US$ 5 million to the capital of this supranational body – a clear demonstration of our commitment to create a conducive environment for the development of this new platform in the banking landscape.
Now the ball is in your court – the Bank of Mauritius has been so far a critical driver in this venture which, as you have seen, was not without hurdles. The time has now come for you to take over ball and run with it! For your business to flourish, Islamic finance needs acceptability by the public. And, for that, there should be consumer awareness and education. The banking environment is a very competitive one and the formulation and implementation of successful marketing strategies for Islamic finance is a real challenge. The key ingredient is a clear understanding of the behavior, attitudes and perceptions of your prospective banking consumers.
You need also to be inventive – it is recognised that financial engineering and innovation is one of the most potent tools of Islamic finance – and you have to come up with innovative products that would cater for all segments of the population and of the economy, from retail services, personal banking to project finance. It’s up to you to explore the opportunities ahead.
All of you know my thinking with regard to competition – the more the merrier. I have endeavoured to open up the banking sector to new players. Just a quarter ago, I was inaugurating the 19th bank and I remember very well having urged the management of the new bank not to be intimidated by the giants already well-rooted with their colossal balance sheets. I quote myself: “No matter how small you are in the banking world, the fact that you have a banking licence allows you to take on this big competition confronting you”.
Pour la petite histoire (For the record) – Century Banking Corporation first applied for an Islamic banking licence under the name of Deen Bank. But then with its well-established partner from Qatar coming on board, it decided to go for a name change. The Bank was very accommodative on this front and we have allowed you to take some time to carefully choose your CEO and external board members, as patiently as we ourselves, as a regulator, toiled our way quietly, over many months, to get the enabling environment in place. As I just mentioned to Mr Shokry earlier, the name change also got us puzzled – we were hoping that you would not take a century to get your operations started! I should mention to you that there was another Islamic bank from Dubai to which we have also given a licence, but you are lucky that in Dubai they faced a few problems that threw cold water on their project. The process was delayed on account of this. At the latest news, they may be coming through a subsidiary from Malaysia. So, come on you guys, competition is here – take up the challenge! You have to play your role effectively and efficiently while contributing to broader market development.
On a totally different note, I would like to make a few comments on the monetary policy decision of Monday last, 28th March. By and large, the decision seems to have been well received – there are of course as always some discordant voices which I consider to be a normal reaction. But the message that I want to drive in is the critical importance at this juncture of policy coordination between the Bank and the Treasury. The complexity of the domestic and international economic environment warrants such close policy coordination. The Treasury has initiated a series of measures to complement our action. At the level of the Bank, we note that the real interest rate (year-on-year) is still in negative territory in spite of the last 50 basis points hike. More efforts would have to be deployed to normalise rates in the coming months. We need to stay ahead of the curve, if we want to avoid the return of double-digit inflation.
To come back to the event of the day, I want to highlight the importance of developing the right skills which is vital to drive the industry to greater heights. In October last year, the Bank entered into a Memorandum of Understanding (MOU) with Bank Negara Malaysia, a lead regulator in Islamic finance. The MOU establishes a collaborative framework for mutual cooperation in capacity-building and human capital development in the financial services industry. We expect the industry also to contribute to create a pool of high-calibre professionals in the field.
I therefore congratulate the promoters, who I must say have a track record of positive contribution to the diversification of the financial sector. My best wishes to the management and staff of Century Banking Corporation. I wish you the very best of success in your endeavours.
Thank you for your attention. Shukhraan.
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