Regulators blamed for melt-down
Manama, May 29, 2007
Last year's Gulf-wide financial markets correction, which saw millions of dollars wiped off regional bourses, was the fault of the region's regulators, an expert said.
Liquidity Management Centre chief executive Ahmed Abbas said with the important exception of Bahrain, Gulf state regulators had caused the market collapse by allowing people to leverage their position beyond their means.
"Excuse this expression, but I think the guiltiest party in what happened last year, and I say this with a scare they might chop my head off, were the regulators," he said.
"I looked at some of the markets and the average investor on the street could go to a bank, and leverage his position five times because his neighbour made money."
He was speaking during the concluding roundtable discussion on the future of the Islamic finance industry that brought the curtain down on this year's World Islamic Capital Markets and Fund Conference at the Gulf International Convention Centre in Bahrain yesterday (May 28).
"I have said this to quite a few regulators. Fortunately Bahrain did not do this, so I am safe to say this here.
"I hear horror stories on some of the floors in Saudi and the Emirates. We gave the young kid a very sharp instrument and we expected it not to hurt itself," he said.
Masraf Al Rayan general manager of product development Dr Badih Soubra said Islamic finance must stake its claim as an international industry rather than aim at being a specialist market.
"We need to learn, not go backwards. We are not going to go back to being some niche - we are going to go forward to New York, we are going to go forward to London and Paris and the exchanges you hear about. That is where we are going," he said emphatically.
He also emphasised the history of what many are tempted to depict as a nascent industry.
"This is a renaissance in Islamic finance. People were there a thousand years before us - that is how we have systems. If you read the Quran you will see all the Arabic words we use in Islamic finance today - those systems existed in the seventh and eighth centuries and all we are doing is applying them to the 21st Century," he said.
Calyx Financial chief executive Douglas Clark Johnson was positive on the future, but expressed concern that some products were permitted to market themselves as fail-safe ways to make money - something that would be prohibited in more sophisticated financial territories.
"I think there are standards in the West that perhaps this region might benefit from," he said.
Abbas also shed doubt on the idea that there could be a Sharia-compliant hedge fund, but firmly backed the future of the financial industry in the Gulf and wider Middle East.
"People say the region is unstable. I completely disagree. I have yet to see an emerging market rated very strong or 'double A', with liquidity coming out of its ears and which is stable politically like we are here.
"The region has shown for the last 20 years that it always prevails over events," he said.
Elsewhere at the event, Deutsche Bank director of global market Harris Irfan predicted June and July - traditionally quiet business months in the region - would see a frantic period of Sukuk issuance this year.
The conference issued several recommendations based on its two days of workshops and meetings and these included the need for more Sharia scholars, further standardisation and the avoidance of simply agreeing to "Sharia-ise" existing non-Islamic products. - TradeArabia News Service