Speech by His Excellency the Governor of the Central Bank of the United Arab Emirates at the IFSB Summit 2017 - Reinvigorating the Momentum of Islamic Finance: Solidifying Resilience and Sustaining Growth
Date posted: 23 October 2017
||23 October 2017
|Event / Venue
||Speech by His Excellency the Governor of the Central Bank of the United Arab Emirates at the IFSB Summit 2017 - Reinvigorating the Momentum of Islamic Finance: Solidifying Resilience and Sustaining Growth
||H.E. Mubarak Rashed Al Mansoori, Governor of The Central Bank of the UAE
It is a great pleasure and honor for the United Arab Emirates to host for the second time this important event as we continue to strive to position the UAE on the path of phenomenal development in Islamic Finance. I would like on this occasion to thank IFSB for accepting our invitation, commend IFSB staff for their excellent cooperation with the Central Bank of the UAE, which resulted in the judicious selection of the relevant topics and the excellent organization of this event.
On the occasion of hosting the IFSB summit, I want to present a brief on Islamic Banking and Finance in the UAE. Our country prides itself for being home to the first full-fledged Islamic Bank established in 1975 (Dubai Islamic Bank). Since then, Islamic Finance in the UAE has witnessed an exceptional growth.
Building on this remarkable success, the Emirate of Dubai announced an ambitious strategy to become the world capital of Islamic economy. To this end, Dubai Islamic Economy Development Centre was established in 2013, working with stakeholders to devise and implement programs and initiatives to turn the vision into reality.
Today, the UAE is home to eight Islamic Banks, accounting for approximately 20% of total assets in the banking sector that comprise 23% of total domestic credit as of the end of August 2017. The growth of Islamic banking has been supported by robust growth of deposits that has reach a total of 24% of total deposits by the end of August. The Central Bank, in turn, has extended its support to the sector by issuing Islamic Certificates of Deposits and availing the Collateralized Murabaha Facility (a marginal lending facility or discount window), to increase the capacity of Islamic banks to manage their liquidity in compliance with Islamic principles.
Credit of Islamic banks is mainly benefiting the private sector, particularly real estate activities, trade, financial activities and insurance, as well as small and medium enterprises.
The Islamic banking system is sound. The capital adequacy ratio hovers over 17% (16.7% for Tier 1 capital), and the Liquid Assets Ratio of 17% is well above the mandatory ratio of 10%. Therefore, Islamic banks constitute to some extent a pillar of financial stability in the UAE.
Second, I would like to stress the importance of the recent findings of notable studies, including by the IMF, that the asset-based nature of Islamic financing helps to curb excessive leverage and investments in highly leveraged assets and short selling, suggesting that this model is likely to foster financial stability and render the global financial system less prone to financial distress.
Therefore, we welcome and support the IMF and World Bank’s recent steps, specifically “to collaborate, innovate, and develop the prospects of Islamic finance in a sound and sustainable way, by managing risks appropriately and ensuring financial stability,” to quote the IMF Managing Director Christine Lagarde. Among the potential beneficiaries of the growth of Islamic financing, we can emphasize infrastructure projects and SMEs for which Islamic Finance seems to be well-suited, thanks to its risk-sharing features and link of credit to collaterals.
But, this is no time for complacency. As it will be stressed in expert presentations throughout this summit, the growth of global Islamic Finance has experienced slowdown in the recent years, and the sector is confronted with serious challenges that it needs to address if it is going to continue to develop and prosper to attain its goals and contribute to sustainable and inclusive growth.
I hope you will benefit of the carefully selected presentations in the coming sessions, and that this summit, as its predecessors, will leave all of us better prepared to address the challenges and promote Islamic Finance in all of its forms to meet the growth and social inclusion objectives of our economies.
Thank you for your attention
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