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15th IFSB Summit 2021 - Islamic Finance and Digital Transformation: Balancing Innovation and Resilience | The Ritz-Carlton, Jeddah | Kingdom of Saudi Arabia

Date posted: 10 November 2021


Date : 10 November 2021
Event / Venue : 15th IFSB Summit 2021 - Islamic Finance and Digital Transformation: Balancing Innovation and Resilience | The Ritz-Carlton, Jeddah | Kingdom of Saudi Arabia
Speaker :
Dr. Bello Lawal Danbatta, Secretary-General, Islamic Financial Services Board

Assalam alaikum warahmatulah and a very good morning.

It is with both great delight and profound gratitude to Allah SWT that I present this opening remarks. 

I would like to begin by appreciating and congratulating Your Excellency, Dr. Fahad Abdullah AlMubarak, Governor, Saudi Central Bank (SAMA) and the entire SAMA staff for being a worthy host. Thanks so much for providing excellent facilities and resources befitting of this biennial global event. The IFSB greatly values the excellent working relationship between it and SAMA on many fronts including this very important event. Permit me to also express the IFSB’s immense gratitude to Your Excellences, Central Bank Governors, Heads of IFSB Regulatory and Supervisory Authority (RSA) members, and all other distinguished speakers and participants at this 15th IFSB Summit. 

Your Excellences, ladies and gentlemen.

Notwithstanding the COVID-19 pandemic, the global IFSI sustained its double-digits growth momentum by recording a 10.7% (y-o-y) growth in 2020 to reach an asset worth of USD 2.70 trillion. In addition to the numerous notable developments recorded across jurisdictions and key segments, the Islamic banking industry is now systemically significant in 15 jurisdictions that also account for 82.7% of total sukuk outstanding in 2020. Based on findings from IFSB research working papers and analysis in the IFSI Stability Report 2020, the global IFSI has demonstrated commendable financial stability and resilience to the shock of COVID-19 pandemic.    

As an international standard-setting organisation that promotes and enhances the soundness and stability of the Islamic financial services industry (IFSI) by issuing global prudential standards and guiding principles for the industry, the IFSB considers the various presentations and discussions in this 15th IFSB Summit as both pertinent and timely. This is because the abruptness and pervasiveness of the COVID-19 pandemic not only represent the first major test of the resilience of the global IFSI, it has also added speed to the need for digital transformation process in the industry. Therefore, the theme of this Summit: ‘Islamic Finance and Digital Transformation: Balancing Innovation and Resilience’ could not be more apt. 

In this brief opening remarks, I would like to touch on a few points the IFSB considers imperative in driving the valuable viewpoints and submissions that will emanate from the various sessions in this Summit.

Your Excellences, ladies and gentlemen.

Digitalisation of Islamic financial services have no doubt enormous benefits in today’s value-driven, customer-centric, and digitalised financial landscape. These include but not limited to enhancing operational efficiency, contestability, and competitiveness of the Institutions offering Islamic financial services (IIFS), deepening financial access especially to the (Micro Small and Medium Enterprises (MSMEs), promoting financial inclusion, and supporting effective regulatory compliance and supervisory oversight. 

Nonetheless, digitalisation may also heighten IIFS’ exposure to potential general risks like cyber-security risk, data integrity risk, cloud concentration risk, third-party/outsourcing risk, money laundering and financing of terrorism risk, reputational risk etc. Specific risks due to digitalisation could also result from Shariah non-compliance given the intricacies of Islamic financial products and services. All these risks may threaten the financial stability and integrity of the IIFS in particular and the IFSI in general. 

Your Excellences, ladies and gentlemen.

The Global Findex 2017 report on the impact of FinTech on reducing financial exclusion is noteworthy especially through mobile money. Enhancing financial inclusion that promotes the access to and use of the entire gamut of financial services in a manner that is both affordable and convenient has long been on the agenda of development finance institutions, regulators, standard setters and other institutional stakeholders in the financial services industry. 

Unmet financing need for the MSMEs has been the trend especially since the Global Financial Crisis (GFC) of 2007-8 perhaps due to the consequential risk-mitigating regulations in Basel lII. According to data from the International Finance Corporation (IFC) 65 million or 40 percent of formal MSMEs in developing countries have unmet financing needs and a finance gap estimated to be $5.2 trillion - 1.4 times the level of MSME lending. Women-owned businesses comprise 28% of MSMEs and account for 32% of the MSME finance gap. This presents opportunities in terms of disruption by Islamic Fintech in terms of invoice financing and supply-chain financing for receivables on the asset side, and via e-commerce finance, trade finance, Peer to Peer lending, and equity crowd-funding etc on the liabilities side.

The work-from-home policy following the COVID-19 pandemic has also shifted interaction and collaboration within and between IIFS. IIFS have had to adjust to the new normal of staff working from home by enhancing their teleworking and remote access capabilities without compromising on the integrity of their technology network. Although no major cyber-security issue has been reported in the IFSI, it is incontrovertible that the frequency of cyber-attacks will increase with digital transformation. It would be interesting to get views from our esteemed speakers on the imperatives and processes of strengthening cyber security units in the IIFS with the requisite human talents especially domain specialists to ensure proper response, recovery, and adaptation. 

COVID-19 has also quickened the adoption of technology for financial regulation and supervision purposes. RSAs have had to step-up to cope with the consequential electronic reporting, monitoring, and compliance processes and requirements due to movement restrictions. It is pertinent, therefore, to look beyond the cause but focus on the benefit of this new normal for RSAs to carry out their oversight functions. In this regard, it would be very interesting to hear from speakers and participants on how to leverage on RegTech for enhancing transparency, consistency and standardization of regulatory compliance processes. Similarly, SupTech’s potential for collecting and sharing of data cannot be overemphasised.

Your Excellences, ladies and gentlemen.

The proliferation of disruptive financial technology (FinTech), and the rate of adoption by users, operators, supervisors and regulators of financial services will likely become stronger post-COVID-19 pandemic. So also, will be the growth of the IFSI driven by the relevance of its inherent values to the requisite post-pandemic socio-economic development. RSAs have been generally cautious to ensure that favourable disposition towards financial innovation does not infringe on financial market integrity and stability, financial inclusion and consumer protection.

In line with its mandate to promote the stability and ensure the soundness of the IFSI, the IFSB like other international standard setters is reviewing the implications of developments in the digital transformation process in the IFSI. The IFSB has a dedicated segment to digital finance in its Technical Notes on Financial Inclusion. In this document the IFSB provide detailed technical guide on the priorities and consideration that are pertinent for regulatory and supervisory oversight vis-à-vis the implication of technological innovation for financial inclusion through the Islamic financial services industry of member jurisdictions. This is in addition to issuing a dedicated working paper on digital transformation in Islamic banking. 

The IFSB in furtherance of its core mandate hopes this Summit will offer diverse perspectives and exchange of ideas among leading industry stakeholders on related regulatory and policy initiatives and issues impacting the resilience of the IFSI in a post-COVID-19 and digitalised financial ecosystem. 

I would like to conclude, by reiterating the appreciation of the IFSB to the Saudi Central Bank for hosting this event, and for the benign presence and valuable contributions of all distinguished speakers and participants to the success of this 15th IFSB Summit. 

Best wishes and thank you. 

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