The Malaysian Securities Commission and the Oxford Centre for Islamic Studies have floated the idea of a public good standard for Shariah-compliant financial products, including derivatives and structured products. The standard is hypothetical and specific criteria for what would make a product meet that standard have not been discussed and are not being formalized, an SC spokeswoman said.
The debate came up in a closed-door two-day roundtable held last week in Oxford, England. The spokeswoman said that the conversation around the topic was predominately hypothetical and that more concrete details and suggestions from the roundtable would be announced shortly. On the back of the meeting, the OCIS will begin hosting a scholar-in-residence to continue research and development on the topic.
“If every aspect of Islamic finance were to be subject to a public good test, arguably no negative repercussion could ever arise,” HRH Dr Raja Nazrin Shah, Crown Prince of Perak and financial ambassador to the Malaysia International Islamic Financial Centre, said at the roundtable. “Likewise, if all conventional financial products were subjected to apublic good test, the catastrophic effects of the recent crisis could have been avoided; and finance would serve its rightful purpose as an engine that drives and supports the real economy.”
Tan Sri Zarinah Anwar, chairman of the SC, said putting standards such as these in place that showcase both the economic and greater good value of Shariah-compliant financial products “will strengthen the universality and acceptability of Islamic finance, enabling it to offer a distinctive value proposition.”
Last month, news reports stated that the International Shariah Research Academy for Islamic Finance had drafted rules to regulate the use of derivatives for hedging by Malaysian banks, which included requiring banks to show proof of an underlying economic transaction before they can hedge with derivatives. The rules would have to be approved by the country’s central bank to take effect since the academy has no legislative or regulatory authority.