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A FIGURE OF PROMINENCE: In Conversation With Iilm Ceo, Prof Datuk Rifaat Ahmed Abdel Karim

April 2016

Professor Datuk Rifaat Ahmed Abdel Karim, PhD, PJN is a world-renowned leader and authority in the Islamic financial services industry (IFSI) both at the professional and academic levels. He has played a pioneering role in the development of Islamic finance, while his leadership in setting accounting, auditing, governance, Shari?ah and regulatory standards has been instrumental in establishing the position of the IFSI in the mainstream of global financial services.

What has been the driving force behind your passion within Islamic finance? 

I feel that my passion for Islamic finance has been driven by my religious duty to share knowledge. When one is blessed with knowledge, one should share it so that others can benefit from it. 

When I finished my PhD, which did not have anything to do with Islamic finance, I felt it was my duty to study Islamic finance and share the results with others. 

What does the term ‘Islamic finance’ mean to you? 

To me, it means finance complying with Islamic Shari’ah rules (Fiqh) and principles. These include certain prohibitions, such as interest or charging for the use of money (but not for asset-based credit) and speculation, and also recognition of social responsibility. 

How are Islamic banks capturing a bigger segment of the market? 

Islamic banks are capturing a bigger segment of the market by having appealed to the banking needs of the customer who wishes to comply with his or her religious requirements. Furthermore, they have accomplished this by being relatively transparent in their dealings, adhering to the Shari’ah rules and principles within the framework of Fiqh and by being competitive. As such, they attract non-Muslim customers. 

What are some of the internal barriers to standardizing Islamic finance globally? 

I believe some of the major internal barriers have emanated from a lack of a proper understanding of the specificities of Islamic finance. Many tend to interpret Islamic finance transactions either from their conventional knowledge or their perspective of understanding Islamic Fiqh. These barriers are lowered with a proper intersection of understanding in both domains. I have observed this during my work at AAOIFI, IFSB & IILM. 

What are some features of the IILM Sukuk that other Sukuk issuances should/can emulate? 

The IILM Sukuk are short-term and the only ones available in the market that are issued in an international reserve currency, namely the US Dollar. 

The Sukuk are also rated “A-1” by Standard & Poor’s and are tradable from a Shari’ah perspective because we maintain at the portfolio level of our assets 51% tangible and 49% receivable, which is the ruling of the Islamic Fiqh Academy. 

I think if other Sukuk issuers want to emulate the IILM Sukuk, they may attempt to issue Sukuk that have some of these features, particularly the use of high-quality assets and broadly acceptable asset portfolio standards. 

In your opinion, what are some of the hindrances to human capital growth within Islamic finance? 

Unless you understand the specificities of Islamic finance and have some sort of standardization, it will be very difficult to achieve growth in the human capital that can serve this industry. Indeed, not many individuals have a good understanding of the intricacies of Islamic finance and how it can be explained within the context of conventional banking and finance. 

How can Islamic finance be made more accessible to the non-Muslim consumer? Which aspect do you see holding the biggest appeal?

This accessibility can be achieved, by explaining the benefits that the non-Muslim customer can enjoy from Islamic finance. For example, for the non-Muslims who wish to have a flexible mortgage loan at a time of expected increase in interest rates, it would better for that customer to use the Murabaha or bay-bi-thaman-ajil, if the Islamic bank offers it, because unlike in a conventional loan, the cost of funding in a sale will be fixed for the duration of the contract. 

Even in an Ijara contract that is used in such a transaction, I would not expect the re-pricing of the lease payment to be as frequent as in a conventional, flexible loan. 

The same would apply to a mortgage based on Diminishing Musharaka in which the mortgagee and mortgager co-own the property as partners, the mortgagor pays rent to the mortgagee on the latter’s share of the property and progressively buys out that share. 

Is a centralized framework a stepping stone to harmonizing the differences between the SEA and MENA economies to propel Islamic finance further forward? 

If by a centralized framework’ you mean an organizational body like the AAOIFI’s Shari’ah Board that sets Shari’ah standards, I think this could be possible provided such a Board had a wide representation of Shari’ah scholars from various parts of the world and provided the concerned individuals in the industry adhered to and implemented the standards that are issued by such a Body. 

Equally important would be the governance aspects of such a Board. However, the field is evolving rapidly and the authority of those bodies that issue Shari’ah opinions intended for international application, such as AAOIFI and the OIC Fiqh Academy, is not widely accepted. 

You are a prominent figure within the Islamic economy, what are some of the significant changes you have witnessed? 

The industry has developed from establishing Islamic banks to building its infrastructure, as well as the involvement of the relevant regulatory bodies in the work of the Islamic financial services industry. 

What are some of the changes you hope to see? 

I wish to witness more use of the Islamic finance products that are or will be made available by the industry to the satisfaction of its clients.

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