International Islamic Financial Market Is Playing a Key Role in the Development of Islamic Finance: Interview With the CEO

by Admin  

GBMN: Please briefly introduce the International Islamic Financial Market (IIFM)?

Alvi: The International Islamic Financial Market (IIFM), hosted by Central Bank of Bahrain and based in Manama, was  established in 2002 under the Royal Decree No (23) Year 2002 of the Kingdom of Bahrain as a neutral and non-profit infrastructure institution,  by the collective efforts of the Islamic Development Bank, Autoriti Monetari Brunei Darussalam (formerly Ministry of Finance Brunei Darussalam), Bank Indonesia, Bank Negara Malaysia (delegated to Labuan Financial Services Authority), Central Bank of Bahrain (formerly Bahrain Monetary Agency) and the Central Bank of Sudan.

Besides the founding members, IIFM is also supported by certain regulatory and government bodies such as Dubai International Financial Centre Authority, State Bank of Pakistan, The National Bank of Kazakhstan, and by a number of international and regional financial institutions active in Islamic finance as well as other market participants.

IIFM serves as an international standard-setting body of the Islamic Financial Services Industry (IFSI) focusing on standardization of Islamic financial contracts and product templates relating to the Capital & Money Market, Corporate Finance and Trade Finance segments of the IFSI. The IIFM Board of Directors has recently approved the 3 Year Strategic plan whereby IIFM will be developing several additional standards as well as increase other services and industry development events.

In advancing  the mission of creating a robust, transparent and efficient Islamic finance industry, the IIFM promotes at the global level, unification, best practices and Shari’ah harmonization through publication of Shari‘ah compliant standards. It also contributes in creating industry awareness by organizing specialized seminars and technical workshops staged in many jurisdictions as well as publishing research reports.

To achieve its and the entire industry’s objectives, the work and activities of IIFM complement that of AAOIFI and IFSB.

Information on IIFM and its activities is available on IIFM

GBMN:Please share with our readers about your professional background?

Alvi: Ijlal Ahmed Alvi has extensive experience in the financial services industry spanning 25 years in areas such as treasury, capital markets, risk management, financial institution formation/restructuring, strategic planning and policy making with regional and international financial institutions. Over the last decade, he has been instrumental in introducing standardization in Islamic financial contracts and product templates as the Chief Executive of the International Islamic Financial Market (IIFM).

Mr. Alvi manages IIFM’s market consultations, global working groups, Shari’ah guidance and legal reforms towards developing unified Islamic standard agreements and guidance notes for specific products covering Islamic hedging, liquidity management, capital market, trade finance and corporate finance. He also manages IIFM’s market awareness programs by organizing various specialized seminars and technical workshops across the globe.

Mr. Alvi has been part of several international working committees/task-forces such as member of the HM Treasury & Foreign & Commonwealth Office Global Islamic Finance & Investment Group, International Monetary Fund (IMF) External Advisory Group on Islamic finance, Working Group Member of AAOIFI FAS on Wa’ad & Khayar, COMCEC Financial Cooperation Working Group, OIC Member States Stock Exchanges Forum etc.

Mr. Alvi also participates as an expert in technical events hosted by regulators and others such as Securities Commission Malaysia, Central Bank of Bahrain, Bank Indonesia, State Bank of Pakistan, Central Bank of Turkey, The World Bank, Islamic Development Bank etc. He has contributed a number of articles/papers and commented on various topics in financial news, journals and forums such as Havard/LSE workshops. He has also reviewed books and papers on Islamic finance and is a regular speaker at major Islamic finance conferences worldwide.

During his tenure so far, IIFM has signed MoU’s with global organizations such as ISDA, ICMA, IRTI, ISRA, IBRD (The World Bank), Borsa Istanbul, AIBIM etc. which have resulted into a number of Islamic market unification initiatives.

Mr. Alvi holds a Master’s in Finance from Golden Gate University, California, USA

GBMN: IIFM has been working since many years for the unification of best practices and achieving Shari’ah harmonisation? What are the major achievements in this regard?

Alvi: The major achievement of IIFM is initiation of developing Islamic financial contracts and product standards and the task was not undertaken by any other Islamic standard-setting organization.

Today IIFM has published following standards:

  • Three Global Liquidity Management Standards, namely Master Agreements for Treasury Placement, Unrestricted Wakalah and Master Collateralized Murabahah Agreement
  • Seven global Islamic hedging standards, namely Tahawwut Master Agreement, Islamic Profit Rate Swap, Islamic Cross Currency Swap, Islamic Foreign Exchange Froward, Islamic Credit Support Deed

Besides above published standards IIFM is currently working on Risk Participation Agreements relating to trade finance business while project on Sukuk standardization is expected to commence during 2017. Moreover, under recently approved 3 Years Strategic Plan several new standards will be developed by IIFM in coming years.

The other services provided by IIFM are as follows:

  • During last 10+ years IIFM has organized conferences, seminars, workshops, working group and consultative meetings in a number of countries from GCC to Asia to Europe
  • Annual publication of Sukuk Reports which has become the reference point on Sukuk by the industry
  • Published a number of research and consultative papers on various critical issues such as liquidity management, hedging, Sukuk etc.

The value addition of IIFM Standards to the industry is reflected in two global awards received by IIFM i.e. “The Outstanding Contribution to the Islamic Finance Industry Awards” (at WIBC in 2011) and “The Best Supporting Institution Award” (at GIFA in 2015). 

GBMN: What are different challenges which you see in Islamic financial services industry particularly in Shari’ah harmonization? How are you overcoming them?

Alvi: Although, the Islamic finance industry has thrived well despite the impediments and the doubt  of the critics, it continues to face many challenges, which involve, among others, a scarcity of new Shari‘ah compliant products that enhance liquidity, risk management, and portfolio diversification, lack of consistency in product structures and investment practices etc.

The instantaneous need is to develop instruments through standardization that enhance liquidity to develop secondary, money, and inter-bank markets as well as  enhancing the areas of risk  management and governance.

Regarding Shari‘ah, the rapid growth of Islamic banking over the years and the introduction of complex banking products and structures require Shari’ah harmonization at a global level, as certainly, it will make it easier for the banks to expand and conduct operations in different jurisdictions.

To this end, and to overcome Shari‘ah issues in the development of our global Shari‘ah compliant standards, the IIFM has formed a Shari‘ah Board composed of almost all Islamic countries. This strategy and approach has certainly assisted in the process of harmonization of Shari‘ah globally in the last few years.

The future growth and the development of the industry will depend mostly on the Shari‘ah harmonization and the nature of innovations introduced in the market.

GBMN: IIFM is also engaged in different market researches and publication of different reports. What are the main objectives and who are users of such research?

Alvi: The objective of annual Sukuk Report is to provide information on this important Islamic finance instrument. The concept papers are developed for the consultative meeting, which establishes the requirement of certain documentation or product standards while research papers such as Paper Alternative to Repo are published to provide structural details and difference between Islamic versus conventional arrangements.      

GBMN: There are other standard-setting organizations such as IFSB and AAOIFI. How is your role different to them?

Alvi: Since its reorganization in 2005, IIFM founding members and the board has ensured that there should not be any overlap or duplication between the three-main standard-setting organizations rather the work of Islamic standard-setting organizations particularly IIFM to complement the work of AAOIFI and IFSB.

The following is the main objectives of the main standard setting organizations:

  1. Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) – Accounting, Auditing, Governance and Shari‘ah Standards
  2. Islamic Financial Services Board (IFSB)  – Regulatory and Supervisory Standards
  3. International Islamic Financial Market (IIFM) – Documentation and Product Standards 

GBMN: Mr. Ijlal you have been a CEO of IIFM for quite some time now, please share with our readers how different IIFM is now from when you joined?

Alvi: The most difficult task in setting-up of infrastructure organization during formation years is the implementation of business model with well defined objectives. Unfortunately, during IIFM’s formation years the value addition through Shari’ah endorsement of Islamic securities including Sukuk and making this requirement mandatory by all OIC regulators could not be achieved.

In April 2005, Ijlal Ahmed Alvi was appointed as the CEO of IIFM with the task of developing a workable business model with clear objective of creating value addition by IIFM to the industry.  By beginning of 2006, the revised business plan with main objective of developing documentation and product standards was in place and the ground work on developing first ever standardized liquidity management agreement i.e. Master Agreements for Treasury Placement was completed. Moreover, a MoU with ISDA was also signed that year which eventually led to the publication of several global Islamic hedging standards.

Other services, namely IIFM events, Sukuk report, research & consultative papers etc., were introduced after 2005 reorganization.

GBMN: What has been the toughest decision that you had taken since you joined the IIFM?

Alvi: The toughest decision was to persist with the development of Islamic Hedging Master Agreement when this segment was new and not well understood by the practitioners.

GBMN: How do you see the future of Islamic banking and finance? Do you think it has an enormous potential to grow especially in Asia, Middle East and Africa?

Alvi: Asia is gathering pace with Malaysia leading the way on Islamic finance with Indonesia and Pakistan also taking an active role in promoting and developing this sector.

The biggest emerging Islamic finance continent is Africa with the first Sukuk issuance from a non Muslim country, South Africa providing a strong endorsement for the other African countries to follow. Since then, much development is taking place in Africa with government issuing laws to open up Islamic finance to operate in their country, Morocco, Uganda, and so on. Africa holds a big promise for Islamic finance to grow even further.

GBMN: You have been seen in major events and conferences in various parts of world? How do you manage your time to attend actively such events and fulfil your professional responsibilities effectively?

Alvi: My participation in major events is on very selective basis so that the main responsibility as IIFM Chief Executive of managing standards development process is not affected.

GBMN:At the end, please shed some light on the upcoming projects undertaken by IIFM and their benefits for the Islamic financial services industry?

Alvi: IIFM is currently working on developing standards for the following priority areas:

  1. Risk Participation Agreements (funded and unfunded) for Islamic trade finance related business (currently the second draft of the documents is in market consultation phase)
  2. Sukuk Standard Documentation and Guidelines (project to commence in Q3 2017)
  3. Gold related products and documentation standardization (consultative meeting to be organized in Q4 2017 followed by initiation of development phase)
  4. Islamic Syndicated Financing Documentation standardization (consultative meeting to be organized in Dec 2017 followed by initiation of development phase)
  5. Islamic FX & Commodity Hedging/Investment Standards (consultative meeting to be organized in Q1 2018 followed by initiation of development phase)

In general, all these initiatives will immensely help to further the development of the Islamic finance industry.

Mr. Ijlal Ahmed Alvi has extensive experience in the financial services industry spanning 25 years and currently serving as Chief Executive of the International Islamic Financial Market (IIFM).  Mr. Alvi holds a Master’s in Finance from Golden Gate University, California, USA.