By Liau Y-Sing
Financial watchdog makes call in bid to avoid problems plaguing global markets.
The booming Islamic finance industry needs tighter regulation to avoid the problems plaguing conventional global financial markets such as the sub-prime crisis, the Dubai Financial Services Authority said on Monday.
The $900 billion global Islamic finance industry has been touted as a safe haven as conventional markets falter, since it forbids speculative transactions and requires all deals to be based on underlying assets.
"When you're caught up in the euphoria of growth, sometimes standards slide," said Michael Zamorski, the Dubai authority's managing director for supervision told Reuters on the sidelines of an Islamic finance forum.
"Whenever you have a fast-growing industry segment, they need to make sure that their human capital and the infrastructure are sufficient to ensure that the activities are conducted prudently."
Islamic finance is based on the sharia which forbids investments involving interest payments, contractual uncertainty, gambling and weapons.
Demand for sharia-compliant assets has soared as record energy prices fuel a boom in Middle East petro-dollars and the September 11 attacks create a suspicion among some Muslims towards the West.
Islamic assets are growing at an annual pace of around 20 percent and are set to hit $2 trillion in 2010 from $900 billion now, Ernst & Young forecast in February.
Zamorski said the industry's main challenges were the lack of sharia scholars and a global uniformity in sharia standards.
"The more harmonisation there is, the better the liquidity of products," he said, referring to the need to synchronise the differing sharia standards. (Reuters)