Muhammad bin Ibrahim: Developments in the global Islamic finance industry Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the International Shari'ah Research Academy for Islamic Finance Alumni Hi-Tea, Kuala Lumpur, 5 September 2017. * * * I would like to thank ISRA for inviting me to this event with alumni of various nationalities and to deliver some remarks. We take pride in knowing that you have been enrolled to pursue studies in among the world’s leading universities in the field of Islamic finance and Shariah such as the International Islamic University Malaysia and Yarmouk University in Jordan. I believe that with the knowledge and competencies gained, you will now have a deeper understanding and appreciation of the fundamental importance of Shariah in Islamic finance. This deeper understanding and knowledge of Shariah matters serve as a springboard for you to play a meaningful role in the future development of the Islamic finance industry. Role of the alumni in developing the global Islamic finance industry Globally, Islamic finance has been making headways as it makes its presence felt. Many jurisdictions have offered Islamic finance as part of their banking system’s products and services. This is good progress. But Islamic finance should not be looked upon as a value proposition only for the Muslims. This thinking, in my view, is regressive. Islamic finance is for all. It incorporates universal concepts and values that cater to all and sundry. An important distinction that is worth reminding.
The central banks that target inflation can be said to have three main approaches. •  One alternative is to assume that the exchange rate will be unchanged during the forecast period, quite simply to adopt a cut-off rate. This, however, raises a number of problems. As exchange rates are liable to shift rather rapidly and the assumed rate is of considerable importance for the forecast rate of inflation, this approach may entail sudden changes in the assessment of inflation and thereby in the repo rate. Another problem is the risk of being trapped in a game situation with the market. So there are sound reasons for not resorting to a more short-term pattern of reactions. Sooner or later, other central banks have generally come to the same conclusion. •  Another alternative is to base an exchange rate forecast on market pricing or other assessments of market expectations. This approach, which is used by a number of central banks, reduces but does not eliminate the risks associated with rapid fluctuations and speculation. Another problem here is that the picture of expectations is liable to vary with how they are measured. On the other hand, this approach has the advantage of presumably being most credible in the eyes of market players; it is, after all, based on their assessments! •  The Riksbank has chosen a third alternative, which is to make an independent assessment. Here the initial position - the cut-off rate - is naturally one important component and so are the market’s expectations.