Brunei Darussalam, though a new participant in the world of Islamic finance, has become the second largest country in Asia in terms of total Islamic finance assets, after Iran.

This was stated by Professor Dr Abdul Ghafar bin Ismail from the Faculty of Islamic Economics and Finance, Universiti Islam Sultan Sharif Ali (UNISSA), in an interview with the Bulletin on the sidelines of the 5th Asean Universities International Conference on Islamic Finance (5th AICIF) which concluded yesterday.

The role of Islamic finance, through the three main banking system instruments – sadaqah, Waqaf and Zakat – is becoming increasingly significant in Brunei, he noted.

“There is a huge potential for Islamic finance in the Sultanate due to the culture of donating to help those in need, and this culture can be effectively transformed into Islamic finance instruments,” he added.

Earlier, delivering his keynote address titled ‘The Challenges of Islamic Finance towards Asean Economic Community’ at the 5th AICIF, he said that addressing issues faced by Islamic finance in the region is essential to establish the Asean Economic Community by 2025.

The importance of Islamic finance is that it can not only generate economic growth but also achieve Sustainable Development Goals (SDGs) in line with the United Nations’ targets, he noted.

To enable Islamic finance to play a significant role in achieving these goals, there are four main challenges to be addressed, the speaker said.

“One is on cross border transactions – how to create an infrastructure that can create smooth cross-border transactions as infrastructure is very important to produce significant mechanisms that can support the development of Islamic finance…Infrastructure here means the number of institutions, products and regulators.

“The second challenge is regulators… There is a need to create a strong relationship among regulators in Asean member countries because we need to harmonise the standards of cross-border transaction as well as the product and services that are going to be introduced in the market.

“While introducing a standard product and service, it should be accepted by both the host and the recipient and this is where the challenge of regulators lies as they need to work closely together to harmonise the product and also to standardise the programme.

“Asean member countries need to find ways to create an entity that can regulate these two activities and integrate them into one, not only in one country but also in other member countries.”

The speaker highlighted that ‘supervisory entity’ is also an important issue in the competitive global cross border transaction for both Islamic and conventional financial institutions, adding that the roles of both the Syariah advisory boards and the central bank need to be streamlined, strengthened and coordinated.

“The issue of financial innovation is another challenge to be addressed, especially now that we are moving towards financial technology (Fintech).

“Fintech, for example sadaqah/Waqaf based crowdfunding, financial data, digital payment such as Bitcoin, may lead to a new consumer-type financial instrument to lower funding costs, manage risk better, increase the return on investments or create a social financial institution.

“Although cross border global transaction has increased, it has also caused difficulties due to, among others, lack of an integrated financial market. Hence, it is time for us to think how to use this financial technology to create an integrated community that caters for people in the Asean region, particularly when someone wants to contribute or donate to some other countries in the region.”

On this note, the speaker suggested that creating a Fintech platform through the three Islamic financial systems sadaqah, Waqaf and Zakat-based crowdfunding will be a good solution. Through this platform, money can be channelled conveniently to different countries, he added.