Riyadh, Asharq Al-Awsat- It does not take much effort to see that Dr Abdul rahman Al Tuwaijri, Chairman of the Saudi Capital Market Authority, is an intelligent man. Moreover, if we add to that his academic knowledge and administrative experience then we have reason to look forward to the future of the Saudi Capital Market Authority. Based on this, I cannot fathom how a man with such qualities would be ignorant of the importance of the presence of an Islamic capital market in the kingdom of Saudi Arabia. Saudi Arabia is home to the largest financial assets of the Islamic banking industry in the Middle East, according to numerous reports. Moreover, there is strong competition within the international capital markets of Malaysia, Dubai and London for example to bring together funds and institutions of this industry.
I would like to shed some light on some of the most important factors that would help create such a market in Saudi Arabia in light of the Malaysian experience whereby the Malaysian Securities Commission has sought to transform Malaysia into an international center of Islamic capital markets. In 2001, as part of its plan, it included the development of Islamic capital markets as well as:
A) Establishing a division for Islamic capital markets.
B) The founding of a research academy for Islamic financial tools.
C) Setting up a Shariah Advisory Council.
The division for Islamic capital markets would develop its products in the sectors of property, debts and derivatives, and study the listed shares in the Malaysian stock exchange to catalog Shariah-compliant companies. Employees who have different experiences, such as those of a Shariah, financial or administrative nature would work as part of this division. These products would then be submitted to the advisory council to be endorsed.
Through this simplified review of the Malaysian experience, it is apparent that it was the Capital Market that realized the importance of an advanced Islamic capital market if Malaysia, which sought to develop the tools of this market, wants to form an Islamic capital market center. Financial institutions have not had to wait long for this market to develop and this demonstrates that there has been significant progress in the Islamic banking experience, which until recently depended on the development of financial institutions for its tools and monitory institutions did not contribute to that until the Malaysian experience materialized.
I believe that the Saudi Capital Market Authority will not face many challenges in establishing an Islamic capital market in view of the fact that it is a new market in which there are no circulation tools except shares, the majority of which comply with the provisions of Islamic law and Sukuk [Islamic bonds].
The majority of those who want to invest in this market want to invest in Shariah- compliant tools and proof of this is the large number of those subscribing to and trading in Shariah compliant companies and Islamic bonds. Therefore, there are no excuses for the Authority to delay in creating such a market since the factors that will help it to succeed do exist. This delay will only lead to a loss in investments in which we are in dire need to credit other developed markets in this field.
The Authority should work on two aspects: Firstly, the establishing of a Shariah committee as a way to set up a system for religious rulings related to finance through categorizing and looking into the financial circulation tools such as sukuk and the issuing of religious rulings related to the Capital Market Authority since the Authority is primarily responsible before investors for the compliance of securities to its conditions. This way the Authority would be able to guarantee that these securities are stable and will not be subjected to any pressures that arise from differences in opinions regarding jurisprudence since it is stated that it the decision of the Imam surpasses any disputes.
Secondly, the development of legislations and laws that are related to the tools of Islamic financial markets such as sukuk, Tawarruq and derivatives, since these tools differ in contracts, structures, requirements and risks from the traditional financial tools. Therefore, it is necessary to create an appropriate legislative environment that is harmonious with their particularities.
It is not permissible to deal with sukuk as debt bonds with the exception of the debt-based bonds such as Murabaha and Istisna. There is no doubt that the presence of such an integral legal environment would decrease the risks entailed in these securities, and consequently, lead to a reduction in their costs.