Long-term potential for Islamic finance remains promising post COVID-19 globally - Wahid

He said as policies slowly shift towards ensuring sustainable development, Sustainable and Responsible Investments would help broaden the reach of Islamic finance, due to the close alignment and high degree of overlap.

“Malaysia is widely acknowledged as being at the forefront of Islamic finance, mainly due to a conducive ecosystem, effective regulatory framework and strong human capital development,” he said at the virtual Shariah Audit Conference 2020, today.

Abdul Wahid said Malaysia has achieved some noteworthy milestones with several industry “firsts” and innovations for the Islamic fund management, resulting in a wide array of Islamic products introduced in the market, thus, making Malaysia the largest global Islamic fund in terms of asset under management.

“In the equity market, Bursa Malaysia’s Shariah-compliant investing platform positions the exchange as a global marketplace for Shariah listing and investments,” he said.

As at October 2020, he said 718 out of 937 listed companies or 77 per cent were Shariah-compliant, making up about 72 per cent of total market capitalisation.

In the quest to get Shariah auditing into mainstream, Abdul Wahid said the high increase in demand for Shariah-compliant financial products has raised the importance of more refined investment screening process and audit.

“Some of the issues faced are the inconsistencies in screening methods across different countries and organisations, as having too many different methodologies adds cost, and in the long run could hamper the growth of Islamic finance, “ he pointed out.

He noted that Shariah auditing would be an initiative that ensures compliance and maintains the credibility of Islamic finance among stakeholders, providing them with greater independence of Shariah assurance.

Abdul Wahid said there has been little understanding on the implementation of appropriate Shariah audit framework towards an effective and efficient audit from human capital perspective and as such, there is a need to increase talent in Shariah audit.

“In Malaysia, the current focus is primarily on internal Shariah audit, which has raised several debates on its independence, in which numerous challenges, including the limited availability of qualified resources, have prevented the successful implementation of external shariah audits.

“The scarce resource of both Shariah and auditing qualifications, as well as the lack of experience poses a threat to Shariah audit independence which may adversely affect the integrity of organisations,” he said.

Moreover, he said the competency requirements for Shariah auditors have yet to be fully developed.

“There is a considerable growth potential for firms to offer Shariah auditing services to institutions outside of Malaysia as part of the country’s Islamic finance ancillary services,” he said, adding that issues on Shariah auditing standards, qualifications and independence need to be resolved for smooth development of the Islamic finance industry.