26 Dec, 2019
26th World Islamic Banking Conference
Acting Director General of the Islamic Research and Training Institute (IRTI), Dr. Sami Al-Suwailem, has delivered a keynote speech on how to avoid another global financial crisis, during the 26th edition of the World Islamic Banking Conference held in Bahrain.
The conference, considered the largest and most prestigious gathering of Islamic banking and finance leaders, was organized under the theme “Mega Trends in Banking & Finance”, from 2-4 December 2019.
In his keynote speech, Dr. Al-Suwailem observed that while many analysts expect the next global financial crisis to happen in 2020, the timing does not matter as much as the cause of the crisis, how it might happen, and how it can be avoided.
“Why would there be another major crisis, and how can it be avoided? Experts unanimously agree: It is because of excessive debt. Low interest rates since the onset of the global financial crisis in 2008 made it unusually easy for corporates and sovereigns to pile up debt,” he said.
Therefore, Dr. Al-Suwailem explained, given that excessive debt is likely to cause the next financial crisis, the best way to avert the crisis is to find ways of curbing the debt growth.
“The main question now is how we can curb the growth of debt so that we can achieve sustainable stability? It must be clear from the beginning that stability is a public good according to the IMF’s point of view. This means that, while the economy as a whole is better oﬀ in a low leverage environment, each market player has an incentive to deviate and add up leverage,” he said.
“This means that curbing debt must be a collective endeavor. This is why the Basel Committee had to issue a new set of standards to make the banking sector more robust and resilient. To move from a high-debt to a low-debt environment requires a set of policies and regulations that encourage risk-sharing and participatory ﬁnancing.”
Dr. Al-Suwailem said noted that given the benefits of risk-sharing, it is necessary to build the eco-system for a risk-sharing culture in order to successfully control debt.
“Basically, regulating leverage, not only for banks but for corporates as well, will provide a fertile environment for innovative risk-sharing instruments that can help avoid the dangers of recurrent financial crises,” he added.
During the conference, leading industry experts analyzed the challenges facing the Islamic banking sector and gave recommendations to address the challenges, as well as to promote the development of the global Islamic financial industry in general.