AMMAN, May 14: The biggest challenge facing the Islamic finance industry’s integration into the global financial system was harmonising standards to sustain its continued rapid growth, central bankers and executives said on Wednesday.

The fifth Islamic Financial Services Board (IFSB) summit attended by top bankers, regulators and central bankers, was told that the financial sector, whose assets are growing at an annual pace of 20 per cent, required the adoption of global standards of risk management and governance.

Shamshad Akhtar, governor of the State Bank of Pakistan, told participants Islamic finance should position itself to cope with the coming challenges which greater integration posed.

“It has to be recognised that financial globalisation can have unintended negative consequences..,” Akhtar said.

Although Islamic banks’ ability to withstand risk was higher than conventional banking with its transactions based on real economic activity than speculation, it would still be hurt from a global recession, he added.

Mitigating the negative impact of wider exposure to the international financial system required promotion of different types of risk sharing methods with greater equity and asset backed financing, Akhtar said.

Akhtar said the greater internationalisation of sukuks would not only widen the integration of Islamic finance into the global financial system but meet the growing project finance needs of Islamic countries.

Meeting these challenges would allow Islamic finance to better compete with conventional financial institutions by drawing a bigger share of the Arab Gulf’s investable petrodollars that now exceeds $2.3 trillion, Akhtar added.—Reuters