Written by Amjad Khan Suri

South Korea’s first female president, Park Guen-hye initiated economic reforms and started to build a creative economy. Thus, looking beyond traditional conglomerates’ strategies. In a clear show of firmness and commitment, the South Korean Government launched a chain of initiatives which when completed will make South Korea one of the most proactive Islamic finance markets in the Asia-Pacific region.

Central Bank of the republic Korea became an associate member of IFSB, an international setting body providing prudential standards and guiding principles for Islamic financial institutions. Moreover, some of Korea’s banks have already tapped into the Islamic finance market, with Export-Import Bank of Korea (Korea EximBank) issuing Sukuk, based on a partnership with Malaysia, reported by Reuters last week.

The Islamic Financial Services Board (IFSB), based in Kuala Lumpur, was officially inaugurated on 3 November 2002 and started operations on 10 March 2003. It serves as an international standard setting body of regulatory and supervisory agencies that have interest in ensuring the soundness and stability of the Islamic financial services industry. IFSB has 184 members including 59 regulatory and supervisory authorities as well as International Monetary Fund, World Bank, Bank for International Settlements, Islamic Development Bank, Asian Development Bank, and 117 market players and professional firms.

South Korea’s average annual growth in the past six years has slowed to 2.9 percent, down sharply from the previous average of 5.2 percent, seen between 2000 and 2007. The administration aims to have growth rate climb to 4 percent, where employment rate has increased by more than 5 percent and per-capita income by some 60 percent, writes Daily times.

In the past few years, Islamic finance has gone global and the number of countries adopting Islamic finance is now incredible. Singapore and Hong Kong both recently relaxed restrictions on Islamic Finance. South Korea is expected to follow Malaysia & Gulf markets in Islamic banking products and options, in which Sukuk is very established. Due to prohibition of interest & Gharar (uncertainty), Korean banks might have difficulties advancing into Islamic countries, mentioned the Financial Supervisory Services (FSS) Governor, Kim Jong Chang, at a seminar on Islamic finance held in Seoul.

According to World Islamic Banking Competitiveness report for 2013-2014 by Ernst & Young, Islamic banking assets with commercial banks globally are set to cross USD 1.7 trillion in 2013 suggesting an annual growth of 17.6% over the past four years.

Relaxing regulations on investment by insurers within residential housing, might create better rental choices for middle-income households using Islamic banking products. Pragmatic steps to implement Islamic finance can overcome limitations of today’s economic model and save the country from the declining growth, higher unemployment and the rising of inequality. Stable economic policies combined with competitiveness, innovation and an open approach to trade, could help South Korea portray a model for economic success.

–Edited by Mohamed P.Hassan

By Ray