KUALA LUMPUR, Nov 3: The Islamic Development Bank and 10 Muslim counties on Sunday signed an agreement to launch the Islamic Financial Services Board (IFSB), which will create awareness about the formation of Islamic way of investment, banking, capital market and other financial instruments.

With the launching of the IFSB, Malaysia has become a regional Islamic financial hub.

Central banks from 10 founding members — Pakistan, Malaysia, Saudi Arabia, Indonesia, Iran, Kuwait, Bahrain, Lebanon, United Arab Emirates and Sudan — as well as the IDB signed the agreement.

State Bank Governor Dr Ishrat Hussain represented Pakistan.

Earlier, launching the IFSB, Malaysian Prime Minister Dr Mahathir Mohammad said Islamic financial system was fundamentally based on the proscription of the payment or receipt of any predetermined, guaranteed rate of return, which in fact prohibited the concept of interest.

“The lender must share the risks that the borrower is exposed to, although the real cost of management, which should be variable and not predetermined, is not within the definition of usury,” he said.

He criticized Western banking systems and called upon the international community to promote transparent and judicious banking and financial systems.

He said the birth of the IFSB, the international standard-setting body for Islamic financial institutions, had come at a time when the global economic and financial outlook was clouded by escalating uncertainty.