various forms. in particular, we should pay attention to the development of the informal financing market. the informal financing market here refers to financing activities of the individuals and the enterprises. currently, there is no legal prohibition for financing between individuals, except for usury, which is strictly prohibited in china ; as for corporate lending to unspecified customers, such business should be strictly subject to financial supervision as it relates to public interests. however, in my view, we may need to give a second thought to the current strict control over financing activities among the enterprises and those to the individuals. nowadays, due to low deposit interest rate, high risks involved in stock market investment, and risks in investing in the much fluctuating mutual fund, trust and other collective investment products, many rich people are willing to lend directly, or through a joint - owned company. as the people ’ s bank of china has already removed the upper limit of lending rates for financial institutions, this type of financing activities has a greater potential to develop. at present, some small enterprises and individuals often have difficult access to bank loans, but due to some factors such as the regional advantages, some people or their companies are able to control loan risks in a way that could not be done by banks. why shouldn ’ t we take necessary measures to normalize these financing activities? so long as the sources of funds of these lenders, either individuals or companies, are specified, the existence of these non - deposit taking lending entities should help to standardize the informal financing activities. on such a count, we should newly establish a specific type of financial institutions, which could be either called investment companies if their business are confined to equity investment, credit investment and securities investment, or called loan companies that specialize in micro credit business. many countries and regions such as the united states, hongkong and south africa have established their respective unique supervisory system for these loan institutions. in this regard, we should also promote the legislation of investment company, regulate private fund placement, and advance micro credit business development so as to satisfy the financing needs of the small enterprises and natural persons. in many countries, rules have been formulated to regulate and supervise the above mentioned lending institutions. these rules allow individuals and companies to issue loans with a license ( such as in hongkong and the newyork state of the united states ), or require the lenders to register every transaction and pay relevant fees ( such as in south africa ). any violations of the supervisory rules will be punished

there is a need for addressing the idiosyncratic nature of if industry, products and market players. moreover, with regard to if, both the regulators are following different approaches towards shariah compliance in the institutions regulated by them. sbp requires islamic banks to appoint shariah advisors according to a prescribed fit and proper criteria and a shariah board has been constituted at the level of sbp to deal with issues relating to shariah interpretation and compliance among islamic banks. secp ’ s approach varies across different segments of if. a religious board, constituted by the government, is responsible for approving the prospectus of each modaraba containing the types of business to be conducted, management, etc. while the religious board has a significant role, there is no requirement for modarabas or their management companies to appoint shariah advisers at individual fund level. islamic mutual funds and takaful operators, on the other hand, are required to appoint shariah council / boards but no explicit fit and proper criteria has been laid down by secp in this regard. secp is also authorized to appoint a central shariah board under the takaful rules, 2005, which has not been established as yet. the greatest challenge resulting from different shariah compliance practices followed by islamic banks, modarabas, takaful companies, etc. is the reputational risk faced by ifis and misperceptions in the minds of public about shariah compliance. this issue, therefore, needs to be addressed through coordination amongst the supervisors. another issue arises from overlapping supervisory jurisdiction. the banking company ordinance allows banks to act as modaraba management companies for floatation of modarabas. in terms of modaraba companies ordinance, modarabas can be formed to conduct any type of business, which is permitted under shariah, be it trading, manufacturing, airline, financing, leasing, services, etc. and these are regulated by secp. due to overlapping regulatory jurisdictions, banks are floating modarabas through separate subsidiaries, 5 resulting in higher administrative, set up and regulatory costs. for sometime ( from 1991 - 1997 ), these modarabas were under the regulatory control of sbp, but the powers relating to licensing, winding up, etc. were retained by secp ; consequently the regulatory authority has been reverted to secp. again, this highlights the need for cross sector regulation of ifis. eventually there is a need to develop mechanisms