The Islamic finance industry has been very innovative and scholars have facilitated this through Ijtihad in a commendable manner. Nevertheless there is scope for further innovation at all levels. At the retail level, more attention should be given to the risk characteristics of the products offered and product pricing. Investment Mudarabah deposits, for example, could be made more distinctive from conventional savings accounts by basing the return on bank performance rather than LIBOR based proxies. At the capital market level the returns on sovereign Sukuk could be linked to GNP growth, a real indicator, rather than monetary indicators. This would result in more meaningful risk sharing between investors and governments, as if growth was higher, governments could afford to pay more for financing, and if growth was lower, they would pay less. There are many such avenues yet to be explored.
PROFESSOR RODNEY WILSON
Perhaps the industry requires more players to fuel product innovation. At present, the industry is largely represented by seven countries which are Iran, Saudi Arabia, Malaysia, the UAE, Kuwait, Bahrain and Qatar which account for 90% of the US$1 trillion Islamic finance assets. These seven countries paradoxically account for less than 10% of the total Muslim population worldwide. Which means that there are 50 Islamic nations yet to undertake the promotion of Islamic banking. The Islamic financial markets at present are somewhat domestic and insular with limited cross border connectivity. A larger network of participants will undoubtedly lead to greater activity thus facilitating growth of the industry. RAJA TEH MAIMUNAH Global Head, Islamic Markets, Bursa Malaysia
Innovation requires a framework. The fact is that most countries do not have the correct banking or securities frameworks in place for any form of Islamic finance. Until key economies expand or reform their regulations and laws, we will not be able to grow well. ABDULKADER THOMAS President & CEO, SHAPE™ Financial Corp
The next sector to grow would be the regulators and central banks. They have to set clear rules and regulations and develop the Islamic interbank money market. Countries with the biggest Islamic banks such as Saudi Arabia and Bangladesh have no clear regulations on Islamic banking. Malaysia has set the path for others to follow. MOHD KAMAL MOKHTAR Consultant & Shariah Advisor, SHAPE™ Financial Corp
Innovation might enhance the depth and breadth of Islamic financial services available and could in turn attract additional interest in Islamic financial products. However, this in itself is likely to be insufficient. Standardization of contract, a better offering of liquidity management products in the market, and increased issue size of Sukuk are equally if not more important in order for the Islamic financial industry to become a true global industry. DR NATALIE SCHOON Head of product management, Bank of London and the Middle East
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