COMMENT

November / December 2006
NewHorizon
The need for entrepreneurs to have greater access to professionally man­aged financial services is key to ensur­ing broad-based participation in the process of any economic development and social progress. The provision of financial services consistent with the users’ religious beliefs and cultural values is also important to provide greater choice and to expand the range of alternative financial services. There is certainly a need to meet the ever increasing demands of Muslim entre­preneurs as well as Muslim individu­als who see Shariah-based financial services as a way of also addressing the ills of society and alleviating poverty.

The Islamic finance industry has shown consistent growth over the past three decades. It is estimated that the industry now has over 300 institutions in nearly 75 jurisdictions and manag­ing more than US$600 billion. The industry has evolved from a banking-based to a relatively financial-market oriented industry. In promoting Islamic finance, the creditability of Shariah compliance and adequacy of domestic infrastructure for its support is an integral part of the process. This entails coordination that is already taking place among stakeholders in the Islamic finance industry and inter­national regulatory and standard-set­ting bodies.

The IFSB, AAOIFI and the World Fiqh Academy are among the organi­sations endeavouring to increase coor­dination in the development of inter­nationally acceptable standards. Cross border transactions and increased global competitiveness requires that Islamic financial institutions should focus on having even closer coopera­tion on harmonisation issues relating to operational, accounting, compli­ance and Shariah standards. Much more important is for Islamic finance professionals to share a common vision as well as a common desire to operate under uniform standards, structures and practices that will ensure the long-term success of the Islamic financial framework globally. This can best be achieved when Islamic financial institutions are pre­pared to invest regularly in training and professional development of their staff.

According to Iqbal Khan, the found­ing CEO of HSBC Amanah and one of the world’s leading Islamic bankers, the future of Islamic finance relies first and foremost on the human fac­tor; it is imperative that Islamic banks are staffed by people who are not only competent technically but are also well-versed in the Islamic financial system, believe in it and are totally committed to it. With a plethora of organisations promoting training in Islamic finance, there is a need for Islamic financial institutions and Shariah scholars to also agree on uni­versal standards in this area to ensure that Islamic professionals have the same vision and purpose.

The London - Institute of Islamic Banking and Insurance, founded in 1991 as a pioneering independent organisation dedicated for the promo­tion of Islamic finance globally, con­tinues to strive towards achieving excellence in professional education and training on the best practices, for those seeking a career in the Islamic finance industry.

Despite highly impressive growth, the Islamic finance industry’s share in the global market remains very small -estimates range from 5% to 10%. By looking at the growth trends and the revenue from oil surpluses available in the financial sector, an enabling envi­ronment now exists for rapid expan­sion of the Islamic financial industry worldwide. Things are moving in the right direction. New Shariah-based products are constantly being devel­oped with changing customer needs and other important avenues such as Islamic insurance are exploited to fill the products gaps. The growth of taka­ful (Islamic insurance) companies is necessary to support trade financing operations of Islamic banks and a must to provide savings and protec­tions plans for individuals.

The industry would not have come this far without the total commitment and dedication of a small group of professionals brought up in the con­ventional financial system and Shariah scholars working together to find solutions for Muslims, wishing to follow their religious beliefs in all their financial dealings. Their efforts must be applauded and the industry will always be indebted to them for their pioneering role.

2007 brings with it even greater chal­lenges for the Islamic finance industry and steady impetus for its strategic growth to ensure that Islamic banking and insurance is well positioned as a viable alternative provider of financial services. Islamic financial institutions will need to be more mindful of the heightened competition that they will face in the year ahead from large well resourced conventional banks invest­ing in launching their own Islamic financial services, recognised easily by their global brand.

While success will lie is the quality of service, good governance and cus­tomer-oriented solutions, it may be that the time has come for Islamic financial institutions, while working in an integrated manner, to also con­sider forming alliances to create glob­al structures and their own global branding of Islamic financial services.

........

..................