COMMENT

June 2005
NewHorizon
Islamic financial services has seen rapid growth in recent years and is slowly emerging as a viable and competitive alternative for wealth creation and development of the domestic economy in Islamic countries as well as of Muslim communities in non-Islamic countries.
Islamic financial services increasingly face a challenging and innovative domestic and global environment including a range of sophisticated products offered by conventional financial institutions incorporating soundness and stability for customers and investors accompanied by good governance and transparency. A great deal must be attributed to the importance placed by the conventional financial institutions in regularly funding research and development as well as investing in good facilities for staff training.

In order to build a progressive and sustainable Islamic Financial System it is essential to also secure the development of the key structural components comparable to those existing in the Western Financial System supported by a national legal code as well as recognizing the relevance of operating Shariah principles. These components include the Islamic Banking Industry for mobilising deposits and financing productive economic activity, Islamic Insurance to provide source of savings that could be directed at poverty alleviation and the Islamic Money and Capital Markets to provide a source of long-term funds to finance business development and investments in projects on a large scale to drive the economy.

The Islamic Financial Sector is set to grow continually and is unstoppable. However, there is still a long way to go and the sector must overcome several key challenges before being able to offer a better alternative to conventional banking products and financial services to Muslims and non-Muslims alike. Creating customer awareness and providing them with a wider range of products and services at affordable pricing is the major challenge for all financial institutions. Therefore, it is vital for the growth of the Islamic Financial Industry to put much greater emphasis on packaging and marketing of their products and services. Sound structures of research and developments and internal control should be built and adhered to, to cope with the changing needs of customers and competing in both the domestic and global markets. Equally important is the need for harmonisation and standardisation in the accounting and contract structures for Islamic banking and finance industry on a global scale.

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