Challenges Which Are of a Great Concern

Bloggers Note:

I have been reading on financial news in newspapers a few months back regarding major financial centres such as Singapore, Hong Kong, Japan etc. of their intention to be the hub of Islamic Finance in their respective region or expertise. Personally, I sometimes am a bit curious about their original intent in establishing Islamic Financial hub in their respective countries. Please don't get me wrong but the one Country which actually ask it's Muslim community to tone down their Islamic practices (and I am not sure what that actually means) had actually wanted to established itself as a major hub of Islamic Finance especially in the area of capital market.

I thought I am the only one who are so called 'paranoia' about all these scenarios, but Alhamdulillah after reading the excerpt below from MIFC's website, there is after all a very prominent person in the Islamic Finance industry who are aware of the issues and challenges, and in his own words describe it as "...are of a great concern".

Hope you will find the excerpt below beneficial.

The Royal Award Winner Urges Islamic Finance Industry to Support Real Economy

Sheikh Saleh Kamel, the first winner of The Royal Award for Islamic Finance spearheaded by the Malaysia International Islamic Financial Centre (MIFC) initiative and endorsed by Bank Negara Malaysia (BNM) and Securities Commission Malaysia (SC), paid tribute to the King of Malaysia, the Malaysian people, BNM, the SC and the MIFC for honouring him with the prestigious Royal Award in an interview with CNBC Arabia at the end of December 2010. In fact, it was the Malaysian monarchy that bestowed royal patronage on the award, which aims at honouring “outstanding contribution of an exceptional individual in Islamic finance”.

Sheikh Saleh, who heads the Albaraka Banking Group, together with Prince Muhammed Al-Faisal, Chairman of Dar Al-Mal Al Islami (DMI) Trust and Sheikh Saeed Lootah, founder of Dubai Islamic Bank, are the pioneers of the contemporary Islamic finance movement. Sheikh Saleh has been involved in the Islamic finance sector for almost four decades. “Previously, central banks did not approve Islamic banking even in our Islamic countries. After that, central banks established the Islamic Financial Services Board (IFSB),” he told CNBC Arabia in an interview.

He is also heartened by the increasing acceptability of Islamic banking by western countries, with the result many such jurisdictions have authorised the establishment of Islamic financial institutions. All of these achievements were due to the commitment of the first generation of Islamic bankers, their shareholders and investors and more recently due to the support of regulatory and supervisory authorities in various Muslim countries, especially Malaysia.

Going forward, Sheikh Saleh stressed that there are some challenges for the industry, which “are of a great concern”. He said that there are a minority of banking institutions and officials who are trying to cut corners because they see Islamic banking as a mere transaction devoid of its ethical basis and which often mimic conventional products. “They only change the names of services and this is permissible. Some say that Shariah bodies approved these kinds of services. These bodies examined the mechanisms explained by the banks. They do not interfere in the intentions,” he said.

Given the rapid development of Islamic finance including in non-Muslim jurisdictions such as the UK, France, Luxembourg, South Africa, Japan, Singapore; all of which have adopted tax neutrality measures to facilitate the introduction of Islamic financial products in their markets. Sheikh Saleh also provided some insights on the future development of Islamic banking and economics from his perspective.

He welcomed the growth of Islamic finance in these countries but doubted whether Islamic economics would take root there because “Islamic economics,” he advised, “depend on rules of a certain religion. It does not mean that when westerners use the mechanisms of Islamic finance that they are Muslims. It does not mean that they believe that this approach is more prudent. They found that the desire of Muslims to apply this kind of banking is great. As such there is a great demand for such kind of banking services, so they wanted to get their share of the pie. In pursuit of this goal, they adopted Islamic banking in their financial systems.”

He urged Islamic bankers and Muslims to stick to the “message and trading” doctrine; and to avoid using only the trading doctrine. He urged the investment of funds and deposits in financial institutions that finance customers and projects in the real economy of Muslim countries.

He advised western financial institutions involved in Islamic finance to show greater commitment to the faith-based ethics of Islamic finance which not only promotes profit generation but also requires financing of productive activities in the real economy to generate employment and to contribute to social justice and welfare.