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What is the biggest challenge facing the Islamic Finance industry at the moment? Y
My opinion, apart from being under the umbrella of the conventional system, law and its
framework, one of the biggest challenges for Islamic Finance Institution (IFI) and Industry today is
the passion of investors and customers themselves. These peoples consist of those outside the
Islamic financial institutions such as corporate companies, high net worth individuals and suburban
customers whom are the predominant subscribers to the Islamic Financial Institution's products.
The other part of the investors is the Islamic bank and the insiders of the Islamic financial
institutions such as their shareholders and the management team.Y
For the first group: Islamic Finance industry has indirectly been forced to come out with the
products identical to their conventional counterpart's product features such as a fixed return
investment. These investors typically wanted the return and their capital to be guaranteed, but
they just wanted it to be Islamic or halal. Such inclination creates real challenges to the
management of the Islamic banks as there is no guaranteed capital and return under the classical
Islamic investment contract such as Mudarabah and Mushakarah (except if it is coming from the
independent third party).Y
Undoubtedly, these investors endless appetites and the Islamic Financial Institutions responses will
persistently causing them to be criticized from various angles especially from academicians and
Muslim economist as they perceived the products but no other than a makeup form with no real
Islamic substances. In some ways, their concerned is quite true.Y
Yes, we can argue these products validity from Fiqh point of view, but as i said, such unhealthy
appetite is one of the biggest challenges for the Islamic Financial industry. Leave aside other
challenges such as state law, taxation and etc.Y
There are also appetites which demand IFI to create products which can bring similar outcomes as
conventional financial derivatives, factoring, trade finance, debt trading, short selling, structured
products etc. As a result, IFIs management will again have to crack their head in finding hilah (legal
tricks) in order meet such demand, or else their product is deemed undoable, not feasible,
unmarketable and eventually will bring the IFI down to earth.Y
As for the second group which is the eagerness of the IFIs' shareholder themselves, yes we know
that most of these IFIs are targeting profit. Thus, this profit-hunting determination would originate
lot of difficulties to the Shariah advisors of the IFIS and the industry, as well. As a result, IFIs will
always entrenching ways to adhere to the unhealthy market desires. Whenever the market needs,
IFIs will have to follow, because that is their primary purpose and objective. Any product which is
truly, Islamic but non-saleable, will not be introduced at all, even though it might be saleable if
there is someone to begin the spark. Yes we understand the difficulties, but such appetite if
followed constantly, it could potentially threaten to weaken Islamic brand names and shrink their
margins of respect. We do not want IFIs to blindly imitating conventional products because such a
strategy would deprive them of their special status as Islamic banks which exclusively operate in
non-riba based transactions and could be the main attraction to a large population of Muslim.Y
In summary that is one of the biggest challenges for IFIs and industry, to be highly competitive,
capable to meet the investors' appetite, with the ability to maintain their products to be fully
complied with the Shariah ruling at the same time.Y
Best regards,Y
www.zaharuddin.netY
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