Islamic banking during the last four decades has witnessed considerable progress on the global front. The industry grew at double digits last year despite global economic uncertainties and market volatility. The relative resilience of these Islamic banks during the recent financial crisis, because of their asset-backed nature, has significantly demonstrated their credibility as a very prudent and stable system.
Islamic finance is for all. Its appeal has extended to a larger global community, regardless of faith and origins. Islamic finance is not only for the Muslims. Many now recognise that the inherent characteristics of Islamic finance are consistent with universal values. Islamic finance has proved beyond doubt its viability and the value systems that it upholds. It contributes to economic and financial stability by way of, for example, restrictions on overleveraging, linkage of transactional activities to the real economy and strong governance and transparency.
There are established global best practices and international standards in Islamic finance and banking. Many years of efforts have been in place to set the system functioning. Accountants, lawyers, tax experts, regulators and bankers have put their minds together to create standardised agreements and instruments, such as the wakalah Agreement that are widely accepted across the globe. These practices and standards are improving continuously. Global best practices, standards can be adopted and adapted with in customised form to local environment. There is no requirement to reinvent the mechanism which may be very expensive. The established Islamic finance regimes grow through sharing experiences with other stable financial systems. As such, the more countries adopt Islamic finance, the better for the industry as well as the customers.
Global regulatory standards and best practices are being established for Islamic banking. The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB) and the International Islamic Financial Markets (IIFM) amongst others, have been at the forefront of this endeavour, helping to narrow divergences in market practices and regulatory actions. More countries are increasingly opting for Islamic finance. In Asia, many countries have set out to significantly grow their Islamic banking sector and develop the sharia compliant capital markets too.
There still is enough room for further expansion of sharia compliant finance, both in relatively unbanked Muslim countries in the developing world and in the West. Islamic finance in emerging countries could move fast, avoid expensive pitfalls and adopt best practices to foster stronger collaboration for sustained industrial growth. There should be broad-based instructions aimed at bringing standardisation and improving transparency in profit and loss distribution practices of the industry and instrumental initiatives, particularly in the formulation of Islamic Banking Act towards improving the perception of Islamic banking amongst the masses at cross-border levels.
Financial deepening programmes such as integrating zakat and cash waqf in many countries should promote product innovation to give a wider access to larger segments of society. This, in turn, will bring substantial benefits to support poverty alleviation programmes globally.
So, practitioners need to be patient and organised professionally. They must respect diversity and seek solutions to problems to keep the system competitive as well as supportive to the development and economic needs of the people
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Islamic banking: Beyond growth
Md Saifullah Azad | Published: January 17, 2015 00:00:00 | Updated: November 30, 2024 06:01:00
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