An Introduction to Islamic Finance: Theory and Practice

366 AN INTRODUCTION TO ISLAMIC FINANCE

TABLE 17.1 Suggestions for enhancing the Islamic fi nancial industry

Islamic Banking

Money, Capital

Markets

Legal/Regulatory

Issues Others

Consolidation Develop liquidity -
enhancing
mechanisms

Enhance and

harmonize

standards

Social sector fi nancing.

Institutionalization

of Islam’s

redistributive

instruments

Expand scope,
services,
products

Develop asset -

linked, rather

asset - based,

products

Enhance

corporate

governance

Develop non -

bank fi nancial

intermediation

Enhance risk
management

Develop sukuk

based on

intangible

assets such

as services,

rights, working

capital, etc.

Enhance Shari’ah

governance

Reputational risk

Lessen reliance on
commodity/
fi xed-income -
like products

Develop

partnership

and risk-

sharing

products

Supervision and

monitoring

Financial engineering.

Ease of product

development

Reduce exposure
to operational
risk

Develop Shari’ah -

compliant

securities/stock

markets

Financial Sector

development

Hedging with

or without

derivatives

Liquidity-
enhancing
products

Develop Islamic

benchmarks

Investor/creditor

rights

Public fi nance

Hedging products Public fi nance
instruments

Insolvency laws Monetary policy

management

Source: Iqbal (2010)

fi nance has primarily been driven by business needs to establish an Islamic
banking and fi nancial system, and less attention has been paid to developing
a comprehensive analytical framework based on Islamic economic princi-
ples. The progress in understanding and describing economic behavior as
envisioned by Islam is slow and needs more attention. Without a solid foun-
dation and rigorous analytical work, it would be diffi cult to present viable
solutions to economic and social problems.