An Introduction to Islamic Finance: Theory and Practice

365

CHAPTER

17

Issues and Challenges

A

s is invariably the case in any emerging market, the Islamic fi nan-
cial industry faces several challenges. The nature of these challenges is
diverse, as there are numerous issues concerning its theoretical foundation,
infrastructure development, systemic implementation, integration with
external systems, and enhancing operational effi ciency. There are challenges
at both macro and at micro levels and the approach taken to these will
determine the future success or failure of the industry. Although the indus-
try has enjoyed handsome growth, its sustainability and future growth will
largely depend on how successful it is in addressing these challenges. If due
attention is not paid to addressing these issues, Islamic fi nance will fail to
achieve its full potential and to deliver on its promise. Therefore, the stakes
are very high and demand serious discussion of the issues.
There is no shortage of literature pointing out the defi cits in the current
state of the industry and what needs to be done. Table 17.1 summarizes some
of the prescriptions given for enhancing different segments of the industry.
The next logical step would be to prioritize the steps to be taken and then
prepare an action plan. A complete coverage of all the issues and challenges
would be a lengthy and voluminous academic exercise. However, in this chap-
ter we attempt to provide a brief overview of some of the major challenges.

DEVELOPMENT OF THEORETICAL FOUNDATION

Conventional economics is the result of decades of rigorous theoretical and
empirical research, debate and analytical argument and has gone through
many iterations. This has led to solid and time - tested development of mod-
els that provide a foundation for further analytical work. This is evident in
all aspects of economics, whether micro or macro issues or in fi elds such
as economic development or international trade and fi nance. This collec-
tive understanding is evolving every day, and has become a valuable asset in
understanding the economic behavior of individuals as well as of societies.
Similar rigorous analytical work, especially in areas of core economics, is
seriously lacking in the case of Islamic economics. The research in Islamic

An Introduction to Islamic Finance: Theory and Practice, Second Edition

by Zamir Iqbal and Abbas Mirakhor

Copyright © 2011 John Wiley & Sons (Asia) Pte. Ltd.