An Introduction to Islamic Finance: Theory and Practice

(Romina) #1

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.

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