Biggest Challenge of the Islamic Finance Industry?
By
Zaharuddin Abd Rahman
www.zaharuddin.net
Question
What is the biggest challenge facing the Islamic Finance industry at the moment?
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.
Why am i saying that?
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).
As a result, Islamic financial institutions seem to be under pressure to introduce a number of contentious products in order to meet these inventors' requirements. Product such as Tawarruq Munazzam (Organised Tawarruq), Bai Al-Inah, Bay Al-Dayn (Discounted Debt Trading), Financial Lease, Bai Bithaman Ajil (BBA) etc, have been offered in order to meet such delicate market appetites. To date, we can easily find an Islamic investment bond with indirect fixed return structures. Also, there is already in place a certified ‘fixed return Islamic investment account' ; it is typically being structured under the Commodity Murabahah contracts and not using the standard mudarabah and mushakarah investment contract, that's why they have been able to guaranteed profit even if it is an Islamic investment.
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.
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.
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.
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.
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.
Best regards,
Zaharuddin Abd Rahman
www.zaharuddin.net
22nd September 2010
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Comments
Saya pelajar Finance sem akhir Universiti tempatan, untuk menamatkan pengajian saya perlu membuat kertas kerja yang berkaitan dengan Finance,
Oleh kerana saya berminat dan ingin belajar dan membuat kajian tentang Islamic Finance, saya ingin pertolongan dan bertanya pendapat dan nasihat dari Ustaz, untuk tajuk kertas kerja saya dan sumber-sumber yang tepat yang boleh saya cari.
sekian
Assalamualaikum .
Terima Kasih.
My 2 cents opinion, our community used to conventional banking practices, thinks IFI works exactly the same and demands IFI to deliver the same. Its a challenge not only to IFI's management team, but to the whole personnel in the organization especially the front-liners not only to market products, also to educate people on the differences of IFI concepts and practices.
It's also a challenge to IFI's management o train and ensure its personnel understand and well verse in shariah compliance products and working practices. Its a disaster should a customer posted question on differences between Islamic bank and conventional bank - answer given is " oohhh.. Islamic bank is governed by Shariah and overlooked by Shariah Supervisory Council". It is more than that.
Wassalam.
Bank konvesional tu mcm hypermarket, modal besaq dan beli stock murah,,..mustahil bank islam yang capital sekadar kedai runcit bole tawar harga dan keuntungan sehebat depa tu.
aku doakan orang2 mcm hang ni menjadi kaya raya. lepas bole buka satu bank islam dan bagi kaw2 keuntungan untuk customer hang.
Allah SWT telah mengharamkan riba dan menghalalkan jual beli...suka tak suka hang terima la dulu yang halal tu
Kita sepatutnya didik muslim utk x b'hutang, ada duit baru beli, barulah senang PPZ nak agih kepada 8 asnaf yg layak. Ini semua kerana desakan pembangunan yg dianjurkn oleh yahudi bukan menuduh tapi itulah kenyataannya. Bagaimana kita nak kembali kepada ajaran nabi muhamad yg sebenar jika asyik setiap negara asyik amalkan 'uruf' dan maslahat umah shja. sampai bila pun kita tak akan dapat mendidik masyarakat islam. Asal ada yg tak setuju jer, mesti berpecah punya. jangan pulak di padang mashyar nanti 4 imam mazhab tidak merestui ilmu mereka menjadi punca perpecahan umat. Nahas kita dibuatnya nanti. berfikirlah di luar kotak - kalau semua nak dipermudahkan x kanlah sahabat2 nabi boleh menerima banyak dugaan yg kalau kita sendiri fikir balik tak sanggup kita nak hadapi macam mereka. kritikan boleh menyedarkan kita
Malkumat yang bagus untuk dikongsi semua.
nampaknya ramai dah rakan2 terutama yg menjual dinar emas - agak keliru dgn video sheikh imran tentang back door riba..saya dah baca buku UZAR wang, islam dan anda cetakan pertama..dan alhamdulillah saya dah paham konsep yg di amalkan perbankan islam - iaitu lebih kepada akad jual beli dan saya amat yakin tiada riba dalam perbankan islam...terima kasih UZAR
I had the honour of speaking at an Islamic Conference just two days ago with Tun Mahathir in Singapore. The title of my talk was "Islamic Finance: More than just managing wealth".
I fear the Muslim ummah at large faces the risk of associating Islamic Finance with merely adopting syariah compliant products. To me, having syariah products is only half the battle, adopting the spirit of islamic finance, is the other half. Many have forgotten least small things like the need to guard our expenditure, the source of our income and to ensure we distribute our income to those who are entitled to it, among other things. We have also forgotten that the question of higher returns does not exist when one compares Islamic vs conventional products.
I would like to discuss with you further on some matters and would be very grateful if you could email me.
Thank you and may Allah bless you for your efforts
Sani
UZAR : yes, i could not agree more with you. It is really half battle and yet, we already feel too much heat. Even form our muslim brothers and sisters who fail to comprehend the gradual process in Islamic law and worst, fail to have faith in spiritual return. The only concern nowadays, is 'we want Islamic financial product to be cheaper for to subscribe, and able to payback greater return.
Apa pendapat ustaz tentang penggunaan dinar dan dirham pada zaman sekarang??
Adakah kita perlu menyimpan dinar dan dirham untuk pada zaman akan datang??
dan saya harap ustaz boleh meninjau laman web ini dan menyiarkan artikel tentang dinar dan dirham....
www.dinar-emas.com
saya ada tgk video ni(sheikh Imran Hossein). UZAR boleh comment?
kalau betul yang apa dia cakap ni, macamana dengan perbankan Islam di Malaysia?
thanks
UZAR : apa yang dia cakap tu salah dan pendapat amat lemah serta bercanggah dgn ijtihad 4 mazhab dan persidangan ulama fiqh sedunia. Nyata dia bukan seorang yang ada ilmu mendalam dalam bidang fiqh muamalat dan usul fiqh. Dalam bidang lain, mungkin ok..
Saya setuju dengan pendapat iskandar. The fundamental of Islamic Finance is NO guarantee in investment, NO Fixed income return. Tapi produk Islam sedia ada yang ditawarkan adakah bersifat begitu? Hanya panel syariah saja yang boleh menjawabnya. Cuba lihat kepada pelanggan/pengguna, adakah mereka tertekan dengan produk yang ditawarkan? Saya yakin ramai yang menjawab YA kerana ianya lebih kurang sama dengan produk konvensional cuma istilahnya yang berlainan. Peminjam sendiri membayar harga yang lebih daripada yang dipinjam dan sama dengan produk konvensional. Keuntungan daripada simpanan/pelaburan tidak dikongsi dengan adil. Jadi apakah kelainannya? Produk kewangan Islam sepatutnya lebih bersifat berkongsi keuntungan dan berlainan terus daripada produk konvensional . Saya amat berharap akan adanya produk yang benar-benar menepati syariah dalam sistem kewangan islam dan menggunakan kepakaran para ulama dalam membangunkan produk tersebut.Tq
YG Berbahgia Ustaz has correctly outlined the sources of challenges facing Islamic Banking :
1.Customers expectations
2.Financial Institutions'owners' expectations.
These ' expectations ' go hand in hand .
Ustaz has explained what the expectations are ( the what ) and the Islamic Banking Movement has to response.Failure is not an option.
The other option could be to manage the challenges faced and this could be carried out by first identifying the "why", "when" ''how" 'which'' and adjusting the strenghts and weaknesses to these identifiables.
Why are the corporate and retail consumers behaving that way? No more passion on Islamic Banking as an outlet/solution from getting' roasted' in hell? Or the present generations in authority in govt, corporations and as individuals no longer believe that there is hell?These people are both sides of the 'expectant'--they are consumers as well as Bank owners.
Solution: More religious talks, seminars not by" oldies" of 30 years ago but by their own peers.Imam muda perhaps or those with real live experience and survived to tell the story.Talk in English
not entirely in Arabic.Few understand Arabic now---blame it on education system if we want.
Once we are able to get them understand 'why there is Islamic Banking'' the solution to others-'when' ' how' 'which '
can follow suit.
islamic finance courses (www.ethicainstitute.com/)
saya adalah calon phd ukm dibawah tajaan kuis, selalu mengikuti statement ybhg ustaz berkaitan SPI.mohon tunjuk ajar
Considering the challenge facing by d IFI, does those product halal or vise versa? The fundamental of Islamic Finance is NO guarantee in investment, NO Fixed income return and so.
Thus where is our stand? tq
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