The feedback from the market on the prospects is mixed. There are the usual devoted diehard optimists for whom Islamic banking is more a conviction of faith as opposed to an alternative ethical system of financial management with all its attendant rigors.I couldn't agree with his prognosis of the perspectives within Islamic finance. I hope he would agree that I am part of the third group of people who believe that Islamic finance can be a positive force within finance, can incorporate more ethical screens and can be improved. I view this as the realist perspective, but it is more than that. His third group includes people who want Islamic finance to be more than just an 'alternative to conventional finance'. We want Islamic finance to provide something that is concerned with the outcome of finance; its impact on society as a whole. This is one area where I think that Islamic finance is lacking now. There is so much focus on avoiding prohibitions--riba, gharar, maysir and non-Shari'ah-compliant activities--and too little focus on making positive contributions. This doesn't mean that Islamic finance should be turned into a charitable venture; it wouldn't survive if it were. However, Islamic finance can contribute to avoiding environmental degradation by incorporating screens to ensure that mankind acts as a responsible steward of the earth. Or by providing financing for Islamic microfinance institutions. Or by considering the affect of project financing on the local communities affected by adopting the Equator Principles.
Then there are the fair weather fellow travelers, whose nauseating platitudes will reverberate as long as the going is good and their renumeration packages stand out.
Finally there are the hard-working pragmatists who believe in Islamic finance not merely because of their faith traditions (not only Islam) but because they believe and have proven that Islamic finance is eminently workable, here to stay and a force for good in economic development, shareholder value and wealth creation and effecting socio-economic justice.
"Industry organizations such as the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) have done pioneering work in introducing prudential, supervisory and accounting standards for the global industry, but where they have been wanting is helping to suggest and develop policy, regulatory and legal frameworks for Islamic finance to create a level playing field in this respect."This is an excellent point. AAOIFI and the IFSB should provide guidance on creating a level playing field for Islamic finance institutions. Because of the wide usage of legal systems based on the British (common law) legal system, there are many areas where the regulatory and tax restrictions that hamper Islamic finance are the same. These institutions could also be valuable resources for national regulators and legislators in deciding on the best ways to reform their own unique systems to put Islamic finance on a level playing field because they have experience working with member countries with diverse legal, regulatory and tax systems.
One area where I disagree with Mushtak Parker is:
"How on earth can the sector move to the next level when the government and regulators of one of the most important Islamic finance markets does not see fit to introduce a separate regulatory, supervisory and legal framework for Islamic banking to encompass its special characteristics?"I think that there should be a separation between the Shari'ah regulation (which is done by Shari'ah scholars) and the national financial regulators and legal systems based on secular law. I think it would hurt the growth of the industry if there were special laws for Islamic financial institutions. They may be subject to Basel rules (and AAOIFI standards if they are members) for accounting and the fatawa from their Shari'ah board, but their consumers should be able to make claims against them with the domestic regulators or legal system, whether or not this can incorporate Shari'ah in determining the rulings. The role of good lawyers is designing contracts that are in compliance with Shari'ah at the outset (as determined by the Shari'ah board) but which can be litigated by a secular legal system in a way that will not contravene Shari'ah without incorporating Shari'ah into that legal system.
"The truth is that Islamic finance despite the impressive growth of the global industry over the last three decades, is still a highly parochial and insular one - still largely engrossed in talking to itself and to its principal immediate stakeholders - the shareholders, investors and its regulators. Outside this limited stakeholder paradigm, there is hardly much interaction with other equally important stakeholder groups - the government policy-makers, national Treasuries or finance ministries, parliamentary finance committees and consumer groups and watchdogs."I agree. There is not enough discussion outside of the Islamic finance industry with people who affect the industry to explain how the industry works and proactively find potential areas of conflict with existing laws and regulations.
Under-developed consumer awareness and market education reflects the paucity of the marketing policies and strategies of Islamic financial institutions, who unfortunately too seem to have fallen for the hype of the "Mad Men" of advertising and some of whom are not averse to paying for recognition and commercial awards.I have written about social media and Islamic finance in two blog posts and I think Mushtak Parker is reflecting a similar sentiment. Islamic financial institutions are not reaching out to consumers effectively and practitioners are not creating enough public dialogue about how the industry works to challenge incorrect statements about the industry or open up a public dialogue with consumers to figure out what consumers' and observers' views of the industry are. There is a lot of private discussion, but far too little public discourse.
I would recommend that readers click through and read Mushtak's piece in full. It is definitely a thought-provoking read.