The Islamic finance sector is estimated to be worth £ 1.2 trillion, and is expected to grow to £ 1.6 trillion by 2015.
13th September 2013
The 9th World Islamic Economic Forum or WIEF would be held from October 29th to 31st at ExCel London in the United Kingdom, first time outside the Muslim world. More than 1,500 government leaders, captains of industries, academic scholars, regional experts and corporate managers would come together to boost trade partnerships and between Islamic and European markets. From its dominance in the Muslim countries, Islamic finance is slowly finding its feet in the Western part of the world. The Islamic finance sector is estimated to be worth £ 1.2 trillion, and is expected to grow to £ 1.6 trillion by 2015, however, the viability and acceptability of this form of financing; its potential role in the current financial system is being questioned by many experts and critics.
What are the prospects of Shariah compliant finance, why is its growth slow compared to conventional banks and financial institutions, let us discuss a few major issues that is impending the growth of the Shariah finance.
One of the most important reasons that is impending the growth of Shariah finance is the lack of proper governance and regulation for Islamic finance. For example: Middle East banks are yet to agree on a centralised board of governance and regulation for Islamic finance seen in countries such as Malaysia, this is preventing from tapping the sector’s potential. Muslim population around the world is projected to grow by 30 percent by 2030 which will boost the demand for Shariah compliant banking, however, the lack of a proper governing body will negate its prospects.
Another impediment in its growth is the lack of a regulatory and legal architecture, except for Malaysia which follows a dual banking model- an Islamic system along with the conventional banking enshrined in the Central Bank of Malaysia Act 2009. Malaysia has stand alone laws to aid the sector’s development such as, Islamic Banking Act, Islamic Insurance Act (Takaful Act), Banking and Financial Institutions Act and Development Finance Institutions Act. But its other major market the Middle East, Saudi Arabia in particular does not have stand alone Islamic banking laws.
Lack of political support and resolution is another area which plagues Islamic finance, political representatives and regulators need to work together in supporting Islamic finance, however, this is not the case in many Muslim countries, ministries of treasuries and finance have not been successful in drafting legislations or are at loggerheads with their regulators. For example: In Kuwait, the religious right members of parliament in the National Assembly cannot agree with the Ministry of Finance on a sukuk law. Result: The Central Bank of Kuwait is caught between this political dogfight, and any chance of a debut Kuwaiti sovereign sukuk offering is delayed. Similarly, it took more than three years for Kuwait to adopt an Islamic Banking law because the Ministry of Commerce, the National Assembly and the Emir’s private office could not agree on a common definition of what constitutes an Islamic bank.
The Islamic world would be watching closely the developments in London and any major breakthroughs in the World Islamic Economic Forum (WIEF) will help remove the obstacles for its growth and increase its prospects, especially in Western countries.