Challenges Ahead For Islamic Finance
Thursday, May 27, 2010

Islamic Finance is on a firm footing to become a USD2 trillion industry in the next half decade, participants at the Middle East, North Africa and South Asia (MENESA) Forum on ‘The Challenges Ahead for Islamic Finance’ were told on May 23.

Rushdi Siddiqui, Global Head of Islamic Finance at Thomson Reuters, told the forum: “It took the Islamic Finance industry 40 years to become a USD1 trillion industry. It will take another two to five years to become a USD2 trillion industry.”

However, he noted that there are many challenges that need to be overcome for the industry to realise its full potential. Panellists concurred that the lack of standardization in the industry, the lack of consensus among Shari’ah scholars, poor “connectivity” between Islamic Finance institutions across the world, and the global shortage of experienced Islamic Finance professionals are some of the challenges facing the industry.

Harris Irfan, Head of Islamic Finance at Barclays Capital and Barclays Wealth, discussing the standardization of Shari'ah interpretation in the industry, noted that it was becoming less of a challenge, with a greater convergence of standards. “I am 100% convinced that we are seeing the convergence of opinion in Islamic Finance across countries, scholars and schools of thought,” Ifran told the forum, noting it was an area that had markedly improved.

Introducing the discussion, Afaq Khan, CEO of Standard Chartered Saadiq, said that as with any fast growing industry, Islamic Finance also faces many challenges as the industry and its stakeholders try to keep pace with developments in human capital, access to Shariah guidance from scholars, and changes in regulations.

He underscored the importance of strengthening risk management, observing that as the industry grows and offers a broader suite of products to its clients in home markets or in new regions, it is exposed to new risks which must be proactively managed. Islamic banks now form a significant part of the financial market in several countries and therefore have a responsibility to manage the risk prudently so as not to disrupt the market as a whole, he added.