Home Publications Islamic Banking & Finance Page 26th October 2018

Islamic Banking & Finance Page 26th October 2018


Issues Concerning Islamic Banks: – It is a known fact that the information concerning the Islamic banking products is very limited and not sufficient to convince the consumers. It is important to disclose information on the products to consumers so that the consumers can evaluate and judge the products by themselves. Consumers need sufficient and helpful information in helping them to make a decision. On the banking front-line, there are cases where the Islamic banks’ employees themselves are not well versed and knowledgeable about the Islamic banking products. As a result, they fail to market the products effectively. A customer applying for home or vehicle financing may end up not fully understanding the product but still buying the product or may end up not buying the Islamic banking product.

Furthermore, conventional banks that have Islamic banks as a subsidiary usually operate the banks within the same premises. This shows that banks are sharing the same resources to serve two totally different products, i.e. Islamic banking products as well as conventional banking products.

Besides the lack of information and the incompetence of the Islamic banks employees to explain and attend to queries from customers about the Islamic products, other obstacles hinder the growth of Islamic banks. At the macro-level, the lack of liquid Islamic financial products is among the biggest challenges for Islamic banks). As a result, Islamic banks are not able to manage the risk and hedge their investment against potential loss. Islamic banks need to differentiate their products from the conventional banking products, as these products are free from Usury.

As for example, currently in Malaysia most Islamic banks have two types of saving accounts, i.e. wadiah and mudaraba. In Pakistan mostly they are based on Mudarbah. It is recommended that the Islamic banks should offer a variety of savings accounts for various purposes. This could be accomplished by modifying the profit-loss sharing ratios according to the type of accounts and the period of saving.

The following issues can be resolved through adhering to AAOIFI standards:-

Moral Hazards

  • Fraud
  • Falsified financial disclosure

Agency problems

  • Aggressive risk-taking
  • Uninformed decisions

Adverse Selection

  • Only those who anticipate losses will approach the bank to share it with t

PRODUCT DEVELOPMENT is CRİTİCAL in SUCCESS FACTORS than comes Clear strategy and focused vision, Than Planning and execution comes based on Market research to get Innovative product features within Availability of resources and Management commitment.


  • Banks’ internal Shariah boards engender ‘conflicting rulings,’ so investors look to homogenize industry practices. The Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has started working to establish standards and norms for shariah-compliant banking practices worldwide.

  • In September this year, Pakistan’s Prime Minister Imran Khan approved in principle the issuance of Diaspora bonds and Sukuk to raise money from overseas expats for development purposes.

  • Maalem Financing Company, being a Saudi SME lender, opted to float Sukuk in favor of bank financings. The first tranche of SAR500 million (US$133.2 million) has Maalem’s pool of loans to Saudi SMEs as underlying assets.

  • Oman is inching closer to its sophomore international sovereign Sukuk issuance while Egypt has stepped back, postponing its maiden Sukuk auction to the coming fiscal year.

  • Following his election in 2014, President Joko ‘Jokowi’ Widodo is engaged in a vigorous campaign to reduce poverty in Indonesia, a battle he is fighting utilizing Islamic finance arms such as micro Waqf banks.

  • Offering Islamic financing on a window basis since 2014, Housing Bank Algeria is planning to ramp up its portfolio of products and expand its outreach following recent government initiatives aiming to accelerate the development of Islamic banking and finance.


  • Trying to modernize Iran’s capital markets at breakneck speed to reduce the impact of US sanctions on the Islamic Republic’s economy, the Securities and Exchange Organization of Iran (SEO) has taken many measures including licensing Islamic banks.

  • The 5th October 2018 is officially the date of issuance of the first sovereign Sukuk in Morocco and North Africa. Finally, after two years of promises, the first sovereign issuance has been achieved successfully. A total amount of MAD1 billion (US$105.44 million) has been collected against five-year maturity.

  • There has been a good trend in Islamic leasing recently. Things are improving for this type of Shariah compliant financial product as banks have started reporting on putting together solid foundations to use it. That’s been the case lately and there are a few excellent examples of Islamic leasing products bolstering the good fortunes of Islamic leasing.


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