Constraints to Islamic finance growth

Constraints to Moslem pay exploitation circumscribeINTRODUTIONThe orbiculate fiscal systemFacing the scrap attain captious massTHE REGULATORY CHALLENGEMalaysia as case of study oddmentReferenceINTRODUTIONThe Muslim fiscal assiduity today is an important dowry of the ball-shaped fiscal world, the total Muslim pluss ballooned from US$150 trillion in the 1990s to US$1 trillion in 2010.The intimately successful and fast developing sector of Moslem financial industry is namely SUKUK, Moslem banking, TAKAFUL, and bloodline pick outment.SUKUK marketplace at the end of 2010 was estimated to consecrate US$143 billion the Islamic banking sector worldwide is valued at US$850 billion in term of assets, while Islamic fund industry under management grew by 15% orbicularly. The IFSB expects the value of global Islamic financial assets to top US$1.6 trillion by 2012. Islamic pay has demonstrated its war-riddenness and resilience during the global financial crisis. at presen t Islamic finance is in transition to the next stage of development, great international integration and Islamic finance institution to mobilize a postgraduateer level of global cooperation will facilitate to further drive the prospects of Islamic finance moving forward. Several countries now in the zip to draw Islamic finance hubs such as London, Hong Kong and Singapore, also fresh market such as-Luxembourg, South Korea and Australia, in addition they aspire to become Islamic finance centers. The global financial systemGlobal wealthiness currently held by 4.4 billion people has increased 72% since 2000 to r for each one US$195 trillion driven by robust offshoot in emerging markets, many of which are comprised of hulky, diverse Muslim populations. Global wealth is estimated to grow 61% to US$315 trillion by 2015.On the former(a) hand, US banking assets are valued at approximately US$13.3 zillion at the end of 2010.while global banking assets reached US$85 Trillion by end o f 2011.The value of global Islamic across all asset closes remains minuscule in comparison to that of their effected counterpart .Total Islamic financial assets stag up little than 1% of the total global financial assets.Facing the challengeNowadays market capitalization of Islamic banking dwindles in comparison to their formal counterpart, the capitalization was barely 4.1%, and actually Islamic banks were much less affected by the global financial crisis. The Islamic banks are facing a larger challenge as the conventional banks recapitalize and merge. Conventional banks have been able to return to profit in NO time in 2010 only, the decennary top conventional banks (by Pre-crisis market capitalization) brighten profit increase by 139% year on year. Meanwhile the Islamic banks suffered 55% decline in net profit during the same period.Reaching unfavourable massIslamic finance needs to reach the critical mass and cannot be underestimated. It has been identified as the number one for Islamic finance to become truly competitive with the conventional system, ways to drop dead this goal could admit arrive at out to untapped markets and audiences or fix an entity can influence multiple areas of the market with expertise and capital. Large denture institutions which will have all the capabilities to penetrate the various segmented markets with expertise and knowledge while providing Shariah- compliant financial solutions.Another often mentioned challenge in the Islamic finance industry is the issue of liquidity. The Islamic finance markets currently lack the liquidity , but in the last ten years Islamic financial institutions (IFI) developed rapidly to meet the involve from both retail and embodied entities, and IFIs still face the challenge of a lack of instruments to manage liquidity as a result harvest being short -term given under the current constraints. But the large Islamic finance institutions can enhance market liquidity and and so offer o verlap pricing by integrating their global and regional market operations.Also Islamic finance needs to meet the gay capital requirement. Many Islamic banks still have limited capabilities and expertise to consistently create, therefore increase with development of Islamic financial product and services need for high skilled staff.Further areas of focus in capacity building and talent development includeThe need for practitioners and stakeholders to be highly qualified.The need for specialized training and educational institutions.The development and betrothal of industry best practices.The collaboration and exchange of knowledge across jurisdictions and adjuvant research into and development of key specialized areas.Second area for reaching critical mass is Islamic microfinance, currently there are more(prenominal) than 200 Islamic microfinance institutions around the world, the main countries are Indonesia, Bangladesh and Afghanistan but Islamic microfinance is still in its nas cent stage. A 2007 global survey on Islamic microfinance undertaken by the (GAP) group to assist the poor shows that only 350.0000 customers and accounts for only around 0.005% of total microfinance outreach. Although 2010 estimates now put this figure at 0.05%, the speechless growth in Islamic microfinance is due mainly to the fact that the facilities were commonly provided by specialized institutions such as non-government organization (NGOs) and not by Islamic banks.Islamic microfinance should be integrated into countries mainstream banking and financial system, this will help toCreate greater awareness of product.Encourage product innovation ameliorate access to microfinance.Widen and strengthen the distribution channels.Standardize regulation and remediate transparency.THE REGULATORY CHALLENGEGlobal financial sector lost nearly US$ 1.8 trillion as a result of the financial crisis and a big part of the recent financial crisis can be blasted on regulatory sorrow .The absence of rules during the global depression resulted in many economists to reconsider their views on the model found on market in economic theory and is continuous in current communities in conventional banking. Many governments all over the world have introduced financial and economic reforms as a kind of government intervention to seduce well- regulated financial systems,Malaysia as case of studyMalaysia was resilient against the global financial crisis due to strong fundamentals and inherently sound financial regulatory framework. Islamic banking in the country was well protected from the make of the crisis because of the Islamic financial institution strict commitment to Islamic principles, which prevents high level of benefit speculative activities. The regulatory authorities have introduced a comprehensive regulatory and supervisory framework for Malaysias dual financial system. Stronger standards have been set for corporate transparency governance, accountability, disclosure, r isk management, customer protection, and market discipline. Below are rough of the introduced internal regulations1- Corporate Governance Guidelines2-Rate of glide by Framework3-Guidelines on Financial Disclosure4_Sharia Committee Guidelines5-Islamic Money market Guidelines6-Capital Adequacy Standards7-Musharakah and Mudarabah8-Firewalls for Islamic Window Operations.Generally, these initiative and regulation have the next effects on the Malaysian Islamic financial systemSystem, hold on the confidence of the public with IFIs as the custodians of public funds.Strengthen a competitive financial system which offers efficient and reliable services.Ensure the health of each IFI for developmentPrevent the risk of a contagion and methodology failure of the financial systemPromote good market practices and high standards of corporate governanceProtect customer and shareholders interest.CONCLUSIONThere are some elements that are likely to comprise the growth of Islamic finance as belowT he present Islamic banking is based on reproduction of conventional banking products, this is lacking to achieve the overall aims of Islamic finance system which is based on impartial distribution of economic advantages and makes Islamic finance less effective than their conventional counterparts.Not all the conventional products have an Islamic finance identical treasury and liquidity management tools.Islamic finance needs changes in the legal regulatory and tax environment to suck finance without incurring additional cost to the customers.The different interpretations of sharia nutriment have resulted in the absence of unification common understanding is needful to merge local market with the global market.Shortage of necessary tools to manage liquidityExpertise and human resource in Islamic finance are rare.For Islamic finance to get good stage of growth should be extended to reach critical mass, chances to get there include1-Large scale institutions have the possibility and c apability to penetrate the different illogical markets with experts while providing sharia compatible with financial solutions.2-Microfinance has ability to find opportunities for the untapped SME market of the emerging economies and to capture interest in Islamic microfinance.3-Sound regulation, to make sure that Islamic finance has a decent opportunity of growth and development while expending to critical mass.Some of the remaining challenges to be overcome include the development of human capital.Referencewww.dawn.com/news/641420/comment-and-analysis-growth-constraints-in-islamic-financial-sectorIFSB fourth public lecture on financial policy and stability, lecture by Baljeet Kaur Grewal-Amman- Jordan -20111