The growth of Islamic financial institutions (IFIs) has been steady but the full potential for deposit-raising remains untapped.
The resilience of IFIs is a direct consequence of transactions being backed by real assets and prescribed financing contracts/agreements.
Disparity between the creation of wealth and underlying real assets is countered through socially and ethically responsible investments propagated by Islamic finance.
The report of the IFSB–IRTI Task Force on Islamic Finance and Global Financial Stability gives recommendations for keeping vigilant and creating global financial stability through IFIs.
The participatory/risk-sharing nature of Islamic finance is the mainstay of the system.
The projection and promotion of Islamic finance philosophy is the key to success.
Emphasis should be on the fiduciary responsibility of IFIs to market products that are authentic (shariah-compliant) so that wealth and the distribution of profits is equitable.
Islamic finance is a safe financial doctrine that promises justice and equity. The theme of Islamic finance is popular among those economies that are either interested in following the shariah tenets or are exploring alternative investment opportunities that have a sound basis and a promising potential.
The principles of Islamic finance fundamentally uphold the corporate governance and social responsibility philosophies: that is, accountability, transparency, and equitable distribution of wealth. They are derived from the shariah and the financial laws enabled by the Qur’an. The Qur’an, a complete code of life, is not just for the believers or for Muslims; it is for all mankind (linnaas):
“The month of Ramadan in which the Qur’an was revealed, a guidance for mankind, [a Book of] clear proofs of guidance and the criterion [distinguishing right from wrong]…” Sura Al-Baqarah, ayat 185. (English translation by the Nawawi Foundation, Chicago/Ibn Khaldun Foundation, London).
The stipulations of the Qur’an pertaining to the economic and financial system, too, are for the benefit of all mankind. Adherence to this conduct may not necessarily mean adhering to the faith—a misconception that needs to be addressed in the most benign manner.
Islamic finance is a subject that has reached out to a reasonable number of Muslims, as well as non-Muslims and financial planners. It is now accepted as an international form of financial intermediation. The growth of the industry, 20% annually, 1 has been the swiftest seen by any industry in the last few years. The innovation and product development have been dynamic.
In order to exploit the versatility of the corporate sector, an appropriate strategy is required to reveal the window of opportunity that exists for investors which, undoubtedly, would also launch Islamic finance to larger proportions. The practitioners and scholars of Islamic finance are expected to devise an unprejudiced approach for the purpose. Under the auspices of the Islamic Development Bank (IDB), the Task Force on Islamic Finance and Global Financial Stability was formed in October 2008, on the recommendation of the Forum of the Global Financial Crisis and its Impact on the Islamic Financial Industry, organized by the IDB Group. The Task Force was mandated to: (1) examine the conceptual aspects of Islamic finance and its role in enhancing financial stability; (2) conduct a stocktaking of the state of the Islamic financial services industry following the global financial crisis; and (3) examine the financial architecture of the Islamic financial industry amid the more challenging post-crisis environment.2 Since then the Task Force has thoroughly examined these areas and documented them in a report submitted to them by the three working groups. The report is a public document and can be accessed for a better understanding of the current stability issues that Islamic finance addresses, the state of the Islamic financial industry, and the challenges that lie ahead.
The events transpiring in the last two years leave little doubt that Islamic finance is the way forward and that the discipline should be explored. The role of the IFIs and Islamic regulatory organizations is critical in promoting an ethics-based financial system to provide the solution for the ailing conventional financial system.
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