why we should keep faith in shariah banks
Monday 17 February 2025
Last Updated : GMT 05:17:37
Emiratesvoice, emirates voice

Why we should keep faith in Shariah banks

Emiratesvoice, emirates voice

Emiratesvoice, emirates voice Why we should keep faith in Shariah banks

Islamic finance has done well to get to where it is today, and it's no surprise it has a lot of satisfied customers.
Abu Dhabi - Emirates Voice

Every article on Shariah-compliant finance begins with impressive figures on how industry growth has comfortably outpaced conventional peers. Reports state that Islamic finance has catapulted into an over $2 trillion industry, encompassing more than 100 million customers. The potential is much bigger: while the chest-thumping is justified, there are no guarantees that this will continue indefinitely.

Shariah-compliant banks have enjoyed an uninterrupted reign of swift growth. Initially it was an alternative for the most pious Muslims, but quickly morphed into a robust system with far-flung acceptance. It has evolved into a value proposition with universal appeal encompassing individuals of all faiths, from Australia to North America. While Islamic banks have done well to integrate into the mainstream, competing effectively for the same market share of conventional banks, the industry needs to tackle challenges to avoid veering off into a restrictive market niche.

 

Cordial dissonance

Shariah-compliant banks are governed by a Shariah board that needs to certify that products and services are in line with the principles of Islam. While there is vehement and unanimous agreement on several overarching principles (such as the prohibition of interest), the real world is more complicated. The growing complexity of financial instruments has led to subjective interpretations on Shariah-compliance adequacy of an offering. The combination of sect, traditions and mind sets churn out varying rulings on the same product structures. There is divergence in what is deemed Shariah-compliant to begin with. As a result, disagreement on the acceptability of product constructs across different banks still persists in several markets.

In 2016, the UAE announced the formation of a Shariah authority that will have oversight on matters related to Islamic finance. This is already beginning to drive consensus and consistency, at least within our borders.

While country Shariah boards will promote standardisation at a local level, there may still be disagreement beyond borders. There is a need for harmonisation to overcome geographical silos.

Organisations such as the Accounting and Auditing Organisation for Islamic Financial Institutions and the Islamic Financial Services Board have been pivotal in successfully navigating uniformity. However, neither have regulatory mandates and operate only in an advisory capacity. It would serve the industry well to create a body with global oversight and powers to regulate, including sanction.

Source: Khaleej Times

 

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why we should keep faith in shariah banks why we should keep faith in shariah banks

 



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