Abstract
Embryonic Islamic banking industry has documented marvellous growth worldwide since inception; stimulated sound rooted western banking to inculcate and include Shariah driven lucrative products and services as an integral part of corporate segment. Research to date has revealed its unique features and ethos, yet it has to overcome multifarious global impediments. The focus of this study is to encapsulate the enormous challenges Islamic finance service industry has encountered during last three decades. We find the arguments such as complex regulatory and supervisory issues; absence of uniform reporting standards; prudential challenges; misconception among western society pertaining to Islamic banking; scant financial instruments and concurrent money and capital markets; fierce compaction by western banking; lack of consensus among Shariah Scholars; and central governing body that are precarious challenges among others. Therefore, policy makers need to constitute an integrated central regulatory body to congregate speckled Islamic banking practices and to foster the underlying philosophy of Sharia compliance operation along with synchronized and unified standardized worldwide.
Highlights
Islamic finance, nascent, related to diversified counterpart western finance, gained reasonable attention among research and Shariah scholars due toits underpinned unique principles such as being equity based, backed up by assets,and being viable, ethical, social, Marketing and Branding Research 4(2017)and ecologically responsible
The Islamic finance service industry (IFSI) has reported an annual growth rate between 10 to 12% over last decade, and Shariah acquiescent financial assets are currently estimated roughly around 2 trillion USD encompassing bank as well as non-bank financial institutions, money and capital markets and that of Takaful (Islamic insurance).A noticeable aptitude among non-Muslim nations (United Kingdom, South Africa, Luxembourg, and Hong Kong) regarding Islamic finance has been observedthat resulted in faster growth of typical Islamic finance assets in these countries compared with conventional industry assets
Based upon the literature reviewed in above section the study found following major challenges encountered by IFSI worldwide during the study period; the challenges involve the requirement of specific Shariah compliance and central uniform regularity framework, unavailability of Islamic Financial markets, unavailability of diverse and standardize Islamic financial instruments, liquidity management challenges; heightened western banking competition, lack of consensus among Shariah scholars, required Islamic financial reporting standards and accounting principles, technological and innovative Islamic finical products, misconception among western community about Islamic banking and misconception among a group of Muslims as they perceive it mere duplication of conventional banking, and scarcity of skilled and competent staff
Summary
Nascent, related to diversified counterpart western finance, gained reasonable attention among research and Shariah scholars due toits underpinned unique principles such as being equity based, backed up by assets,and being viable, ethical, social, Marketing and Branding Research 4(2017). Around 20 global Shariah indices are presented graphically in terms of last year returns (from 17thOctober 2016 to 17thOctober 2017) This graphical depiction illustrates the progress of Shariah compliant securities in internal financial markets, measure as changes in daily return. The indices with dropped return on last trading day not necessarily mean their below benchmark performance, looking objectively over whole year return patterns, a clear upward trend indicates Shariah securities acceptability worldwide This growing sentiment of Shariah indices signals that IFSI has penetration in international finical markets and gains favourable momentum. Like project finance and microfinance, takaful (Islamic insurance) expanded four times in last few years It is a fast growing industry, yet it needs few decades to stand at parity with conventional counterpart (Global Islamic Finance Report, 2016).
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