The Islamic finance sector is in danger because both banks and Sharia scholars are not providing solutions which are Sharia-based, a senior Islamic finance expert warned on Tuesday.
"I believe that the Islamic finance sector is in danger," said Abdulazeem Abozaid, member of the Sharia department in UAE-based Emirates Islamic Bank, in an exclusive interview withArabianBusiness.com.
"The banks have just one aim - to maximise profits. They know that there is no real difference between conventional banking and Islamic finance," Abozaid said, speaking at the International Islamic Finance Forum (IIFF) in Dubai.
"As for the Sharia scholars, then they have become corrupted. The ones who the banks seek are those who will be more flexible with their judgments, not those who are more strict."
A paradigm shift from Sharia compliance in the Islamic finance sector to basing banking on Sharia principles is one of the main themes of this year's IIFF.
Abozaid said that it will be consumers themselves who will demand that the Islamic finance sector reforms itself to meet the obligations of being "Islamic".
"We have to change - the industry will be pushed towards changing by the public, not by the banks or by the Sharia scholars," said Abozaid.
"When they see the controversies in the industry, they will demand that the products that are given are genuinely Islamic."
According to Thomson Financial, Islamic finance assets are growing at an annual pace of 20% and are set to hit $2 trillion in 2010 from the current $900 billion.
In a panel discussion about the future of Islamic finance, Rushdie Siddiqui, global director of Dow Jones Islamic Indexes, said he disagreed with the sentiment about doom-and-gloom for the sector.
“We are where we are supposed to be,” said Siddiqui, who set up the first Islamic index on Dow Jones in 1999. “You’ve seen a number of things stick and number of things exit."
In the short term, there were debates which are matter of time and those which will always be a source of controversy, Siddiqui added.
“We will always have a debate on halal [lawful in Islam] and haram [unlawful],” he said. “As for questions of standardisation and Sharia boards, then these are a function of time.”
Siddiqui also outlined what he believed are five “bottlenecks” which the Islamic finance sector has and which need to be resolved.
“We will always talk about Libor- i.e. why isn’t there an Islamic Libor," said Siddiqui, referring to the London Internbank Offered Rate, which refers to interest rates at which banks lend funds between each other on the London money markets.
The second issue outlined was on the human assets side, where women were not being utilised in the Islamic finance industry and which needed to be addressed.
Media communications surrounding the sector has also been inadequate, with both journalists and investors relations departments to blame, Siddiqui said.
“Islamic finance is much bigger than just being against interest in pork [as stated in most media],” Siddiqui said. “We have to better communicate what Islamic finance really is - in this regard, the financial journalism is just not there and investor relations at Islamic banks have frankly failed.”
There was also a need to discern stakeholders in the industry, who were not fully participating or being ignored, he added.
“We need to look at who the stakeholders are - regulators, central banks, Islamic banks and standard-setting boards like AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions) - and how they can work together,” he said.
“The final issue is consolidation, which the central banks have to encourage,” said Siddiqui. “If you want to do the bigger deals it is going to have to happen”
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