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Islamic finance constrained by transparency and infrastructure gaps
Author: Moussa Ahmad
Source: BI-ME
Published: 18 November 2007
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UAE. Islamic finance has witnessed tremendous growth in recent years and has the potential to emerge as a mainstream alternative to traditional investments, but it must address several challenges to achieve this, said Nasser Al Shaali, CEO of the DIFC Authority.

Speaking at the start of the second day of DIFC Week, Al Shaali said that the industry is growing at 15% a year and is worth up to US$1.3 trillion. While acknowledging that today this is “a drop in the global financial ocean”, the industry’s potential is enormous.

This is not only because many of the world’s 1.6 billion Muslims are looking to use these products, but also because non-Muslims see Sharia-compliant products as offering an alternative ethical investment that is clean, environmentally friendly and socially responsible, as well as a way to diversify investor portfolios.

But he cautioned that several issues constraining Islamic finance’s growth must be addressed, including the issues of transparency, an underdeveloped infrastructure, insufficient human capital and a lack of globally accepted standards.

He said that the industry needs to build structured insights into the decision-making, information processes and grading systems behind Islamic products. People need to understand that Islamic finance “is a way to conduct business that is Sharia-compliant. It has nothing to do with politics. If we do not demystify the industry, it won’t be able to develop into a major alternative.”

Al Shaali noted that while qualified personnel in the regional finance industry is in short supply, this is even more a challenge for Islamic finance.  He noted that DIFC is looking to address this by launching the world’s first executive MBA in Islamic finance.

He said there are two major gaps in infrastructure. “The secondary market is underdeveloped and needs to change to sustain growth, and second, the issue of money markets needs to be addressed and needs a creative solution.”

Finally, he noted that there is not a minimal set of globally applied standards. “Innovation is taking place all over the world and in global financial centres. We need to standardise this to make it more attractive to investors.”

He suggested that once the industry receives a critical mass, it will achieve these global standards.

 
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