National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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The third group of countries are those where the governmental bodies have not taken
initiatives to either accommodate the laws and regulations or develop other infrastructure
institutions. The legal and regulatory environment for Islamic financial institutions is same as
their conventional counterparts. Countries in this group include Saudi Arabia and Senegal.
The lack of attention to provide infrastructural institutions for Islamic finance in some
countries such as Senegal may partly be because the size of the industry is relatively small.
However, lack of supportive initiatives to develop the financial architecture due to small size
can create a conundrum as further growth of Islamic finance can be hampered due to deficient
infrastructural institutions. The case of Oman shows that a supportive legal and regulatory
system can help promote the growth of Islamic finance. The impact of a lack of infrastructural
institutions can be more serious in countries where Islamic finance has grown significantly due
to demand side factors. In some countries such as Saudi Arabia and Bangladesh, Islamic finance
is demand driven and the sector has grown to significant levels that make them systematically
important. In these countries, the development of infrastructural institutions to support and
promote the development of a sound and stable financial sector is essential.
Even if there is political will to support the industry, one of the key constraints that many
countries face is the lack of knowledge base and human capital to support the expanding
Islamic financial sector at different levels. The growth of the industry would require enhancing
the knowledge base not only on the supply and demand sides but also at the public
institutional level. As Islamic finance is relatively new and combines finance, laws, regulations
and Shariah principles, professionals with appropriate knowledge are relatively scarce.
Specifically, the development of Islamic financial architecture would require personnel with
knowledge and skills related to various Islamic infrastructure institutions. For example, there
is a need for staff at the regulatory level who are well versed with the risks and stability issues
related to the Islamic financial sector. Similarly, people with appropriate knowledge on Shariah
and finance would be needed for central Shariah boards and developing liquidity instruments.
The consumer protection and financial literacy aspects of Islamic finance require an
understanding of the rights and obligations of the different stakeholders in Islamic financial
contracts. While the case studies show that many countries have initiated educational
programs in Islamic finance, professionals with knowledge and skills at the institutional levels
are still lacking.
Other than Sudan which has an Islamic legal system and financial sector, Malaysia appears to
have taken proactive initiatives to strengthen the Islamic financial infrastructure institutions at
different levels. Starting with including the development of Islamic finance in its national
strategic documents, initiatives have been taken to provide a supportive infrastructure for the
sector. Not only has Malaysia enacted extensive laws and a separate regulatory department for
Islamic finance, it has also established a robust Shariah governance regime and liquidity
infrastructure. Furthermore, the country has adapted the information infrastructure and
invested in human capital development to promote Islamic finance industry. Though, OIC MCs
have different legal systems and regimes and cannot apply the Malaysian model completely,
the example highlights the key issues that need to be dealt with for the development of the
Islamic financial sector in the future.