Diversification of Islamic Financial Instruments
2
corporate project financing. There is also a need for more Shariah compliant securities for the
liquidity management of IBIs, and more re-Takaful firms.
Chapter 3.4 focuses on Sudan, one of the only two main OIC member countries with a 100%
Islamic banking industry. Murabahah, Musharakah and Muqawalah contracts dominate the
Islamic banking products, and fixed income Sukuk products such as Government Musharakah
Certificates, Government Investment Certificates, Central Bank Ijarah Certificates and Shariah
compliant equities dominate the capital market.
Turkey (Chapter 3.5) witnessed the market share of Islamic banks (called Participation
banking) and the volume of Sukuk issuances increasing significantly. However, Murabahah
based banking products dominate, and there were only limited issuances of domestic
corporate Sukuk. Also, even though there is a strong potential for Takaful products, Takaful
only has a limited presence in the market.
In the Bangladesh (Chapter 3.6), it is recommended to initiate an extensive Islamic Financial
Sector Reform Program to re-design the Islamic financial architecture, for the smooth
development of Islamic banking and ICM instruments, in line with the international standards
issued by AAOIFI and IFSB. Bangladesh’s Takaful firms also face the challenge of a regulatory
requirement to invest 30% of funds with government securities, when the CB’s own
Government Islamic Investment Bonds offer significantly less returns than the conventional
market.
Oman (Chapter 3.7) had a relatively late entry to Islamic banking (2012), but the segment has
already reached an impressive 10.2% market share. As a new entrant, it can potentially lay a
strong foundation of risk sharing implemented through deliberate, slow and well-planned
stage-wise products’ design. The Takaful sector is minimal, and there is also a need for legal
and regulatory bodies to become more informed about Islamic finance products.
The ICM, Islamic banking and Takaful industry in Malaysia (Chapter 3.8) has reached a
comprehensive structure with great degree of product diversification, and a very impressive
Islamic capital markets segment, though more products for SMEs and wealth management
services can be offered. The Takaful industry can benefit from greater consumer protection,
and all three segments can improve with greater Fintech solutions.
With specialized IFIs and strong government support, Bahrain (Chapter 3.9) has become a
major hub in the global Islamic finance market, though it can also benefit from Fintech based
platforms and Shariah compliant marketing strategies,
Chapter 4 explains policy recommendations for better Islamic finance product diversification
in the OIC and non-OIC world. The Islamic financial architecture is not structured in the same
way as conventional finance is: it’s more focused towards being an intermediary offering
banking and asset management services. The current model of Islamic finance which we are
operating in is restricting the growth of the Islamic banking sector, as it is focused on
replication of the conventional financing structure. Some of the challenges that Islamic banking
faces which the policy makers need to address arise primarily of structural matters. These
structural issues arise out of the prevalence of debt-based instruments and the aspirations of
financing predominantly through equity and risk sharing, to the need for increased social
capital, and the challenges of creating an enabling regulatory framework. This report dwells