Diversification of Islamic Financial Instruments
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Table 80. Policy Recommendations for Islamic Banking Development
Recommendation Specific Step Implementing Agency
Regulatory
Standardization
Enabling regulatory environment and
laws.
Standardized and harmonized laws
across jurisdictions
Ease cross-border Islamic financial
transactions and banking activities
Central Banks of OIC member
countries
International Islamic Financial
Bodies
Promoting Risk-
Sharing
Develop Risk Sharing products on
asset side.
Reduce replication of conventional
Banking products
Islamic Bankers,
Shariah Scholars,
Central Banks of OIC member
countries
Shariah Governance
Create globally consistent Shariah
standards.
Monitor Shariah laws and new fatwas
for harmonized opinions.
Remove contrasting opinions in fatwas
across jurisdictions.
Governments of OIC member
countries.
International Islamic financial
agencies, including AAOIFI,
IIFM.
Customer Base
Expansion
Expand to lower income group of
society.
Create more products for poor people,
for agricultural sector, for SMEs etc.
Increase CSR activities for social well-
being
Islamic Banking institutions
Central Banks of OIC member
countries
Human Capital
Develop trained Islamic banking
professionals
More Shariah scholars with sound
financial knowhow
More financial experts with sound
Shariah knowledge
Islamic finance educational
institutions.
Central Banks of OIC member
countries
Source: Created by Author
4.2 ISLAMIC CAPITAL MARKETS
With the focus of Islamic finance on risk-sharing instruments, the Islamic capital markets
would play a crucial role as equity are the purest form of risk sharing finance. The
development of this component (Islamic Capital Markets) through equity based finance can
play a critical role in reduction of poverty, which is a main problem plaguing the Muslim world
today.
Albeit Islamic Capital Markets are young and smaller relative to Islamic banking, they are
growing at a fast paced and has the potential or promoting mutually shared growth and
prosperity through providing a base for financing infrastructure, raising funds for new
businesses, encouraging entrepreneurship, and supporting economic development. The
further development of Islamic Capital Markets is an essential ingredient for the sustainability
of Islamic financial sector truly based on a risk-sharing ideology. The policy direction and
efforts that need to be undertaken for promoting Islamic capital markets are like an extent to
those for Islamic banking sector but with a different focus.