Diversification of Islamic Financial Insturments
197
 Variable and perverse tax regimes classify interest as a tax-deductible expense while
equity dividends are not. This skews the playing field in favor of debt based
instruments rather than equity. Taxation amendments is the need of the hour to create
a level playing field.
 Tax neutrality for Sukuk structures is essential as Sukuk currently entail multi-layer
legal transactions which increases the tax cost of the issuer.
 Governments need to be encouraged to either issue themselves, or through their
agencies, Sukuk with varying maturities to develop a long-term yield curve and to
develop a corporate Sukuk market, as well as to promote transparency and efficiency
of the asset pricing.
These policy recommendations are further broken down to specific steps and who should be
responsible for it in the following table.
Table 81. Policy Recommendations for Islamic Capital Markets Development
Recommendation Specific Step Implementing Agency
Tax Regime Management
Remove double taxation and
tax loopholes for Sukuk
issuances.
Governments of OIC member
countries
Allow tax breaks to Shariah
compliant investments to make
them more appealing.
Central Banks, Securities
Commission and Governments
Tax Neutrality for Sukuk
Investors and Issuers
Central Banks of OIC member
countries.
Yield Curve Development
Issue different tenors of Sukuk
To create liquidity and a yield
curve.
Governments of OIC member
Countries
Corporates follow a similar
path to create corporate yield
curve
Central Bank and Securities
commission need to push
corporates.
Source: Created by Author
4.3 TAKAFUL (ISLAMIC INSURANCE)
The future of Islamic Finance under a risk-sharing model relies on development and further
strengthening of the Non-banking Financial Institutions Sector. Globally the importance of
nonbank financial institutions (NBFIs) has grown as they have contributed towards specialty
sectors such as housing finance, leasing, and asset management. Islamic finance with its risk-
sharing and asset-backed nature suits the NBFI category and the right instrument to
contribute towards economic development and providing access to all. This sector has been
neglected and needs to be given special attention by the policy makers and regulators. Some
important measures that policy makers and regulators can take on priority basis for the NBFI
sector are as follows.
 The Takaful sector can be developed as it can play a critical role in enhancing financial
inclusion, reducing poverty, achieving inclusive economic growth, and boosting shared
prosperity. Takaful can provide important benefits to households and firms. Greater
access to financial services for both households and firms may help reduce income
inequality and accelerate economic growth.