Diversification of Islamic Financial Insturments
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4.4 KEY LESSONS FOR KNOWLEDGE TRANSFER
Knowledge Transfer between Islamic finance destinations is crucial for sustainable and
harmonized growth of Islamic finance. Some countries as earlier discussed in case studies like
Malaysia, Bahrain and Turkey have taken the lead in developing the Islamic financial
infrastructure and regulations. Knowledge transfer from these Islamic finance destinations to
the developing countries is crucial. This has been initiated at multiple global forums but a
concentrated effort needs to be undertaken for developing of best practices at different stages
of development which allows for the countries initiating Islamic banking and finance to be able
to learn from the challenges faced by relatively advanced Islamic finance destinations.
Some of these practices are highlighted below from which lessons can be learnt and diversified
portfolio can be developed.
 Malaysian Islamic finance has been at the forefront of policy development and
regulatory framework enhancements. Recently a new wave of innovation in the
Fintech solutions started in 2016 in Malaysia by introducing a range of products
under the Central Bank of Malaysia and the Securities Commissions Malaysia. The
Securities Commissions Malaysia has recently introduced a digital platform for
crowd-funding and P2P within regulatory framework. In addition, in 2017 the
regulators in Malaysia also introduced comprehensive guidelines for Islamic FINTECH
to stay up to date on the development of financial sector.
 Indonesian government paved way for retail investors and sovereign Sukuk for
infrastructure development by issuing innovative Sukuk. This type of sovereign Sukuk
are developed in line with a specific infrastructure project done by the government. In
the PBS, project underlying Sukuk that utilizes infrastructure project that has been
approved in the government budget is used as underlying asset for Sukuk issuance.
The proceeds will be used to replace the revolving fund whereby the project is usually
initially funded by the government from the sources of taxes or others, but once the
Sukuk issued the proceeds will be utilized to replace the funds.
 Turkish Islamic financial institutions have introduced participation funds which are
an important vehicle, besides Sukuk, for the investors who prefer avoidance of
interest-based transactions. These funds have attracted small and large investors to
the tune of USD 75 million in June 2016.
 To boost and provide support to Islamic financial institutions in countries where
liquidity management instruments and markets are not developed yet, Nigerian
experience lends insights. The regulators in Nigeria in the earlier days of Islamic
banking in the country allowed a reduction in the liquidity ratio requirement from
30% to 10% for Islamic banks in view of their peculiar liquidity management
challenges.