Diversification of Islamic Financial Insturments
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- There is a need to further develop Shariah governance standards at a global
scale for the Takaful industry as well as the Islamic capital markets. AAOIFI
and IFSB have already issued standards which need further global
acceptability.
- Existence of an independent national Shariah body can help harmonize the
Shariah rulings and minimize diversity of fatwas that introduces legal and
reputational risks.
- Separate Shariah boards at national level for each sector of Islamic finance, to
ensure effective and efficient Shariah parameters and standards are defined
per the needs of the specific sector.
 The liquidity aspect of the Islamic financial sector needs immediate strengthening
through provision of instruments, markets and the facilities. This is not only required
for a single component but is crucial for growth and stability of Islamic Banks, Capital
markets as well as the Takaful industry.
This can be done through developing and issuing Shariah compliant liquidity
instruments that Islamic financial institutions can use either to place surplus funds or
acquire funds when necessary. These instruments of liquidity can either be issued by
the government, or financial institutions with the support of government agencies.
In terms of liquidity management, apart from Malaysia there is no national level
Islamic money market to cater to short term liquidity needs of Islamic financial
institutions. National level Islamic money markets is an urgent need to sustain the
Islamic financial sector.
 With the evolution of Islamic financial instruments and more focus on risk-sharing,
Islamic financial transactions give birth to more unique needs of book-keeping and
financial reporting. A global adoption of Islamic finance accounting and reporting
standards like AAOIFI is imminent. There is also a need for greater transparency and
disclosure in the financial reporting of IFIs. Further developing of standards is
required as well to keep pace with innovative Islamic financial instruments arriving in
the market.
- While AAOIFI and IFSB have identified standards, there is an urgent
requirement of developing detailed standards for greater Shariah compliance
disclosure. This is primarily needed since Islamic finance deals with faith,
which is a crucial matter for human beings.
- The policy makers need to focus on developing rating standards which would
help investors with information. While conventional rating agencies have
delved into rating for Islamic financial products, there is a need to develop
organizations which specialize in Islamic finance rating according to Shariah
standards.
 Since Islam is founded in the concept of justice, in the same vein Islamic finance is
focused on prevalence of justice. This leads to the concept of consumer protection
regime which comes hand in hand with Islamic finance. Currently there is no specific