Diversification of Islamic Financial Instruments
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 The governments and the Islamic financial institutions need to play their role in
human capital development program in place to address the inherent knowledge gap
that exists in Islamic financial instruments and products.
- One of the reasons for risk-transfer based replicated products dominating the
Islamic financial sector is the lack of understanding various Islamic financial
instruments among investors and people in general. This has led to more asset
side products are Murabahah and Ijarah mainly because it replicates similar
products as available in conventional financial sector. An effort needs to be
undertaken on promoting understanding of other modes ( Mudarabah, Salam,
Istisna, Musharakah Mutanaqisah …etc.) highlighting their benefits and features.
Academic institutions could also play an important role in this regard by
organizing public lectures to increase people’s knowledge of different
structures of Islamic finance outside Murabahah and traditional banking
services.
- The regulatory bodies can play their part in this regard by educating financial
sector on Islamic financial engineering.
 The low appetite for risk sharing products has led to higher reliance on certain
financial instruments like Murabahah and very low dependence on Mudarabah and
Musharakah modes and other instruments used in agriculture sector, which can be
used by agrarian economies in OIC, like Muzaraa’ and Musaqah. This could be
addressed by government policies through encouragement of these modes through tax
exemptions or subsidies.
Innovations in Sukuk instruments are need of the hour in the Islamic capital markets
to diversify the products and meet the growing needs of the Sukuk issuer.
Governments would need to invest in the Islamic capital market infrastructure to
attract private sector as issuers. In this regard, various types of contracts based on
Murabahah, Salam, Istisna’, Musharakah, Wakalah bi al-Istihmar199 , and others can be
used in structuring Sukuk as in other jurisdictions to attract investors.
 New policies need to be introduced to create a level playing field for equity in nature
products to compete with debt-based instruments; This primarily refers to the
removing of legal, administrative, economic, financial and regulatory biases that favor
debt and place equity holding in a disadvantage;
 Development of Takaful industry through need based product development. Further
the industry should also focus on building distribution channels, services and sales
management to increase the size of the industry. Likewise, it is also recommended to
develop the micro-Takaful aspect to capture the lower segment in Indonesian society.
These policy recommendations are further broken down to specific steps and who should be
responsible for it in the following table.
199 Wakala bil Istihmar is when an IFI manages funds on behalf of customers, providing their management services against
specified fund management fees. The fee usually does not vary with the profits of the associated fund, and may be a fixed
amount or percentage of the net asset value of the invested funds.