Diversification of Islamic Financial Instruments
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political unrest in multiple jurisdictions. These challenges are expected to impact the asset side
of the Islamic banking industry globally at risk of deterioration of asset quality.
2.3.2 FUTURE CHALLENGES TO ISLAMIC BANKING
 Islamic banking industry has grown leaps and bounds, and has now started venturing
out of Muslim dominated countries to the mainstream banking hubs. This gives rise to
an essential need for Islamic banking to be fully integrated into the global financial
markets while maintaining at the same time its distinctive nature and the uniqueness
of its services. The Islamic banking institutions need to be subjected to the full ambit of
the banking regulations and supervised as intensely as other financial institutions.
 The conventional banking industry provides a level of support and assurance to the
depositors and investors. The Islamic banking needs to meet similar levels of comfort
as they enjoy under conventional banking that their interests are being constantly
watched and safeguarded by a vigilant regulator. Any laxity in the standards, practices
or enforcement on the part of the regulators would be counterproductive but also act
as an impediment towards the acceptance of these assets by international financial
markets.
 Lack of adequately trained and skilled human resource base for Islamic banks. While
many Islamic finance and banking educational institutions have emerged over the
years, there is still a huge gap in trained professionals to complement the growth of
Islamic banking globally. More trained professionals who are well versed in Shariah
and finance is the need of the hour to sustain the growth of Islamic banking industry.
 Some of the key elements of financial architecture and infrastructure such as liquidity
management instruments, rating and external credit assessment, statistics and
information gathering, research and development, market micro structures and
Shariah screening technologies have to be fully embedded and integrated in the global
perspectives. Attention is being paid to fill these gaps by the Islamic Financial Services
Board, the AAOFI and others.
2.4 ISLAMIC CAPITAL MARKETS OVERVIEW
The capital market plays a very important role in the development of a nation. In many ways,
capital markets are at the heart of a nation’s financial system. Economists often divide the
overall economy into two sectors, the real sector and the financial sector. While the real sector
of the economy produces the nation’s output of goods and services, the financial sector plays
the vital role of providing the financing needed to fund this productive capacity. It does this by
mobilizing the savings of surplus chapters and channeling them to productive chapters that
need the funds. The following figure highlights the role of capital markets in the economic
system.