Innovation in Islamic banking is key to industry development, says Islamic finance expert

Speaking at an Islamic finance workshop held in Dubai, Asif Mumtz, Regional Head of HSBC Amanah Middle East conceded that Islamic finance had seen tremendous growth over the past 25 years with a significant number of providers across many regions catering for almost all customer needs.

"While customer pull, replication mentality and the doctrine of necessity "Dharura" have so far been the main drivers for growth, innovation is required to shift from Shariah-compliant products to Shariah-based solutions," Asif Mumtaz argued

"There is a pressing need for a proactive regulatory framework to pave the way for enhanced and innovative offerings by Islamic finance. In this respect, proactive dialogue between regulators and practitioners is of utmost importance with a view to codifying Shariah principles that are applicable to Islamic transactions. Standardization remains a key challenge that needs to be addressed," Asif added

'The evolution of the business model is also central to industry development. While the window model has enabled growth of Islamic finance, dedicated Islamic finance entities could be the ultimate model that will take the industry to new heights. Equally important, consolidation to create stronger and competitive Islamic finance providers will also help the industry to grow and build capacity.'

"It's high time that specialist firms in as diverse specialities as brokerages, Islamic investment banks, consultancy practices, venture capital firms to mention but these be established,' Asif said

"Investment in technology is critical for innovation. Islamic Finance Institutions cannot afford to use conventional banking systems selectively to account and process Islamic transactions. This can have a negative impact on customer experience as well as on Shariah credibility. Hence the need to invest in special accounting and processing systems to deal with Islamic transactions."

"There is a significant scope to improve the quality of product propositions offered by Islamic Financial Institutions. For example, securitization to create instruments with predictable yields and full spectrum of maturity is one promising proposition. Venture capital and private equity vehicles and instruments to enable "real economy" are also important as are hedging instruments for risk management such as using risk pooling concepts of Takaful and Savings schemes with infrastructure projects as sources of investment return," he maintained

"Key enablers to drive innovation include the development of human assets which remain one of the key challenges that the industry has to face up to. The future of Islamic banking depends on the training and development of talented professionals. Academic input to formulate a visionary framework for the industry is also mandatory to innovation. In sum, we need to work on effecting a change in mindset From Shariah-compliant to Shariah-driven products and services,' Asif concluded.