Islamic banks must work within the confines of a global system to boost market share and be strengthened through organic growth to ensure stability before radical reforms can be made, said experts at Day 2 of the Global Islamic Finance Forum 2022.
The panelists were discussing various points at a session titled, The Big Debate: Is Islamic Finance in control of its own destiny? They were split into two teams to argue either for or against this motion – Islamic finance needs a radical change to live up to its expectations.
The session was moderated by Dr. Imran Lum, Director, Islamic Finance at the National Australia Bank.
Mukhtar Hussain, who is on the Asia School of Business Board of Governors said there wasn’t a need to radically change existing Islamic banking structures because players have had to consider realities of operating in a commercially driven world.
“When we talk about Islamic finance, not in the aspirational context, we need to consider the operational context of how the industry grows within the confines of the global industry.
“Yes, Islamic banking should be more Islamic, and idealism has a place, but the reality is that banks have to take practical steps to be commercially sustainable,” he said.
He said when Islamic banking was able to weather periods of crisis, innovative Islamic products could emerge from there and disrupt the market. Eventually, through this organic growth and innovation, Islamic banks could then compete healthily with its rivals, he added.
Arguing for a call to radically change Islamic finance, Alaa Alaabed, Chartered Member of the Chartered Institute of Islamic Finance Professionals, suggested abolishing the fractional reserve banking system one that is guiding the business operations of all banking systems.
“There are numerous calls for a full reserve banking system, which is in line with the spirit of Islamic finance and in line with the tenets and contracts of Islamic law,” she said, adding that this reform helps to address misalignments of risk and reward in existing systems.
Rafe Haneef, Chief Executive Officer, Group Transaction Banking and CIMB Foundation, who argued against any radical change, agreed with Alaa about her proposal.
“But we have to take cognizant of the fact that Islamic banks must gain bigger market shares first for a stronger voice before overhauling the system,” he said.”—Zawya News
