Islamic finance reform : a few points to ponder

Abstract EN

Islamic finance has proved its commercial viability, but many industry players and outside observers see a need for reform.

Points to ponder include: (i) an accounting standard for tawarruq (which will be issued soon) will trigger a new debate on substance over form, (ii) the failure to re-brand Islamic finance as ethical finance in the West, (iii) the possibility that regulatory standards with discretionary latitude for regulators will create more diversity instead of uniformity in the industry, (iv) the neglect of finance for manufacturing and the concentration on consumer finance and real estate in major Islamic finance jurisdictions, (v) a possible enhancement of the profitability of Islamic banks for their equity holders in some jurisdictions due to a favorable formula for the calculation of the regulatory minimum capital, (vi) unreasonably high expectations for risk-sharing or PLS financing by Islamic banks and (vii) the lack of a suitable non-bank financial institution or collective investment scheme that could be conceptualized as a crowd funding scheme like the Malaysian Investment Account Platform with some modifications.