Islamic finance sector has room to grow: The Star

By Aziz Tayyebi

ISLAMIC banking has, to a large extent, been shielded from the credit crisis which has devastated conventional banking and finance.

As such, many proponents of Islamic banking, such as Deputy Prime Minister and Finance Minister Datuk Seri Najib Tun Razak, have said the principles of Islamic finance could provide concrete and realistic measures to tackle the financial crisis.

However, the Islamic finance industry still has some way to go before it can be a serious alternative to conventional finance and banking. While Islamic finance is growing at a rate of 5%–10% per year, it still only constitutes a small proportion of the global financial services sector, with a market valued at between US$500mil and US$1bil.

For Islamic finance to take a greater share and to expand in other jurisdictions, it needs to focus on a number of key issues and challenges, such as enhanced risk management and product development, syariah standardisation and human capital development. Critically, many risk management tools, such as complex derivatives, are not available to Islamic institutions.

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