Studies in Islamic Finance, Accounting and Governance series
Chapter 7: Challenges facing the Islamic financial industry
The prohibition of interest in Islam, as in some other major religions, and the aspiration of Muslims to make this prohibition a practical reality in their economies, has led to the establishment of the Islamic financial services industry (IFSI). The industry has made substantial progress over the last three decades after the establishment of the first Islamic bank (Dubai Islamic Bank) in 1975. The number of institutions offering Shari‘ah-compliant services has risen, as has the number of conventional banks that have opened Islamic windows and branches. The total volume of assets that all these institutions manage has risen rapidly and so has the international acceptance of Islamic finance. Nevertheless, the industry is still in its formative stage and faces a number of challenges that need to be addressed to enable it to continue its rapid expansion without facing any crisis and, thereby, acquire greater respectability and a much greater share of the international financial market. This raises the question of what these challenges are and how they can be faced. Challenges arise essentially from the disparity that exists between the vision of a system (where it wishes to go) and its present position (the progress that it has made so far). The greater the disparity, the more serious may be the challenges faced. The most crucial challenge that all financial systems, including the Islamic, face at present is to be sound and efficient and free from crises and instability.
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