Understanding Islamic Finance - Doha Academy of Tertiary Studies

The Way Forward 465the potential of Shirkah-based Sukuk, because further reliance on Ijarah Sukuk alone, aswitnessed over the last five years, may not be sufficient to realize the securitization potentialof Islamic finance as a whole. 7Potential in Specific SectorsAsset-based modes of Islamic finance are more suitable for enhancing business and forcapital formation in priority sectors of small business, cottage industry and agriculture. IfIslamic banks and NBFIs adopt structures and procedures to suit such sectors, it could behighly profitable for them, and beneficial for business and industrial communities and therelated economies. This is because the financing of small-and medium-sized enterprises andmicro finance have proved to be effective approaches for broad-based economic growthand alleviating poverty in the developing and emerging economies. Islamic micro financeinstitutions (IMFIs) would have fewer default, moral hazard and asymmetric informationproblems. In this respect, Habib Ahmed, an economist at the IDB, has undertaken a usefulstudy for exploring problems and prospects of IMFIs, which readers may like to see fordetails. 8Enhancing the role of the financial sector in micro-level businesses could mitigate theserious problems of unemployment and the low level of exports in developing countries. Ifsuitably planned, financing of this sector could boost the development process. The valueaddition generated in these industries would favourably affect the income distribution. Thepost investment role of the financier, as required in Islamic modes of financing, could goa long way towards the development of SMEs and the economy if a full-fledged structureof financial help is provided through industry-specific and generalist models of investment.IMFIs can also benefit from various income sources like those of Zakat and Waqf institutionsand use the resources for direct financing of needy small business enterprises, without theinvolvement of any middleman, thus benefiting themselves and the clients.For clients of high net worth and the big investors, banks may offer individual investmentportfolios and investment funds in Shirkah-based and debt-creating modes, depending uponthe risk profile of the fund owners. In such funds, banks may serve as a Mudarib or as anagent. As Mudarib, banks would get a share in the profit on a predetermined ratio, while asagent, they would get a fee and the rest of the profits/losses would go to the fund owners.18.3.2 Issues in Islamic FinanceCommensurate with the prospects of growth in the Islamic finance industry are some of theissues and challenges. Some major issues are discussed below.Sharī´ah Interpretation: An Issue?A large number of experts and policymakers consider that different Sharī´ah interpretationof some modes and concepts is a major issue hindering the development of Islamic finance.Is it really an issue or merely a buzz word? This, in itself, is a question. It seems that it isnot as big an issue as some people consider; it is no longer a real problem. No doubt, in7 Adam, 2005, pp. 371–400.8 Ahmed, 2002, pp. 27–64.