The Worrying Future of Islamic Banking

While bankers and industry players talk about the bright future of Islamic finance and its rapid growth in the world, a lot of intellectuals and Shariah scholars express their fear and concern that Islamic finance is converging with the conventional finance. The justification for such fear and concern is predicated on the fact that Islamic finance is losing its credibility as being truly Islamic and reflective of the Shariah norms and principles. Large waves of criticism have started recently to sweep this emerging industry for its being driven by nothing but profit making even if at the expense of the Islamic rules. To Islamic finance critics, this industry has deviated from the teachings of Islamic and introduced products and services that are genuinely no different from their conventional counterparts. To them, Islamization of the banking products and services has been limited in most cases to technicalities and the terminology used rather than the essence and the substance of the product or the service. According to critics, although Islamic banks are supervised by Shariah boards, the nature and governance of these boards’ involvement is prone to exploitation, manipulation and conflict of interests. This is because it is effectively the bankers who select the Shariah board members, pay them salaries and have the power to dismiss them; creating thus an avenue for Fatwa (Shariah resolution giving by the board) shopping and placing a pressure on the Shariah board member not to challenge the self-interests of the Islamic banks. These practices, and some others, are internal challenges the industry is facing and have, in turn, eventually impacted the Islamic identity of the banking product and deprived it of the essential factor which distinguishes in general an Islamic banking product from a conventional one, i.e. its being naturally prone to the risks that are normally associated with all real-economy activities. This paper comes to analyze this important issue and address its multi-dimensional causes and implications through discussing the internal challenges the industry is facing. It also discusses the policies and procedures needed to introduce the necessary reform to protect the future of Islamic finance. Practical examples are given in this study to illustrate the highlighted problems and their prescribed solutions