by ANIS HAZIM / pic courtesy of The Association of Islamic Banking and Financial Institutions Malaysia

ISLAMIC banks must work within the confines of a global system to boost market share and be strengthened through organic growth to ensure stability before radical reforms can be made, financial experts said.

Asia School of Business board of governors Mukhtar Hussain said there wasn’t a need to radically change existing Islamic banking structures as players had to consider the realities of operating in a commercially driven world.

“When we talk about Islamic finance, not in the aspirational context, we need to consider the operational context of how the industry grows within the confines of the global industry.

“Yes, Islamic banking should be more Islamic, and idealism has a place, but the reality is that banks have to take practical steps to be commercially sustainable,” Hussain said at the Global Islamic Finance Forum 2022.

He said if Islamic banking was able to weather periods of crisis, then innovative Islamic products could emerge from there and disrupt the market.

“Eventually, through this organic growth and innovation, Islamic banks could then compete healthily with its rivals,” he added.

Arguing for a call to radically change Islamic finance, Chartered Institute of Islamic Finance Professionals member Alaa Alaabed suggested for the abolishment of the fractional reserve banking system — one that is guiding the business operations of all banking systems.

“There are numerous calls for a full reserve banking system, which is in line with the spirit of Islamic finance and in line with the tenets and contracts of Islamic law,” she said.

Agreeing with Alaa’s proposal, CIMB Foundation and Group Transaction Banking CEO Rafe Haneef said they have to take cognisant of the fact that Islamic banks must gain bigger market shares first for a stronger voice before overhauling the system.

“The journey may not be ideal as Islamic banks had to create hybrid products to grow the sector and to push for reform.

“However, there is growth potential for Islamic banks as it has a 40% market share in Malaysia and the Middle East,” he said.

Separately, Waafi Bank chairman Dr Mohamed Ashraf Iqbal argued for a radical change in the Islamic finance sector as the world is not short of capital.

“We need a new model to mobilise capital to serve humanity and, most importantly, have trust and faith in it,” he added.