Recommendations for Islamic Bank Development

Recommendations for Islamic Banking System Development.

Some anecdotal recommendation to enhance the service of the Islamic bank, and development the operation all over the world.

Recommendations:

1.    Islamic bank immediately need to develop financial instruments that will enhance liquidity preference; to develop secondary, money, and inter-Islamic bank markets; and to perform asset-liability and risk management. It well known that Future growth and development will depend largely on the nature of innovations, efficiency, variety of product introduce in the market.

 2.    Developed special liquidity management instruments that will include commodity murabahah, this instrument have spread rapidly based on its reliance on existing financial infrastructure and is being used in about 45 percent of jurisdictions with Islamic Bank presence. In contrast, its practicality will likely be limited by transaction costs, administrative process, the non-tradability of the contract, and Shariah concerns.

 3.    Developing liquidity facilities, the legal and operational frameworks of central banks need to be improved by permitting the development and use of Islamic liquidity management instruments. It would help to ensure the banking financial stability and increase the effectiveness of monetary policy.

4. Sometimes, lack of understanding of the correct environment of Islamic financing techniques may also be partially responsible for rather inappropriate policies often central banks towards Islamic banks; this is particularly true of musharakah and mudarabah. There may have important implications for reporting activities as well as control and regulation of Islamic banks by the central banks.

5. Central bank may interfere in the banks’ decisions with regard to monetary policy tools such as reserve requirements, open market operations and so on. This attempt would be desirable to determine the exact role of the Shari'ah council and take the central bankers into confidence.

7. Profession teaching, training and research is the necessity for the development of any discipline. As mentioned above, there is a serious shortage of scholars who possess even a working knowledge of both Islamic fiqh and modern economics and finance . Professionally, many managers of Islamic banks are not very well trained on the Islamic terms and implication of regulations.

8. The Islamic banks can encourage providing more profit-sharing finance, if arrangements are made to reduce the costs of appropriate arrangements as well as financial engineering consistent with the preferences of fund users. The benefits of direct investment in terms of economic development may not always be fully reflected in the rate of return of the fund supplier.

9. Introduce Pricing Bench-marking Program: An Islamic Pricing Benchmark program and practice are very important for Islamic Banking Industry to expend the operation as international participant. Islamic Banking Industry should introduce benchmark practice in order to assist their relative efficiency and effectiveness, recognizing the performance gaps, articulating strategies to improve and deliver the best results (Azmi and Kameel). Money supply and demand, economic factors helps to determine the pricing benchmark for the expansion of Islamic financial system. 

10. Escalation Islamic Market Competitiveness: Undoubtedly, Various efforts have been commenced in the financial operation to restructure the international financial system. Islamic finance institutions are necessities to be advanced by strengthening effectiveness, competitiveness, and enhancement capabilities, in order to initiative growth and capitalize on competition. In the short term, potential eligible banking industry are developed by reviewing Islamic Banking Division Structures, subsequently formulate policies to reinforce them.

11. Legal and Shariah Framework: For the expansion of global Islamic finance, For the expansion of global Islamic finance need to be strengthening of their legal framework. United Arab Emirates needs to develop a legal framework for Islamic finance that is “internationally facilitative" to everyone.  Shortly, a legal framework which is aligned with market developments would provide more certainty and predictability to financial transactions and innovations. Islamic institution needs modifications to cope with accommodation, offer unique features due to ensure objectivity of treatment. Islamic banking finance system should following Syariah opinions, to endorse market share. Islamic banking needs to reflect the regulatory framework for development Islamic market by developing a separate capital adequacy, statutory reserve and liquidity requirement.

12. Product and Market Development: Product and market development are the important factor that directly impact on capturing market share.  Although it is a complicated process that symbolizes creative thinking, wide knowledge, persistence, perseverance and an encouraging business environment.  Strong management teams are the mainly responsible for doing so. Islamic banks industry should employs qualified as well as experienced staff includes those will be contributed to facilitate transfer of knowledge and expertise.

13. Public confidence: Undoubtedly, Islamic banks and their customers continue different kinds of contractual relationship and it attributes to distinct risk. A comprehensive risk management tools and appropriate mechanisms should be developed to mitigate risk by the Islamic banking system. Other than that, Islamic banking pays important role for attention to build a financially sound portfolio that is to sustain the competitiveness of Islamic naming in dual financial system.

14. Enhancement Knowledge and Expertise: The sustainable growth of Islamic economic and financial development will depend on the availability of professional talent to meet the diverse needs of the industry. Especially, Bank facilitates product innovation, research and development, and Shariah jurisdiction. However, it is unavoidable to increase efficiency of bankers and takaful operators, as well as enhance their knowledge and competency on Islamic terms and financial system. 

Islamic banking institution should take up responsibility to be advanced, effectiveness, productive, customer satisfaction oriented that will create and increase public awareness on the concept and benefits of Islamic banking and takaful system as well as reduce customer education on misconceptions. All these could be achieved by encouraging Islamic banking industry to embark on regular promotional program on Islamic financial products and services. Islamic banking industry should be encouraged to form strategic coalition with tertiary education, sequentially to improve knowledge on Islamic banking and services. It would also promote human capital development to support the ideal growth of the industry. Islamic banking industry and operators should be required to allocate adequate budget for research and development.

Profit of Islamic banks is vital because it boost economy growth, and consequently improves life style. It is necessary to prosper Islamic countries and provide a better living for Muslims. Islam aims that everything is a gift of God to the society to use to the maximum extent by the society, reasonably, without any waste or prodigality through responsible freedom, social justice, and just distribution.