1. CHALLENGES FACING THE ISLAMIC FINANCIAL SYSTEM
REVISED 12 M AY 2009
CHALLENGES FACING THE ISLAMIC FINANCIAL SYSTEM BY
DR. M. UMER CHAPRA
RESEARCH ADVISER
ISLAMIC RESEARCH AND TRAINING INSTITUTE
ISLAMIC DEVELOPMENT BANK
JEDDAH

2. CHALLENGES DEPEND ON THE DISPARITY BETWEEN OUR VISION (WHERE WE WISH TO GO) AND OUR PRESENT POSITION (THE PROGRESS WE HAVE MADE SO FAR)

3. OUR VISION:
NOT TO CHANGE THE CONVENTIONAL SYSTEM FOR THE SAKE OF CHANGING IT, BUT RATHER TO:
ENSURE THE REALIZATION OF JUSTICE:
SHARING OF RISKS BY BOTH THE FINANCIER AND THE ENTREPRENEUR, AND
USE OF BANK RESOURCES IN SUCH A WAY THAT THERE IS: REMOVAL OF POVERTY, NEED FULFILLMENT, FULL EMPLOYMENT, EQUITABLE DISTRIBUTION OF INCOME AND WEALTH, AND ECONOMIC AND FINANCIAL STABILITY
PROMOTE GREATER EFFICIENCY AND EQUITY IN THE USE OF SCARCE ECONOMIC AND FINANCIAL RESOURCES
FULFILL ALL THE GENUINE SHORT, MEDIUM, AND LONG-TERM FINANCIAL NEEDS OF THE ECONOMY.

4. PROGRESS SO FAR: A GREAT DEAL OF CONCEPTUAL DEVELOPMENT
A GREAT DEAL OF INSTITUTIONAL DEVELOPMENT
INCREASED INTERNATIONAL ACCEPTANCE

5. SHORTCOMINGS INADEQUATE EXPANSION
INADEQUATE MOVEMENT IN THE DIRECTION OF MUDARABAH AND MUSHARAKAH
PRIMARY RELIANCE SO FAR IS ON THE ASSET-BASED DEBT-CREATING MODES OF FINANCE : EVERY EFFORT IS MADE TO SHIFT THE ENTIRE RISK TO THE BORROWER OR THE LESSEE WITH HARDLY ANY RISK BEING BORN BY THE LENDER OR THE LESSER

6. CHALLENGES FOR THE FUTURE:
TO FULFILL INTERNATIONAL STANDARDS WITH RESPECT TO:
CAPITAL ADEQUACY; RISK MANAGEMENT; CORPORATE GOVERNANCE; TRANSPARENCY AND MARKET DISCIPLINE; SUPERVISORY REVIEW PROCESS
TO REMOVE THE OBSTACLES THAT HINDER THE SYSTEM’S EXPANSION AND DEVELOPMENT ALONG THE PATH OF OUR VISION

7. THE FACTORS THAT ENABLED THE SYSTEM TO OPERATE SUCCESSFULLY IN THE PAST

8. WHAT NEEDS TO BE DONE WHEN CIRCUMSTANCES HAVE CHANGED:
CREATE PROPER INSTITUTIONAL INFRASTRUCTURE
ENFORCE PRUDENT REGULATION AND SUPERVISION
PROVIDE PROTECTION TO DEPOSITORS
RESOLVE THE UNRESOLVED FIQHI ISSUES