Restricted
talent pool

There is thus, Prof Shamsher said, a
limited pool of bankers who understand Shariah compliance against conventional
banking and an even smaller pool of policy-makers who do so. The staff shortage
is especially crippling in a market where Islamic banking tends to develop in
parallel with conventional banking and there is a need for Islamic compliance
and risk management to also mirror that of the conventional banking regulatory
framework.

“The main challenge lies in the
interpretation as there are different schools of thought that could lead to
different solutions to the same problems that might hinder the healthy
development of the industry,” Prof Shamsher said.

The common criticism is thus that Islamic
wealth management tends to be a mere reflection of conventional wealth
management and are just conventional investment instruments dressed up with
Shariah-compliant principles.

For example, risk mitigation is often cited
as an area that needs improvement in Islamic finance when it needs to comply
with conventional risk management policies.
According to Prof Shamsher, “Islamic wealth management operates on a
risk-sharing basis. However, the current practice might not be in full
compliance with these risk-sharing principles due to practical reasons. As a
result, the Islamic banking institutions currently mitigate risks by using
derivative contracts to manage the risk in a conventional manner or go for
low-risks investments.”

Understanding
both sides

At the recent World Islamic Banking Conference held in Singapore, there was a general
consensus among the speakers that Islamic finance practitioners need to first
of all understand conventional banking practices so as effectively balance
demands from both worlds.

“We need the human resources in the Islamic
finance Industry who understand both conventional practice and Shariah
principles. We have a quite a number of people who are trained in Shariah but
are not conversant in conventional practices and vice-versa,” Prof Shamsher
said.

INCEIF was set up by Malaysia’s
central bank, Bank Negara in 2005 as part of its bid to be an international
Islamic finance hub. The institute has reached to students from over 70
countries with its Chartered Islamic Finance Professional in addition to
masters and doctorate programmes in Islamic finance and is wholly dedicated to
postgraduate study to ensure that its graduates have an understanding in both
conventional and Islamic banking practices.

 As
with major developments that can potentially affect the market’s development,
government support is critical.

“Islamic countries, especially the oil-based
economies, should coordinate joint ventures in developing global Islamic wealth
management industry as they have the wealth,” said Prof Shamsher.

“In Malaysia, we are fortunate to have
the full support of the government as the central bank and agencies like INCEIF
are put in place to support the industry’s growth.

“Political will is important for the
success of the Islamic wealth management industry,” he concluded. 

About the author:

Titien Ahmad is a seasoned observer of the financial services
industry having covered bank strategies and trends in Asia Pacific for more
than a decade. She has delivered numerous executive briefings for research
clients and industry conferences and is regularly quoted by both regional and
local print, radio and television news services on developments in the region’s
financial services industry. With the limited industry intelligence publicly available in
Asia, Titien has been instrumental in developing and launching a number of
information products and services that now provide critical input into
strategic decision-making for those operating in the region’s financial
services industry.

We are delighted to welcome Titien to the editorial team as part of our growing and deepening coverage of the market.