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Islamic Banking Opportunities and Challenges

Like conventional banking, Islamic banking also provides finance or loans to people to buy property, auto vehicle or for any other purpose including personal and business products. When people acquire big loans like mortgage, they pledge their property to the financial institution or lender. This means that if the borrower defaults on repaying, the lender will have the right to seize the property and put it up for sale to some other buyer. Till the buyer pays off lender’s investment share in that particular product (like car or house), the buyer is bound to pay rent as it is in his use. In other words, the lender will have a claim. Islamic banking is different from conventional banking as in Islamic banking money is not treated as product itself but is used only as a medium of exchange. In conventional banking, personal loans and credit cards can be taken as examples where the lender provides loan without knowing the use of that specific amount (“Problems and Prospects of Islamic Banking and Finance” n.p.).

One of the main peculiarities of Islamic financial suystem is that it is religiously restricted. In other words, all financial operations should be subjected to the law of Shari’ah, which “prohibits the sale and purchase of debt contracts with the aim of obtaining an interest gain (riba), profit taking without real economic activity and asset transfer, as well as legal uncertainty surrounding the enforceability of contractual claims” (Hesse, Jobst and Sole 177).

Thus, only interest-free forms of finance are allowed. Financial world has not only recognized Islamic financing methods but it is also keen to research and develop the industry. Many individuals and businesses are now considering Islamic finance as viable option to fulfill their financial needs. With high growth rate and rapid expansion in a short period of time, the Islamic finance industry faces certain challenges (Tahir 2).

A challenge faced by the industry is the easy availability of information to the potential customers. Lack of awareness can be responsible for crumbling down an entire industry. The knowledge and opinion of the public is most important for any business. Similarly, the Islamic financial institutions need to develop strategies and programs to raise awareness among the people. Another major challenge is the difference between the opinions of scholars.

As mentioned earlier, Islamic financial institutions have to make sure that the finance provided must be for ethical and socially beneficial purposes. This notion incites the nature of different transactions and trades. Scholars have differed over some transactions. If a set of scholars accept a transaction to be legal, another set of scholars may disagree with the former. Moreover, Islamic banking accounting standards that creates specific uncertainty. Moreover, domestic, Islamic and foreign banks appear in constant conflict that slows down Islamic banking development.

Manager and scholars are short in supply when it comes to the Islamic financial institutions. As managers are not well trained in the science of Islamic financing, there arise certain problems related to regulations and operations. This problem accounts for the small network of Islamic financial institutions as well. Shortage of skilled managers and practitioners of Islamic finance is one of the most major challenges faced by the industry. The growth rate and expansion cannot be sustained until and unless a platform is established for education in Islamic financing for young graduates and awareness raised among the public to increase the demand for the industry’s offerings. Short term credit or investments is another major issue for the Islamic financial institutions (HSBC 3).

How Can the Islamic Advisory Brads Improve the Islamic Banking Industry in the United Arab Emirates?

Islamic banking has many specific differences in comparison with traditional banking. A list of advantages and disadvantages shows that European countries consider Islamic system imperfect, lacking some particular zest, like interest. However, these Islamic advisory brads may improve Islamic banking industry in Arab Emirates. The Islamic advisory brads can do it in many ways. Islamic banks still have similar standards of credit analysis in the UAE. If all Islamic banks in the UAE have a similar standard for credit analysis to help in the operations of the Islamic banks such as monitoring of investments and valuation of projects, they can meet most of the challenges faced in the UAE.

Thus, one of the main peculiarities which on the one hand bothers Islamic banking from development and on the other one is promotes it and helps to remain protected from unpleasant global economic situation is the ability of Islamic banks to rely on personal equality (Staff Reporter n.p.). In the UAE, the recent financial crunch might have been evaded if the Islamic Finance and Banking System existed as an alternative to Conventional Banking system. International financial crisis unfastened several opportunities for Islamic Finance, and the Islamic finance model was the only solution to the continuing economic turmoil as it was unaffected by the sub-prime crisis in the mortgage industry (Sesricn n.p.).

According to statistical information, Islamic banks have higher cash/deposit ratios and lower payment for loans. Being a problem for bank owners, this issue attracts more and more clients from all over the world. This increases the turnover in Islamic banking and increases its profit. However, banks are forbidden to get profit on the basis of the clients’ money, they can only to get salary for the services they offer. Islamic banks suffer from shortage of experts. This is a great brad on the way for banking expansion as absence of qualified specialists does not allow the system to function properly. On the other hand, it promotes competency in banking and on the labor market (Staff Reporter n.p.).

In the UAE, many non-Muslims resorted to Islamic banking, because clients who were influenced by the Western or Conventional banking system believed that Islamic banks were secure, as it was resilient to global crisis as a result of native business ethics in the Islamic banking (Kaplan n.p.). Thus, the problems which exist in Islamic banking from financial point of view, such as absence of interest rate and others, create additional opportunities for Islamic banking development.

All Islamic and many non-Islamic customers trust Islamic finance system as it is based on religious principles and clients are protected by the law. Moreover, Islamic banking system does not have interest rates, so clients are sure that there are no hidden charges and other tricks used by other customers. Being a specific system with many brads, Islamic banking did not suffer from world crisis as it has not been globalized.

Works Cited

Hesse, Heiko, Jobst, Andreas A. and Juan Sole. “Trends and Challenges in Islamic Finance.” World Economics 9.2 (2008): 175-193. Web.

HSBC. “Global Development in Islamic Finance-Challenges & Opportunities.” The 8th Annual Symposium & Awards Program in Islamic Banking & Finance. 2001.Web.

Kaplan, Steven. “The Bailout: A Primer.” EconoMonitor. 2008. Web.

“Problems and Prospects of Islamic Banking and Finance.” Center for Near Eastern Studies. 2001. Web.

Sesric. “Sesric Reports on the Global Financial Crisis of 2008-2009.” Organization of Islamic Conference. 2008. Web.

Staff Reporter. “Challenges facing Islamic financial institutions.” Khaleej Times Online. 2005. Web.

Tahir, Sayyid. “Challenges Facing Islamic Finance: Research Areas.” DLP – Research Areas. 2004. Web.

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StudyKraken. "Islamic Banking Opportunities and Challenges." October 25, 2021.


StudyKraken. 2021. "Islamic Banking Opportunities and Challenges." October 25, 2021.


StudyKraken. (2021) 'Islamic Banking Opportunities and Challenges'. 25 October.

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