gif Islamic Finance


power to give the final judgement on which practices are deemed Shariah-compliant. However, circumstances often arises which show a dispute in the interpretation of which practices are deemed Shariah-compliant between scholars. These are times at which standardisation of regulations is needed, in order to adopt a more unified scheme of es- tablishing Shariah compliancy.


There are both advantages and disadvantag- es to referral of a case to a Shariah advisory board, as the challenge of interpretation hin- ders the smooth process of introducing Is- lamic financial products and services.


For both investors and regulators, it is impor- tant to know that any Islamic branding will also be considered when launching a prod- uct, to ensure that it complies with the Sha- riah perspective of Islamic finance.


Which Industries Are a Lucrative, Shari- ah-Compliant Way to Promote my Brand? A number of Shariah-compliant indus- tries can aid in promoting an Islamic brand, as outlined in Figure 4.


Figure 4 indicates the various Shariah- compliant industries which could po- tentially be used to endorse Islamic fi- nancial products within an appropriate framework as established by Shariah law. Many Islamic banks use Islamic branding through industries including those outlined in Figure 4.


For instance, Islamic financial institu- tions have collaborated with leading mobile phone manufacturers such as Blackberry, Nokia and many more, in order to make Islamic financial servic- es more accessible and appealing and to attract more customers globally.


Sponsors of Islamic financial products, and Islamic forums and seminars such as the Euromoney Seminars and Global Interna- tional Islamic forums, can effectively mar- ket Islamic banking products and services using branding services and advertising. Dedicated Islamic media, such as television stations and financial publications, are a Shariah-compliant way of getting a branding message across.


Targeting Challenges and Risks of Market- ing Shariah-Compliant Products


Challenges to Overcome The Islamic financial industry still has a few challenges which need to be overcome, in order for companies to be successful in marketing and sponsoring Islamic financial products without compromising Shariah principles. Some of the main challenges


30 Global Islamic Finance May 2012


which the Islamic financial industry needs to overcome are focussed around the need for standardisation of regulations, regarding the question of Shariah law adherence.


Scholarly differences of opinion mean that it can often be a difficult task for an Islamic bank or financial company to try to introduce a new product to a non-Muslim market. If a standardised set of rules is created, confu- sion in the Islamic financial industry will be minimised, and financial institutions will be able to refer to a unified and effective sys- tem.


In order to effectively regulate Islamic banks, several institutions have been set up in dif- ferent countries in order to provide authorita- tive governance of Islamic banking methods. Such institutions include the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), the International Is- lamic Rating Agency (IIRA) and the Islamic


Figure 2: Key Principles Underlying Islamic Finance


Prohibition of Riba


Financial Services Board (IFSB) (GIF Maga- zine). There is a clear need for further diver- sification of more innovative products, to at- tract customers within a competitive market in line with conventional banks.


An Islamic financial institution or subsidiary has to be cautious when introducing prod- ucts to ensure that they are marketed within the framework of the Shariah law.


In some countries there is a shortage of Is- lamic financial products, which makes them less accessible to a non-Shariah-compliant market. Duncan Smith, managing director and global head of Islamic finance at Arab Banking Corporation (ABC) in Bahrain, points out that many of the retail needs of the mar- ket are probably being met within the GCC and Malaysian regions at least.


He does not see any shortage of products in those markets, although in Western markets such as the UK, it will take companies longer to introduce a wider range of Is- lamic consumer finance products - the Islamic mortgage products excepted.


Nonetheless, while incremental change — consolidation and product refinement — will remain central in the market’s development over the short term, innovation will remain important (KPMG Analysis).


Prohibition of uncertainity


Islamic Finance


Profit sharing and Risk sharing


Prohibition of


forbidden assets (e.g.alcohol, gambling)


Existence an of underlying asset


Islamic financial institutions also face challenges in convincing the Muslim market that the Islamic financial prod- ucts which they offer are truly Islamic, and comply fully with Shariah rulings. Many conventional banks which have set up Islamic banking subsidiaries, such as HSBC Amanah in the UK, find that more non-Muslims are included in


their customer bases than Muslims them- selves.


Figure 3: Shariah Advisory Boards Key Responsibilities


Ensurethat all products and services offered by an institution are Shariah-compliant


Oversee and review potential new Islamic fi- nancial product offerings


Make a judgement on the Shariah compliancy of cases referred to the board


May oversee Shariah-compliant training pro- grammes and schemes


Develop new procedures and programmes in order to adapt to industry trends and customer expectations


Participate in the preparation of annual inves- tors’ reports on banks’ balance sheets, with sole reference to Shariah compliancy


Amjid Ali, chief executive of HSBC Amanah in the UK, says in a statement that growth has been held back in part by the problem of convincing potential customers that prod- ucts truly meet the demands of their faith. “Few people question Halal meat, but they don t necessarily accept Shariah-compliant products,” he says. (KPMG)


One of the other challenges which many Is- lamic financial institutions find they have to counteract is the fact that Islamic financial products can often cost more for consumers than conventional products. This is one fac- tor which may deter customers from using Shariah-compliant products.


Mr Ali, from HSBC UK, says that: “Products cannot be imported wholesale from the Mid- dle East division - they must be approved


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