DUBAI (Reuters) - Islamic banking has to move beyond financing mainly homes and cars and into the real economy, an influential scholar said, noting potential for financing in aviation, shipping and infrastructure among other sectors.
Mohd Daud Bakar -- who advises the globally recognised Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) -- said industry players have been too comfortable sticking to retail financing and needed to make a big push into other sectors.
“Islamic finance was set up in the early 70s, 80s to help Muslims to buy houses and cars. It just stopped there,” he said, speaking at the Reuters Islamic Finance Summit on Wednesday.
“We have to move on to the new century of financing the country at large.”
Bakar said there was a glaring need for sharia-compliant products in the aviation sector -- providing hedging against oil prices, for example -- and financing opportunities in agriculture, infrastructure, shipping, education and food services.
“Banks (should) set up a subsidiary to really look at this venture capital approach -- the sooner the better,” he said.
“We need to say that banks have to diversify their financing portfolio ... only then can we really see real Islamic banking in place in the society.”
Sharia scholars are gatekeepers of the Islamic finance industry. They advise financial institutions and their approval is needed before a product can be marketed as a sharia instrument.
These religious advisors are usually experts in Islamic economics, international finance and law. Some are known to be adopting a more conservative view than others.
Bakar said the industry should not be wary of building on conventional banking products, or modifying them into sharia compliant ones.
“Mimicking is not bad. We have to mimick what’s good ... at the same time we have to push for innovation,” he said. “We have to leverage what is good in the society, no need to re-invent the wheel.”
(For other news from the Reuters Islamic Banking and Finance Summit, click here)