Islamic banking products: Regulations, issues and challenges

Abstract

The Islamic world is in its evolutionary phase. Islamic finance which comprises the banking system, takaful (Islamic insurance) and capital market products and services offer an alternative to society. The development is said to be phenomenal with a double-digit annual growth rate since its inception. McKinsey & Company (2007) in his study stated that the value of Islamic banking assets and assets under Islamic management is expected to reach USD1 trillion by 2010, with Islamic banks growing more rapidly than the average banking sector in most countries. As of 2009, worldwide assets under shari'ah compliance grew four times from 0.5% to 2% of the world economy and reached MYR3.5 trillion (PEMANDU, 2010). With the increasing trends of Islamic finance, Islamic financial institutions (IFIs) around the world are encouraged to develop and innovate new products in order to meet the ever-changing demand from its customers and potential customers. The introduction of new Islamic products does impose some challenges, not only to the practitioners and Shari'ah council members, but also to society at large, as they are the ultimate users of the product. This paper aims to look at the development and regulations of new Islamic banking products with focus given more on Islamic house financing. Such developments bring about variation in the products introduced to the public as different contracts are adopted. The focus will be mainly on IFIs operating and regulated in Malaysia with specific enforcement by the country's regulators. © by author(s).