INCEIF today partnered with Bank Indonesia (Indonesia’s central bank) to jointly hold a public lecture in Jakarta, the first in INCEIF’s series of public lecture to be held abroad.
The lecture, “Islamic Finance: New realities, challenges and opportunities” was delivered by INCEIF’s Chief Academic Officer Datuk Prof Dr Syed Othman Alhabshi. Nasirwan (Deputi Direktur, Kepala Divisi, Divisi Penelitian, Departemen Perbankan Syariah, Bank Indonesia) delivered the welcoming remarks at the lecture which was held at Bank Indonesia.
Over 60 people from the local financial services fraternity, universities and staff of Bank Indonesia attended the lecture. INCEIF online students and alumni who are based in Jakarta and neighbouring city of Bandung also attended. They took the opportunity to catch up on INCEIF news with Datuk Syed Othman and each other.
In his lecture, Datuk Syed Othman said despite the unprecedented successes of Islamic finance globally, in reality there are numerous challenges that it still faces.
According to him the, the biggest challenge for Islamic finance is the competition it faces from the huge asset size, efficient and continuous innovations that have come with increasing product varieties and complexities of the dominant conventional finance.
Conventional interest-based finance has centuries-old history compared to Islamic finance which only received global acceptance in the1990s. Until now the Islamic financial assets constitute not more than two per cent of the total assets of the conventional sector.
Yet, Datuk Syed Othman pointed out that as a relatively young sector of the financial industry, Islamic finance has consistently demonstrated that it can face the challenges of the volatility of the conventional financial sector.
“This is very true in the light of various financial and economic meltdowns that have plagued different parts of the world in the last couple of decades or so. We know that Islamic finance has been in practice for more than three decades. It simply shows how resilient Islamic Finance is. Whilst huge corporations such as Enron Corporation, WorldCom Corporation, Arthur Anderson, Lehman Brothers and ninety others have been taken to court for some misconduct or other.,” he added.
The second important challenge is the strict application of Shariah and its ramifications that govern and define the philosophy, concept and operations of Islamic banking and finance which call for a more exact match between the real and monetary sectors of the economy. The debate on risk sharing versus risk transfer, financial inclusion and poverty alleviation are some of the emerging interests among scholars who are motivated by the need to bring Islamic finance to the next level.
“Shariah principles should be applied in full. It is not only the form of the contract that must be fulfilled, more importantly all the Shariah requirements including the implications must be considered so that all the specificities of the principle or contract are being met,” said Datuk Syed Othman.
He added that there has been growing concern among both scholars and economists that the present practices of Islamic financial institutions do not seem to answer the requirements of the true objectives of Shariah or the maqasid.
“The usual question raised is whether Islamic financial institutions provide the needs of everyone in society. What has been argued is that the objectives of Shariah are to provide benefits to society (masalih) and protect society from harm (mafsadah). Whatever is good and beneficial to society is considered as masalih and whatever is bad and harmful is considered as mafsadah. This is a very broad objective and clearly requires gigantic tasks to fulfil for all members of society,” said Datuk Syed Othman.
Following the lecture, a Q&A session was held where members of the audience discussed the topic, from the Indonesian perspective, as well as the Malaysian experience as one of the pioneers in successful implementation of the Islamic financial services industry.