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Document Type

Conference Paper

Publication Date

4-24-2006

Conference Name

World Bank Seminar

Conference Location

Washington D.C

Conference Dates

April 24, 2006

Series

Faculty Research - Book Chapters and Conference Papers

First Page

1

Last Page

5

Keywords

Financial services, Islamic finance, Challenges

Abstract / Description

Islamic Financial Services industry (IFSI) is currently catering to a particular segment of populating in several Muslim countries and is also attracting interest among non-Muslim investors and fund managers. They consider Islamic financial assets to be a distinct asset class. Its low correlation with other existing asset classes provides an excellent opportunity for diversification of risk. The socially responsible nature of the funds mobilized and funds utilized by the IFSI adds a new dimension to the attractiveness of this industry. Finally, a large number of Muslims who have hitherto refrained from participating in the banking activities due to their faith and belief have begun to resort to Islamic banking thus deepening the financial sector in these countries. In the contest of the developing countries, this newly established access to financial services industry has some important repercussions. If we assume that the poor and low income groups in the Muslim countries benefit disproportionately from the access to the Islamic financial services it would be beneficial toward achieving the goal of poverty reduction. To the extent that the unemployed youth in the Muslim countries are able to find gainful employment and improve living standards through financial sector – real sector nexus the incentives for diversion of their energies and time towards violence, terrorism, crime and other undesirable social behavior would be reduced. To my mind this an empirical question that needs to be carefully explored and the baseline data established as soon as possible. The international financial institutions can sponsor this kind of work as it will not only carry credibility but also respond to the critics of the Islamic financial services industry. I will revert to this suggestion oat the end of my talk.

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