islamicwealth

Islamic Stock Market and Its Challenges

Dec 26th 2014 at 2:09 AM

As the demand for Islamic finance grows rapidly, the industry is also faced with many challenges, among which is the urgent need for highly skilled individuals to manage the market. Islamic finance may be a relatively small player by global standards, but many commentators and experts agree that its increasing growth shows no signs of reduction in the short and even the medium term. This continued growth is spurred by the actions of governments around the world, keen to see the heights that Islamic finance can reach. Islamic financial products are also being established by many financial institutions and big Western banks, offering a strong ethical dimension and a good alternative to non-Muslim participants looking for possible alternatives to the conventional system. Because of this unprecedented growth, the Islamic stock and general financial market also face many challenges.

To be a non-conventional system is both an advantage and disadvantage for Islamic finance. Despite its name, however, Islamic finance is not a strictly religious product, although it offers a series of products that have been developed to suit the needs and meet the requirements of a specific group of people. Conventional finance includes basic elements like interest and risk (riba and gharar), both of which oppose the Muslim faith. Islamic finance has been developed so that Muslims can raise finance and invest savings in such a way that does not and will not compromise their Islamic beliefs. To be a relatively new form of financing, the Islamic stock market is bound to face birth pains and challenges, which will only eventually strengthen the market.

One of the major callenges of Islamic stock market is its interest-free nature, which is a foreign concept in conventional banking. Modern finance is largely based on loans for a premium. To remove interest of any form in the equation can be quite a challenge for inexperienced players. Avoiding uncertainty or risk is also one of the major principles that Islamic finance follows. This prevents finances from significant growth, in a non-Muslim perspective.

Constraint to growth is probably the biggest market challenge within Islamic finance. There is also widespread unfamiliarity and little expert media coverage, not to mention a limited product range, because of halal restrictions. This is why the need for specialised and skilled Islamic finance professionals is evident, and a further development of the industry to maintain growth.

About the Author:
This article is written by Brian Adams, who is the director at Islamic Wealth Management. Islamic Wealth Management was established to provide Sharia-compliant financial planning service to Muslim individuals and business owners to maximise prosperity without comprising Islamic principles.

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