Monday, May 15, 2006

Financing for Islamic banks in the future

Looks like the 'market forces' themselves will provide the impetus for the transition from the current instruments to ideal Islamic financing options - Musharakah & Mudarabah, says Prof. Saiful Azhar Rosly - director of research with the Malaysian Institute of Economic Research (MIER)

"THE banking sector is poised to face new challenges from high interest rates environment in the coming years. With higher cost of borrowing, the public may postpone their purchases. Not only that, current concerns with inflation are making many banks worried about interest-rate risk. "

"Floating rate loans can easily absorb any increase in the overnight policy rate but fixed-rate loans such as car loans may not. The same applies to Islamic banks. Those offering fixed al-bai-bithaman ajil and al-ijarah thuma al-bay may soon face difficulties, unless they have a floating-rate option to work with... "

"...If an Islamic bank can take the economy to another level, it must come from musyarakah financing, a profit-sharing contract where parties contribute capital into the business. It is new to banking but not to general business. "

Read the article here...