Essay: Islamic Financial Institutions

23 Apr

Essay: Islamic Financial Institutions

Sample Essay

Sundararajan and Errico (4-7, 2002) highlighted additional reasons for not adopting genuine Islamic products, practically sharing models because Islamic financial institutions would be required to bear the loans if a loss occurs rather than using collateral or other guarantees to decrease the level of risk. In addition, the complex processes to get approvals and run the new product in Islamic financial institutions create great difficulties. Ahmad (27, 2009) gives another reason for continuing to use conventional products—namely, that the risks in Islamic financial institutions are still not perfectly understood and are quite complex given the different stages of any transaction.

Taking the above points into consideration, this study will attempt to define the role and importance of product development in Islamic financial institutions as well as the procedures to launch a new product. The goal is to develop criteria for providing new products that attend to various types of risk. In addition, the new products should be competitive enough against conventional products.

The study will be based on an empirical survey using archival techniques to answer the following questions:

  • How is product development defined and motivated in Islamic banks?
  • How is product development represented in organizational structures of Islamic banks?
  • What criteria are adopted in this process (e.g., risk management, liquidity, ability)?
  • What scale of priority is accorded to this activity within the hierarchical structures of Islamic banks?
  • How well is it linked with other relevant departments of the bank?