Islamic finance needs better risk return

Islamic finance needs to improve on a risk-return basis and offer a wider choice of offerings if it wants to reach more conventional retail and institutional investors, according to Tai Boon Leong, executive director at the Monetary Authority of Singapore.

“While it is not unexpected for markets in the early stages of development to experience higher unit costs, institutions must pay close attention to their cost structures so as to provide investors and clients with better pricing and competitive returns,” Leong told an Islamic finance roadshow in Singapore on April 13. “This is achievable.”

Leong also said that while it may not be realistic for conventional investors to expect the range of products and services found in conventional finance, they still expect sharia-compliant products and services to closely meet their financing or investing needs.

“In recent years, the industry has been steadily broadening the range of Islamic products available to include sukuk and equity funds, sharia-compliant exchange traded funds based on broad-based market indexes,” said Leong.

“Greater creativity and innovation are needed to expand the present product range, especially those with a pan-Asian focus as investors want exposure to this dynamic and rapidly growing region.”

Leong added that sharia-compliant products need to improve on their overall service quality. “High standards for transparency and disclosure are already well-known hallmarks of Islamic finance. Institutions can make use of this edge, together with transparent and fair allocation of shared risks and reward among the transacting parties to appeal to new clients,” Leong said.

“In this regard, we encourage industry participants to take advantage of the financial sector incentives available to develop their business capacity as well as to raise the quality and competency of their staff through educational courses and training programmes.”