Essay On Financial Technology

Challenges In Developing New Products For Islamic Banking Segment

As per the Global Finance, Islamic finance industry in annually growing by 10 to 12 percent that is expanding quicker than the traditional banking ( 2015). One of key challenges of the Islamic Finance is creating new products and services for its customers. A significant aspect for the growth and development of Islamic Finance is its product innovation and improvement. This process is required to be governed by the key parameters, frameworks, and standards to ensure that the most suitable product is introduced. Islamic financial institutions require to completely understand the significance of the product development for meeting the requirements of the particular market segment. The products of Islamic banking are constantly being compared to the interest-based products in terms of return and cost (Ahmed, 2014).
There are various challenges that Islamic banking face during the new product development process. Some of which are stated below:
1. Ensuring maximum utilization of Shariah’s principles: The Islamic banking products are mainly developed on Shariah principles, with the aim of reducing the risk, which reinforces sustainable growth and development of the Islamic banks.
2. Gap between ideal and the reality: Islamic financial institutions tend to mimic the traditional counterparts. The findings shows that the existing products of the Islamic financial institutions are almost same offered by the traditional ones. However, the main difference between these two mainly lies in the legal forms and technicities, which prevents explicit recognition of the mechanism of interest rate, while substance is same. 
3. Realizing Maqasid Al-Shariah: Maqasid Al-Shariah indicates the holistic view of the Islam, and by acknowledging it, Muslims intends to commit themselves to social welfare, brotherhood, and justice. The products based on Sharia can be riskier and costlier, and realization and economic consideration of Maqasid Al-Shariah may require the banks to move towards Shariah-complaint products development.
4. Difference in the interpretation of Shariah: The different viewpoints among the scholars of Shariah on the compliance of Shariah and similar issues may result in creating lots of confusion among the people and the Islamic finance practitioners. 
5. The market player’s reluctance: The over dependence of Islamic banks on the debt-based products indicates the market players’ reluctance to promote the risk-sharing- equity-based financial products.
6. Weak specific plans and the budgetary support for the product development: In various Islamic banks, there is weak specific plans as well as budgetary support. This clearly indicates lack of effort in translating strategic intent into the specific plans and the budget to aid the new product (Abbas, 2015). 

Challenges In Ar-Rahnu

There are also some challenges of Ar-Rahnu or Islamic pawn broking scheme on a global scale. Despite a significant cost saving provided by Ar-Rahnu, it still needs to get the popularity regarding the competition from the traditional pawn broking system and the underground activities of the money lending (Ali, Johari & Fatah, 2017). These money lenders provide the readily available cash advances to the petty traders, small income individuals, and for the illicit purposes. Such loans mainly come at quite high interest rates. In spite of such unreasonable situations, such loan sharks continue to be popular due to the fact that the borrower not intent to pledge any collateral or give any other type of documentations. Over the years, these illegal activities have increases, which form large syndicates that target the borrowers who desperately require cash. All these situations are challenging the Ar-Rahnu system to gain popularity (Bt Bahari et al. 2015).


Abbas, S. (2015). Islamic financial engineering a critical investigation into product development process in the Islamic financial industry (Doctoral dissertation, Durham University).
Ahmed, H. (2014). Islamic banking and Shari’ah compliance: a product development perspective. Journal of Islamic finance., 3(2), 15-29.
Ali, N. A. M., Johari, Y. C., & Fatah, M. M. A. (2017). Ar-Rahnu: A Review of Literature and Future Research. In SHS Web of Conferences (Vol. 36, p. 00033). EDP Sciences.
Bt Bahari, N. F., bt Fisal, S., bt Shahar, W. S. S., & bin Shahadan, T. A. (2015, May). The Development Of Islamic Pawnbroking In Malaysia, Application And Its Challenges. In International Conference on Economics and Banking (iceb-15) (pp. 230-238). Atlantis Press. (2015).  Islamic Finance. Retrieved 21 July 2022, from
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