Moody’s report cites particular Islamic banking weaknesses

by Richard Kilner

Story link: Moody’s report cites particular Islamic banking weaknesses

Moody’s Investors Services has published a report which reveals that Islamic banking, cited as more resistant to the negative consequences of the credit crunch, faces its own set of particular difficulties.

Entanglement and displaced commercial risks are considered to be the most serious financial risks Islamic banks face.

The report also states that the Islamic banking business model makes the firms subject to other non-financial risks.

These risks include the possible perception that an institution may not be compliant enough with Sharia principles.

Islamic banking in its modern form is barely three decades old and certain products, such as sukuk product, may be less than ten years old.

This fact combined with the general location of Islamic banking in the developing world means that corporate governance and risk management are facets of the business model that require further development.

Another weakness in the model is the lack of professionals who are not only skilled in the financial world, but fully aware of Sharia.