Dr. Jamil El Jaroudi, Chief Executive Officer, Elaf Bank, a Bahrain-based Islamic investment bank with an authorized capital of $500m, examined the challenges of innovation in the Islamic banking industry during the opening day of the 15th World Islamic Banking Conference held in the Kingdom of Bahrain.

Dr. Jaroudi was speaking at a session entitled, 'Creating the Next Generation of Islamic Finance Solutions: The Product Innovation Imperative'. 

During his presentation Dr. Jaroudi pointed out that although innovation has become a 'buzz word' within the industry, the need for innovation in Islamic banking is real and is paramount to its continued survival. 

Dr. Jaroudi examined innovation over four spheres: products, people, the market and regulation. He said, 'Innovation is crucial to revitalizing Islamic roots, improving customer satisfaction and creating new and sustained sources of income. 

Dr. Jaroudi, a prominent industry expert continued:

'Growth in liquidity instruments will pave the way for long term investments, in particular, 'asset backed liquidity management instruments' are a progressive domain for innovation.'

He called for more products of handling and transferring risks particularly cross border risk and particularly currency risks, more work done to confirm, adapt or evolve products such as the (IPRS), Islamic Profit Rate Swap or (ICCS) Islamic Cross Currency Swaps and encouraged the analysis of (DEP) Diminishing Equity Participation as a bridging tool to encourage more people to look at Musharaka as an ultimate and most deep rooted instrument in Islamic Finance. 

Addressing the importance of human capital, Dr. Jaroudi stressed that the dilemma was not how to attract skilled professionals but how to successfully retain them. 

He went on to talk about the 'the market place' as an area where innovation in Islamic banking is needed, 'shareholders and owners of Islamic banks should believe in this industry and its orientation towards medium to long term activities. This means forgoing immediate, short term profits for a sustainable medium to longer term higher profits.' 

Dr. Jaroudi said he would like to see more firms like Elaf Bank entering the market with the intention of developing the Islamic secondary market and with the aim to be market makers. 

Elaf Bank's Chief Executive was optimistic about the future of Islamic banking and concluded, 'The developments noticed by the industry in recent years and the ongoing turmoil in the markets, leads me to believe that Islamic finance will soon provide very substantial and promising opportunities for specialization and diversification.'