Introduction
Sukuk is an Islamic financial organization that offers shares and assets for projects and investment activities. It also helps in providing long-term funds and financing other projects. The finance activities and banking in Islamic have greatly advanced in the past decade. Sukuk as an Islamic finance organization, it has developed in its product supply, investments, and the industry of finance. Creation of Sukuk aims at creating a traditional bond alternative for its customers.
The organization has been able to issue certifications on investments and participation term. According to sources, a lot of growth encounters have been experienced in the finance, and Islamic banking. According to Ayub (Vol. 462), this growth has not only influenced the financial and banking activities, it has also boosted the Islamic finance in the literature. While the financial growth of Islamic investment is experienced, this subject has been identified as an important academic issue.
The Islamic finance industry has moved a mileage as a result of its acceptance globally. In essence, the new developments, present condition, and the challenges that may be experienced ahead requires considerations. It is clear that the great advance of the Islamic finance has increased on demands for professionalism, commitments, and devotions for the operations. On the other hand, there is a need for people to understand the Islamic finance and how it works. Most people do not understand the concept of Islamic finance. When the term Islamic comes into the picture, many people put the religious aspect in mind.
However, the society should understand about Sukuk’s great products and the prices. The phrase Islamic finance defines two forces competing at work. Finance, on the other hand, advocates for allocation of credits and risks. Therefore, the term Islamic is an important differentiation between conservative counterpart of the Islamic finance. More research needs a conduction in order to differentiate between the conservative counterpart and Islamic Finance. Understanding Islamic finance hence has been essential in making greater platforms in the future market.
Strategic Issues
Every organization encounters challenges during its operations. Going through the challenges is a normal routine, which is bound to happen in the process of operation. However, the organizations should be able to take measures and control of its operation. As an unconventional funding source, Sukuk has obtained popularity for corporate and sovereign bodies.
Their rapid growth has been improved by the demands for capital in the world market. Nonetheless, its operations across the world have encountered various challenges. Some of these challenges include global international crisis, and funding form, which has been experienced in the market economy.
The greatest challenge that has been encountered by the Sukuk company is the level of improvements. As an upcoming organization, a lot of expectation are required by many people.
Some believe that their financial problems will be solved by the new organization. In this case, they are motivated when they seek help for their financial needs. Unfortunately, the Islamic financial organizations have experienced low improvements because of this activity is fresh in the market. The development aspect is hence controlled by the fact that the market is yet to grow (Al-Salem, 2009, Pp. 187-200).
Secondly, a lot of competition has been experienced by the foreign and local-owned financial organizations. Most of the people have relied on wholesome markets, which has influenced on the cost of the loans. The operational activities of both local and foreign bank function in a similar manner. In essence, all their activities should provide the customers with the best services to meet their needs.
However, it was revealed that the participation of the foreign market in the local interbank has reduced compared to domestic bank participation. The foreign bank has proved to be reluctant on accepting the aspect of the threat created by mismatching of the currencies. The funding model used by the foreign has been an embarrassment. The reason was because some of the funds were directed to family members while the funding market in some countries was going through a difficult time (Mihaljek, 2010, Pp. 20-30).
The supplies of capital flow in the local banks have been deliberate because of lack of enough funds for the customers. The capital influence, hence has resulted in money crisis and increased the debts in the market. Another challenge encountered by Sukuk is the increase of new lending activities. More people have come up to apply for loans as a result of financial demands.
Since Sukuk is a financial organization, it provides the best rates for its customers. Some of the loans offered to the customers are risky. Again, there have been a limited number of expertise in the Islamic finance organization. It has reduced the pace of growth in the industry. Other factors that challenge the Islamic finance are inappropriate arrangements with the institution, lack of correct standards, and shortage of permanent standards for liquidity.
Developments And External Growth
Despite the challenges experienced by the Sukuk financial organization, it has been able to gain developments and growth in the external environment. Among the developments that have been advocated by Islamic investments include securitisation. The aspect of security is highly essential for every investor or other corporate borrowers.
Sukuk has been able to provide its customers with financial security that has helped them on restructuring balance sheets. The corporate borrowers are also able to strike the Islamic market in investments to get sources for funds. The Securitization of the Islamic finance has been embraced globally by Islamic investors.
Islamic finance growth has greatly contributed to stability compared to other nations. The credit growth of Islamic banks has overtaken the controversial banks. In the first period of operation of Islamic finance, the organization was not recognized. However, the structure of the market has been recently accepted. Many financial organizations are looking forward to adapting the Sukuk structure. The reason for the attraction of other markets has been due to the recent growth of Islamic finance. Compared to conventional bonds, the Islamic equivalent bonds has successfully adjusted in finances.
Recommendation
The international crisis has been a basic challenge encountered by Sukuk financial organization. However, there are aspects that need to be looked upon to prevent the challenges. Some of these aspects include providing a permanent infrastructure to boost on the management of liquidity risk. The liquidity infrastructure should be balanced depending on a specific bank. It should also be tough enough to tackle the international crisis.
The need for a suitable institutional organization should aim at resolving financial issues in organizations. This tool is essential, especially in precedents absence. Regulation standards should be put in the front line in accounting activities. Auditing is a delicate situation that can result in bankruptcy if not regulated.
The growth rate of the Islamic finance has been affected by insufficient expertise. Sukuk is required to select experts who are conversant with the regulations in controversial finance. The organization should also appoint supervisors who will help with supervision of activities in the organization.
Additionally, despite Sukuk being a financial department, it needs to recognize the society. Corporate Social Responsibility (CSR) is an important aspect that should be put in the front line by every business organization. Every activity performed in the society affects the residents positively and negatively. Moreover, the society influences activities in the community; hence, organizations should conduct Corporate Social Responsibilities. These activities are important since they act in giving back to the society.
Conclusion
Islamic finance has been a subject that involves Islamic banking, and lending institutions which increases capital in relation to sharia. The Sukuk organization has specifically based its activities on solving and providing financial help. Sukuk provides balanced ownership of assets which allows investors to benefit from the services.
Creation of Islamic financial organization, Sukuk, aimed at providing an alternative bond under the traditional aspect. (Vishwanath, & Azmi, 2009, Pp. 58-67). The slow growth and developments of Islamic finance has been affected as a result of less recognition and other organizational factors. Lack of supervisors and experts in the conduct of activities in the organization has influenced the product innovations.
According to Raghavan, & Sarwono Pp. 230-896, the bond, and equity market are the assets of a perfectly developed market. They are also the tools that boost domestic capital. The company requirements include the need for a strategic plan for, running their business. Despite the challenges that have been experienced by the Sukuk organization, it has gained a lot of recognition in the world.
More organizations have been attracted by the swift growth of Islamic finance. Therefore, they have gone ahead to find out the essence of and aspects that have boosted Sukuk’s growth. A clear indication is that Sukuk has a greater potential for banking and financial activities that can boost its growth. The only need required is to implement relevant financial funds and services.
References
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Ayub, M. (2005, November). Securitization, sukuk and fund management potential to be realized by Islamic Financial Institutions. In Sixth International Conference on Islamic Economics, Banking and Finance.
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