The solution is simpler accounting standards such as using the IFRS alongside the GAAP. Thus, AAOFI needs to be removed from the Arabian Gulf countries and be switched to IFRS/IASB accounting standards. This is because AAOFI reporting is vastly different and it can lead to various problems in the long run, because it focuses too much on assimilating with sharia law. This is a problem because it will prevent investors from efficiently and effectively compare financial statements of companies in U.S. and the Arabian Gulf countries (HASCALL, 2014).
Next, Banking is vastly different in Islamic banking as compared to the free market. Banks in the Sharia Law have formal ownership, whereas banks in the free market are not allowed to have partnership and or equity stakes in the real estate market. Thus, this a big problem because Islamic banking cannot expands its market, because it is vastly small and regulated by government. This diminishes the ability of Islamic banking products to be offered to larger banks in the free …show more content…
This operational risk can be created by Islamic banking diminishing credit risk that is caused by the demand of collateral by the bank customers, which can lead to withdrawal risk. Also, many economist and bankers argue that Islamic banking have information disclosure which leads to ineffective risk management in banking. Thus, this can lead to hazardous relationship with the clients and investment account holders. The overall risk exceeds the benefits and many Muslim Bankers have convinced its best to ignore some sharia Financing Principles and focus on keeping banking systems that work well with the free market (Saidi,