challenges. micheal ainley, ali. mashayekhi, robert hicks, arshadur rahman and ali ravalia. november 2007. predominantly hanafi school, bahrain, dubai and abu dhabi pursues maliki school, saudi arabia and qatar relies on hanbali school ). rather than pursue harmonized views, each faith developing its own applications adds to the cost of transaction, introduces doubts on viability of islamic finance given the split opinions, and confuses the public that basically relies on scholars endorsement of products and business. these differences along with different interpretations of shariah scholars at the boards or as advisors within the banks, if significant, further carry the risk of sharia arbitrage which carries complications for regulators. reaching consensus and shared / harmonized guidance among scholars of different beliefs and faiths and evolving more unified institutional mechanism for adoption of common shariah standards and ensuring proper enforcement through effective internal controls for their compliance would let the industry grow and compete on level playing field. flexible and simpler interpretation of the basic tenets at the level of scholars would enhance public acceptability. 12. finally, keeping these macro considerations aside, islamic banks being late starters do face a real challenge of competing with a well established conventional industry. furthermore, full - fledged islamic banks as per their licensing requirements have to confine themselves to islamic businesses and products, while conventional banks with islamic windows have inherent advantage as they can compete more aggressively offering both conventional and islamic businesses. different approaches to licensing are debated to have implications for competitiveness of industry whereby there is an argument put forward that in interest of fostering healthier competitions banks should be allowed to choose what they offer without imposition of licensing policy constraints. 3 to propel islamic industry allowing dedicated islamic banks is a well accepted course as long as regulators do not shield or provide preferential treatment to these institutions but creates a level playing field in regulatory and supervisory oversight. next stage of development 13. competitiveness of islamic finance in future would depend on how government and regulators perceive and nurture future development of islamic finance and address the issues highlighted above and develop institutional, regulatory and supervisory frameworks and their effective enforcement. in the next stage of islamic finance development, there is need for more substantive work on islamic finance in the areas of : ( i ) standardization of contracts and documentation which would reduce transaction costs and risks of litigation. ( ii ) development of dispute resolution mechanism for sharia compliance matters as regulators will not be in a position to resolve these

. s. growth. finally, price adjustments through exchange rate adjustment, by encouraging exports and making imports more costly, could play a role in current account adjustment. i must emphasize that, no matter how the u. s. external imbalance is narrowed, the level and composition of demand, both in the united states and abroad, would have to change. such a change, in turn, would require adjustments of relative prices. in the united states, to accommodate increases in exports relative to imports, changes in relative prices would be needed to shift production toward internationally traded goods and services and to shift consumption toward nontraded goods and services. by the same token, adjustment by our trading partners to a reduction in the u. s. current account deficit would require both an increased domestic demand to maintain the overall level of economic activity and an adjustment of relative prices to raise the share of nontraded goods in production and of traded goods in consumption. the prospect of a correction in the current account is often portrayed in ominous tones, a dark storm cloud looming on the economic horizon. yet, the economic adjustments i have just described are both feasible and, properly managed, need not lead to undue distress, either in the united states or abroad. after the dollar correction of the mid - 1980s, for example, economic activity in the united states continued to expand as the growth of domestic demand eased but was replaced by strong contributions from net exports. during that period, analogous adjustments helped to maintain economic performance among our trading partners. the pace of gdp growth in the foreign g7 economies, weighted by u. s. exports, increased from about 2 - 1 / 2 percent during 1982 - 84 to nearly 4 percent in 1985 - 87 as greater domestic demand growth compensated for weaker performance in net exports. u. s. current account adjustment could, in fact, be associated with quite favorable scenarios for the global economy. for example, the rise in foreign productivity growth that i touched on earlier could work through several channels to narrow the u. s. trade deficit as funds were attracted abroad. strong domestic demand among our trading partners would likely outweigh any drag resulting from appreciation of their currencies, while u. s. exports would benefit from both a change in relative prices and stronger foreign growth. of course, the financial press frequently points to less - favorable scenarios, including the so - called disorderly correction, that is, a rapid fall in the dollar that engenders a steep falloff in u. s