Islamic Financial Architecture in the OIC Member … · Islamic Financial Architecture in the OIC...
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Islamic Financial Architecture in the OIC Member Countries: Current Status, Main Challenges, Recommendations and Prospects Prof. Dr. Habib Ahmed Sharjah Chair in Islamic Law & Finance Durham University Business School & CEO, Maqasid Ltd. 1
Transcript of Islamic Financial Architecture in the OIC Member … · Islamic Financial Architecture in the OIC...
Islamic Financial Architecture in the OIC Member Countries:
Current Status, Main Challenges, Recommendations and Prospects
Prof. Dr. Habib Ahmed Sharjah Chair in Islamic Law & Finance
Durham University Business School
& CEO, Maqasid Ltd.
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Agenda
• Introduction
• Islamic Financial Architecture—Current Status and Main Challenges
• Islamic Financial Architecture—Recommendations and Prospects
– National
– International 2
Introduction Islamic financial sector has expanded globally ◦ Assets in 2015--$1.88 trillion
◦ Average growth rate 2009-2013 was 17%
In some countries, it is becoming systematically important Future growth of a robust and stable Islamic finance industry
will require a sound financial architecture The research studied the financial architecture in 12 OIC
member countries and five global financial centers ◦ To assess the status of Islamic financial architecture
◦ Provide policy recommendations at both national and international levels
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Scope & Methodology of Study Case Studies of 12 OIC Member Countries and 5 International
Financial Centers Qualitative data Islamic financial architectural institutions Sources of data and information ◦ Policy documents from international organizations and standard
setting bodies
◦ Publications on financial architectural institutions (including World Bank’s Doing Business, Legal and Regulatory Database, Global Survey on Consumer Protection and Financial Literacy )
◦ Country specific documents such as Financial Sector Assessment Reports, laws, regulations and standards related to the financial sector
◦ National level legal and regulatory documents and standards
◦ Information from relevant personnel in respective jurisdictions
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OIC Member Countries in the Sample Country Region Legal System
Family Size of IF sector: % National Banking Assets
Size of IF sector: Global share of IF assets
Bangladesh Asia Common Law 17 1.34 Egypt Arab Civil Law 4 1.17 Indonesia Asia Civil Law 4.6 1.39 Malaysia Asia Common Law 21.9 9.56 Nigeria Africa Common Law N.A. N.A. Oman Arab Civil Law 4.4 N.A. Pakistan Asia Common Law 9.8 0.75 Saudi Arabia Arab Islamic law 51.3 18.57 Senegal Africa Civil Law N.A. N.A. Sudan Arab Islamic Law 100 1.00 Turkey Asia Civil Law 5.7 3.2 UAE Arab Civil Law 17.4 7.36 5
Islamic Financial Architecture Components
1. Legal Infrastructure 2. Regulation and Supervision Framework 3. Shariah Governance Framework 4. Liquidity Infrastructure 5. Information Infrastructure and Transparency 6. Consumer Protection Architecture 7. Human Capital & Knowledge Development
Framework
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Assessment Scheme Architectural Element Exists (Percentage of Countries)
Status Colour
More than 75% Developed
Between 50% to 75% Developing
Less than 50% Undeveloped
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1. Legal Infrastructure—Countries with Islamic Financial Laws (% of total)
75,0
58,3 66,7
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
Banking Takaful Capital Market
Per
cen
tage
of
tota
l
8
1. Countries with Islamic Legal Infrastructure (% of total)
66,7
41,7 33,3 33,3
0,010,020,030,040,050,060,070,0
Tax laws DisputeResolution (in
Courts)
DisputeResolution
(ArbitrationCenters)
BankruptcyLaws
Per
cen
tage
of
tota
l
9
2. Regulatory Framework Islamic Financial Sector
66,7
58,3 58,3
54,0
56,0
58,0
60,0
62,0
64,0
66,0
68,0
Banking Takaful Capital Market
Pe
rce
tna
ge
of
tota
l
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2. Regulation & Supervision of Islamic Finance (Separate Dept./Unit)
41,7
33,3 33,3
0,05,0
10,015,020,025,030,035,040,045,0
Banking Takaful Capital Market
Per
cen
tage
of
To
tal
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3. Legal/Regulatory Requirements for Shariah Governance
66,7 66,7
58,3
54,0
56,0
58,0
60,0
62,0
64,0
66,0
68,0
Banking Takaful Capital Market
Per
cen
tage
of
tota
l
12
3. Central Shariah Supervisory/Advisory Board
58,3
50,0
41,7
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
Banking Takaful Capital Market
Per
cen
tage
of
tota
l
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3. Shariah Standards/Parameters
25,0 25,0
33,3
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
Banking Takaful Capital Market
Per
cen
tage
of
tota
l
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4. Liquidity Infrastructure 83,3
50,0 50,0
0,010,020,030,040,050,060,070,080,090,0
Liquidityinstruments
Islamic moneymarket
Lender of LastResort
Per
cen
tage
of
tota
l
15
5. Information Infrastructure
58,3
41,7
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
Accounting Reporting &Disclosure
Rating Agency
Per
cen
tage
of
tota
l
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6. Consumer Protection & Financial Literacy
33,3 33,3
58,3
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
ConsumerProtection
Deposit Insurance Financial literacy
Per
cen
tage
of
tota
l
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7. Human Capital and Knowledge Development
66,7
83,3
58,3
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
Initiatives by publicbodies
Initiatives by academicinstitutions/universities
Private sector intiativesincluding NGOs
Per
cen
tage
of
tota
l
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Overall Averages of Infrastructural Institutions for Sample Countries
57,5 48,6 47,3
61,1
50,0 41,6
69,4
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
LegalInfrastructure
Regulation &Supervision
ShariahGovernanceFramework
LiquidityInfrastructure
InformationInfrastructure
ConsumerProtection &
FinancialLiteracy
HumanCapital andKnowledge
Development
Pe
rce
nta
ge
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Agenda
• Introduction
• Islamic Financial Architecture—Current Status and Main Challenges
• Islamic Financial Architecture—Recommendations and Prospects
– National
– International 20
1. Legal Infrastructure No. Recommendations Implemented by
1.1 Adopt Islamic financial laws
Government (Ministry of Law/ Legal Affairs)
1.2 Adopt Supporting Tax Laws for Islamic Financial sector
Government (Ministry of Finance)
1.3 Appropriate dispute resolution framework
Government (Ministry of Law/ Legal Affairs)
1.4 Bankruptcy Framework and Resolution of banks
Shariah scholars/board Government (Ministry of
Law/ Legal Affairs) 21
2. Regulations and Supervision No. Recommendations Implemented by 2.1 Adopt Islamic
financial regulations Banking sector regulator Insurance/Takaful sector
regulator Capital markets regulator
2.2 Separate regulatory department dealing with Islamic finance
Banking sector regulator Insurance/Takaful sector
regulator Capital markets regulator
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3. Shariah Governance Framework No. Recommendations Implemented by 3.1 Legal/Regulatory
Requirement for Shariah Governance (SG)
Government (Ministry of Law/ Legal Affairs)
Regulators (banking sector, Insurance/Takaful sector, capital markets)
3.2 Central Shariah Advisory Board (CSAB)
Government (Ministry of Religious Affairs)
Regulators (banking sector, Insurance/Takaful sector, capital markets)
3.3 Developing Shariah parameters/ standards
CSAB for different sectors (banking, takaful and Islamic capital markets)
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4. Liquidity Infrastructure No. Recommendations Implemented by 4.1 Shariah compliant
liquidity instruments Government (Ministry of
finance) Central bank Financial institutions
4.2 Islamic money market
Central bank Regulator (capital markets) Financial institutions
4.3 Lender of the last resort
Central bank
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5. Information Infrastructure No. Recommendations Implemented by 5.1 Accounting and
auditing standards Regulators Domestic Accounting
standards boards 5.2 Disclosure and
Transparency Regulators Domestic Accounting
standards boards 5.3 Credit information
systems and rating agencies
Public and private credit information systems
Rating agencies
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6. Consumer Protection & Financial Literacy No. Recommendations Implemented by 6.1 Consumer protection
framework for Islamic finance
Government Regulators
6.2 Financial literacy programs
Government (Ministry of education)
Regulators Financial institutions Islamic finance trade associations
6.3 Deposit Insurance Government Regulators
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7. Human Capital and Knowledge Development
No. Recommendations Implemented by 7.1 Public level
initiatives Governments Regulators/central banks
7.2 Private sector initiatives
Private sector institutes and centers for education and research
Private sector advisory firms Islamic finance trade associations
7.3 Academic institutions Colleges and universities Research institutions Islamic finance trade associations
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International Infrastructure Institutions Establish New Institutions ◦ Stability Board for Islamic Finance (SBIF)
Can be initiated by either by OIC/COMCEC or D-8 To coordinate financial infrastructure related issues and carry out
Islamic Financial Sector Assessment Program (IFSAP) and implementation of Standards and Codes applicable to Islamic financial sector
◦ Islamic Monetary Fund (IsMF) Can be initiated by IDB, IFSB, IIFM, IILM, LMC To provide Shariah compliant liquidity to OIC MCs in case of need
Strengthen Existing Institutions ◦ IDB, IFSB, AAOIFI, IIFM, CIBAFI, IILM, LMC
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Suggested International Infrastructure Initiatives-1
Infrastructure Institutions
Institutions for Conventional Finance
Suggested Institutions and Initiatives for Islamic Finance
Legal Infrastructure
UNCITRAL, World Bank, ADB (Law & Policy Reform Program)
Stability Board for Islamic Finance SBIF IDB initiate Islamic Law & Policy Program
Regulation & Supervision Framework
BCBS, IOSCO, IAIS Strengthen IFSB (have three Assistant Secretary Generals for Banking, Takaful and Capital Markets)
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Suggested International Infrastructure Initiatives-2
Infrastructure Institutions
Institutions for Conventional Finance
Suggested Institutions and Initiatives for Islamic Finance
Shariah Governance Regimes
N.A. SBIF coordinate the Shariah issues with AAOIFI, IsFA, IFSB and IIFM
Liquidity Infrastructure
IMF Establish IsMF to develop liquidity management framework in coordination with IDB IFSB, IIFM, IILM and LMC
Information Infrastructure & Transparency
IFSR, World Bank (FSAP), FSB
SBIF coordinate accounting and auditing issues with AAOIFI, IFSB and IIRA
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Suggested International Infrastructure Initiatives-3
Infrastructure Institutions
Institutions for Conventional Finance
Suggested Institutions and Initiatives for Islamic Finance
Consumer Protection Architecture
IADI, OECD, World Bank
SBIF coordinate consumer protection issues with IFSB, CIBAFI, IADI
Human Capital & Knowledge Development
N.A. SBIF and IDB can coordinate with AAOIFI, CIBAFI, GIFDC, IDB, IFSB SBIF and IsMF and develop technical assistance programs to enhance knowledge and skills related to Islamic financial architecture
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