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June 20, 2017

IMF published a staff report that presents country experiences (in the form of case studies) with reforms to strengthen regulatory oversight of the Islamic banking sector. The report reviews experiences with, and the progress made, in adapting prudential, safety nets and resolution frameworks to the specifics of Islamic banking. The countries, for which detailed case studies have been undertaken, are Bahrain, Djibouti, Indonesia, Kenya, Kuwait, Malaysia, Nigeria, Pakistan, Sudan, Turkey, and the United Kingdom.

This background paper is a supplement to the board paper on “Ensuring Financial Stability in Countries with Islamic Banking (IB) Sectors.” This assessment is expected to help identify common challenges that these countries face in reforming their regulatory frameworks and to distill best practices. The case studies broadly analyze the following information:

The scale, structure, and growth of the Islamic finance industry, to give an indication of the significance of the Islamic banking sector in the financial industries of the various countries

The corporate and balance sheet structures of the Islamic banks, to help identify financial stability risks that the Islamic banks are exposed to, including both standard banking risks and risks that are unique to the sector

The regulatory, governance, and supervisory frameworks as well as the supporting financial infrastructure for liquidity management, effective resolution, and deposit insurance, to provide insights on the extent to which countries have adapted their frameworks to the specifics of Islamic finance, to address the identified stability risks

Policy options and lessons for reform


The case studies highlight important, but uneven, progress in adapting the legal, regulatory, and supervisory frameworks to the specificities of Islamic banking. Shari’ah governance frameworks have been established in most countries and there has been an increase in the number of countries adopting centralized Shari’ah boards, albeit from a low base. Meanwhile, progress in adapting the prudential, consumer protection, liquidity management, safety nets, and resolution frameworks remains uneven across countries. Bahrain and Malaysia have made the most advances in systematically adapting their policy frameworks to Islamic finance, in line with standards issued by the Islamic Financial Services Board and the Accounting and Auditing Organization for Islamic Financial Institutions.


Related Link: Staff Report (PDF)

Keywords: International, IMF, Banking, Islamic Banking, Shari'ah, Financial Stability, Regulatory Reforms

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