IFSB Guidance on Lender of Last Resort Facilities for Islamic Banks
The IFSB Council resolved to approve the adoption of a guidance note on Sharī`ah-compliant lender-of-last-resort facilities (GN-7) and a technical note on financial inclusion and Islamic finance (TN-3). The guidance note on lender-of-last-resort facilities complements the existing IFSB guidance on Sharī`ah-compliant lender of last resort (SLOLR). It aims to offer international benchmark guidelines to regulatory and supervisory authorities for developing and offering SLOLR facilities as part of the financial safety net arrangement for institutions offering Islamic financial services in their jurisdictions.
The guidance note is primarily intended to serve as a benchmark for central banks in establishing and operationalizing an SLOLR framework that applies to full-fledged Islamic commercial banks and Islamic commercial banks that are subsidiaries of conventional banks. Specifically, the guidance note covers the following:
- Preconditions for developing and implementing an SLOLR mechanism, including considerations of moral hazard and achieving a level playing field between the conventional and Islamic systems
- Sharī`ah perspectives on instruments and operating modalities for developing SLOLR facilities for institutions offering Islamic financial services
- Supervisory and operational considerations for SLOLR
- Broader integration of SLOLR within the macro-prudential framework and its implications from a monetary policy perspective
The technical note on financial inclusion provides guidance on good practices in regulating the financial sector to enhance financial inclusion through Islamic finance, while identifying the main challenges and emerging issues, as experienced by the market players and regulators, in microfinance and financial inclusion related to Islamic financial services. The note also aims to provide international benchmark guidelines on regulatory and supervisory policies to support financial inclusion initiatives in the Islamic financial services industry and on the application of the proportionality principle. The scope of the technical note includes the banking sector, the non-bank financial institutions, and the Islamic capital market with role in promoting financial inclusion, where needed.
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Keywords: International, Banking, Lender of Last Resort, Sharī`ah, Fintech, SLOLR, Islamic Banking, Guidance, IFSB
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