## Chapter 26 2025 SNA / Chapter 17 BPM7 Islamic finance: Annotated Outline ## Source details **Canonical URL:** [Chapter 26 2025 SNA / Chapter 17 BPM7 Islamic finance: Annotated Outline](https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-sna-ch-26-bpm-ch-17.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bmp7/chapters/ao-sna-ch-26-bpm-ch-17.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bmp7/chapters/ao-sna-ch-26-bpm-ch-17.pdf.json) --- ### Introduction - Purpose: present complete and consistent guidance to properly account for Islamic finance and insurance in the national accounts and external sector statistics. - Scope: - Review special types of financing arrangements: sale-based contract, lease-based contract, equity-based contracts, or profit/loss sharing. - Address nature of income on certain financial instruments (deposits, loans, debt securities), sector classification of Islamic financial institutions, measurement of output including FISIM, treatment of insurance-like business, and classification of select Islamic financial instruments. - Clarify concept of economic ownership in Islamic finance, and Islamic insurance and reinsurance arrangements. - Drafting coordination: SNA editors will include issues relevant to national accounts (2025 SNA); BPM7 will include issues relevant to external sector statistics. ### I. General overview of Islamic finance and insurance - Context and rationale: - Traditional and Islamic finance co-exist in several countries; Islamic finance and insurance are prevalent in some regions and certain reports estimate that it has grown significantly in the last 10 years2. - The Islamic financial system follows Shari’ah law and key principles related to riba, gharar, maysir, and avoidance of financing activities deemed harmful to society; parties must share risks and rewards of business activities. - Implications for macro statistics: - These principles affect measures of output and property income, classification of financial instruments, institutional sector classification, and economic ownership of non-financial assets under certain arrangements. - Insurance overview: - Introduce main takaful models, types of takaful, related regulations and basic accounting standards. - Chapter structure (high level): - Section I: general overview - Section II: economic ownership of non-financial assets - Section III: Islamic financial institutions/entities’ sectoring - Section IV: Islamic units’ measures of output in the SNA production account - Section V: nature of returns on Islamic investments in the primary income account - Section VI: classification of Islamic financial instruments in the accumulation accounts, including balance sheet ### II. Economic ownership of non-financial assets under specific Islamic financial arrangements - Concepts: - Brief discussion of SNA/BPM concepts of legal ownership versus economic ownership. - Specific considerations for Islamic finance: - Islamic financial corporations generate financing via sales, lease, trade credits, and equity participation. - Islamic accounting standards recommend recording ownership of non-financial assets related to certain financial schemes to the legal owners (IFIs). - Recommended treatments: - Economic ownership treatment will be discussed for arrangements “similar to” sales/lease/equity financing, including Murabaha, Bai Muajjal, Mudaraba, Istina, operating or financing Ijarah. - Default scenarios: - Economic ownership when clients default on payments will be considered. - Illustrations: sourced largely from GN IF.1 (Annex F.3). ### III. Islamic financial institutions/entities sectoring - Purpose: profile characteristics of Islamic financial institutions (IFIs) and relate them to SNA/BPM financial corporations subsectors. - Types and allocations: - Deposit-taking corporations (S122) can include Islamic banks, Commercial and development banks, Islamic microfinance Banks, Online banks, and Islamic windows in conventional banks. - S124 can include non-MMF investment funds, off-balance sheet restricted investment accounts, and Hajj Funds. - Operators of takaful and re-takaful are classified to S126 (financial auxiliaries); takaful funds (including takaful windows) are classified to S128 (insurance corporations). - IFIs span subsectors including S122, S124, S125, S126, S127, S128. - Takaful specifics: - Three groups of units arise from fulfillment of Shari’ah principles and need distinct consideration in SNA and BPM frameworks. - Main takaful models, types, regulations, and accounting standards will be clarified. - Illustrations: sourced largely from GN IF.1 (Annexes D and F.2 on sectoring). ### IV. Islamic financial institutions’ measures of output in the SNA production account - Output by sector/subsector: - Present output of IFIs including explicit charges and implicit service charges (i.e., FISIM-type output) where relevant. - FISIM guidance: - The FISIM formula in the 2008 SNA/BPM6 should be used to calculate financial intermediation services provided by Islamic deposit-taking corporations3. - Note: decision on which reference rates to use for calculating Islamic FISIM is subject to testing and further discussion with the AEG/BOPCOM. - Takaful underwriting: - Further discussion on the underwriting surplus in takaful arrangements to identify service components handled differently from conventional insurance. - Illustrations: sourced largely from GN IF.1 (Annexes D and F.4). ### V. The nature of returns on Islamic investments in the primary income account of SNA/BPM - Focus: - Discuss concepts of interest and similar returns4 with reference to investment income on Islamic instruments resembling deposits, loans, debt securities, and equity securities. - Accounting flexibility: - Introduce possible new breakdowns in the property income sub-account ("of which" breakdowns) to provide flexibility for economies with significant Islamic financial activities. - Illustrations: sourced largely from GN IF.1 (Annexes F1, B and C). ### VI. Classification of Islamic financial instruments in the accumulation accounts, including balance sheets - Slotting-in approach: - Recommend approach to fit Islamic financing arrangements into SNA/BPM instruments, including classification criteria and relationship to investment income. - Definitions and purposes: - Define and state purpose of Islamic instruments such as Qard, Wadia, Mudaraba, Restricted Mudaraba, types of Sukuk, Ijara, Musharaka, etc. - Linkages: - Link specific instruments to relevant financial corporations’ subsectors and to functional categories of BPM7 and related investment income. - Illustrations: sourced largely from GN IF.1 (Annexes B and C). ### Schematic overview (summary of covered topics) - I: Background; Key principles; Outline of the chapter. - II: Legal vs economic ownership; Regulatory framework; Economic ownership under sales, lease, equity participation, etc.; Defaults. - III: Islamic finance by business type; Islamic insurance by business type; Allocation to subsectors S122, S124, S125, S126, S127, S128. - IV: Output of IFIs by subsector; FISIM methodology; Reference rate and terminology; Alternative output perspectives. - V: Concept of interest and similar returns; Investment income on instruments resembling deposits, loans, debt securities, equity securities. - VI: Factors for classifying Islamic financial instruments; Classification into currency and deposits, loans, debt securities, trade credits and advances, equity, receivables; Links to financial corporations and BPM7 functional classification. - Annex: summary of Islamic finance and insurance arrangements and their recording in the sequence of accounts. --- _Source: https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-sna-ch-26-bpm-ch-17.pdf_