## BPM7 Chapter 17/2025 SNA Chapter 26. Islamic Finance and Insurance: Annotated Outline

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### Introduction
- The new SNA/BPM chapter will present complete and consistent guidance to account for Islamic finance and insurance in the national accounts and external sector statistics.
- It will review special financing arrangements: sale-based contracts, lease-based contracts, equity-based contracts, and profit/loss sharing.
- Topics to be addressed include:
  - The 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.
  - Clarification of economic ownership in Islamic finance, and Islamic insurance and reinsurance arrangements.

### I. General Overview of Islamic Finance and Insurance
- Purpose:
  - Provide an overview of Islamic finance and insurance in relation to the global financial system to help compilers in Islamic and non-Islamic countries use 2025 SNA/BPM7.
- Key elements:
  - Islamic finance follows Shari’ah law; key principles relate to riba (equivalent to receipts and payments interest), gharar (excessive uncertainty), maysir (gambling), prohibition of financing activities deemed harmful to society, and risk/reward sharing.
  - Islamic financial institutions (IFIs) and Islamic financial standard setting institutions adapt to Shari’ah norms to ensure a sound Shari’ah-compliant financial system.
- Implications for national accounts and external statistics:
  - Principles affect measures of output, property income, and classification of financial instruments.
  - Considerations arise for classification of institutional sectors and economic ownership of non-financial assets under certain arrangements.
- Insurance focus:
  - Introduce main takaful models, types of takaful, related regulations, and basic accounting standards.
- Structure:
  - The chapter will contain sections I–VI covering overview, economic ownership, sectoring, measures of output, nature of returns, and instrument classification (see Schematic Overview).

### II. Economic Ownership of Non-Financial Assets Under Specific Islamic Financial Arrangements
- Concepts:
  - Review economic versus legal ownership in the SNA/BPM context.
- Islamic arrangements considered:
  - Islamic financial corporations provide financing through 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).
- Treatments to be developed:
  - Recommended treatment of economic ownership in arrangements similar to sales/lease/equity financing, including Murabaha, Bai Muajjal, Mudaraba, Istina, and operating or financing Ijarah.
  - Economic ownership when clients default on payments in financing arrangements.
- Illustrations:
  - Examples will be provided, largely sourced from Annex F.3 of GN IF.1.

### III. Islamic Financial Institutions/Entities Sectoring
- Goal:
  - Profile IFIs and relate them to SNA/BPM financial corporations subsectors.
- IFIs span many subsectors:
  - Deposit-taking corporations (S122) can include Islamic banks, commerce and development banks, commercial 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.
- Islamic insurance (takaful):
  - Takaful operators classified to S126 (financial auxiliaries).
  - Takaful funds (including takaful windows) classified to S128 (insurance corporations).
  - The fulfilment of Shari’ah principles results in three groups of units that need distinct consideration in SNA and BPM frameworks.
  - Main takaful models, types, regulations, and basic accounting standards will be clarified.
- Illustrations:
  - Sourced largely from Annexes D and F.2 of GN IF.1.

### IV. Islamic Financial Institutions’ Measures of Output in the SNA Production Account
- Output presentation:
  - Output of IFIs by institutional sector/subsector, including output related to explicit and implicit service charges (FISIM).
- FISIM guidance:
  - The FISIM formula in the 2008 SNA/BPM6 should be used to calculate financial intermediation services provided by Islamic deposit-taking corporations.
  - Decision on reference rates to use for calculating Islamic FISIM is subject to testing and further discussion with the AEG/BOPCOM.
- Insurance-specific output:
  - Further discussion on underwriting surplus in takaful arrangements to better arrange subprocesses of Islamic insurance in macroeconomic statistics and to identify the service component distinct from conventional insurance.
- Illustrations:
  - Sourced largely from Annex D and F.4 of GN IF.1.

### V. The Nature of Returns on Islamic Investments in the Primary Income Account of SNA/BPM
- Focus:
  - Discuss concepts of interest and similar returns, with reference to investment income on Islamic instruments that resemble deposits, loans, debt securities, and equity securities.
- Accounting flexibility:
  - Introduce the possibility of new breakdowns in the property income sub-account to accommodate returns on Islamic instruments; these “of which” breakdowns provide flexibility for economies with significant Islamic financial activities.
- Editorial note:
  - IFTT to refine the wording of the proposed definition of “interest and similar returns” in consultation with editors of the 2025 SNA and BPM7.
- Illustrations:
  - Sourced largely from Annexes F1, B, and C of GN IF.1.

### VI. The Classification of Islamic Financial Instruments in the Accumulation Accounts and Balance Sheet Account
- Objective:
  - Recommend a slotting-in approach showing how Islamic financing arrangements fit into SNA/BPM instruments, and the criteria for classification.
- Content:
  - Define and state the purpose of Islamic instruments such as Qard, Wadia, Mudaraba, Restricted Mudaraba, types of Sukuk, Ijara, Musharaka, etc.
  - Link specific instruments to relevant financial corporations’ subsectors.
  - Discuss links between Islamic financial instruments and functional categories of BPM7, and related investment income.
- Illustrations:
  - Sourced largely from Annexes B and C of GN IF.1.

### Schematic Overview (chapter structure summary)
- I General Overview of Islamic Finance
  - Background; key principles and relevance for national accounts/external sector statistics; chapter outline.
- II Economic Ownership of Nonfinancial Assets Under Specific Islamic Financial Arrangements
  - Legal vs economic ownership; regulatory framework; economic ownership under sales financing types, lease financing types, equity participation financing types; ownership when clients default.
- III Islamic Financial Institutions/Entities Sectoring
  - IFIs by business type and allocation to subsectors: Deposit-taking institutions (S122); Non-MMF investment funds (S124); Other financial intermediaries (S125); Financial auxiliaries (S126); Captive financial institutions and money lenders (S127); Insurance corporations (S128).
- IV Islamic Financial Institutions’ Measures of Output in the Production Account
  - Output by subsector including direct and indirect services; FISIM methodology and reference rate; alternative perspectives on output measurement specific to Islamic Finance.
- V The Nature of Returns on Islamic Investments in the Primary Income Account
  - Concept of interest and similar returns; investment income on instruments resembling deposits, loans, debt securities, equity securities.
- VI The Classification of Islamic Financial Instruments in the Accumulation and Balance Sheet Accounts
  - Factors for classification; classification into currency and deposits, loans, debt securities, trade credits and advances, equity, receivables; links to financial corporations and BPM7 functional classification.

### Annex and References
- Annex: Summary of Islamic finance and insurance arrangements and their recording in the sequence of accounts (summary of chapter coverage).
- References cited for sourcing guidance:
  - GN IF.1 Islamic Finance in the National Accounts and External Sector Statistics.
  - UN paper “Perspectives on Islamic Finance in the National Accounts”.
  - Annex 4.3 of the IMF Monetary and Financial Statistics Manual and Compilation Guide, 2016.
- Key stakeholders consulted:
  - SNA and BPM Editors.
  - Islamic Finance Task Team.
  - IMF Statistics Department, Financial Institutions Division.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/final-annotated-outlines/bpm7-chapter-172025-sna-chapter-26-islamic-finance-and-insurance-annotated-outline.pdf_