## Comprehensive internationally-endorsed recommendations to account for Islamic finance

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### Nature and rationale
- Islamic finance follows Shari’ah principles prohibiting "riba" (interest), "gharar" (excessive uncertainty), "maysir" (gambling), and short sales or financing activities considered harmful to society; parties must share risks and rewards and transactions should have a real economic purpose without undue speculation.
- Islamic financial corporations use special financing arrangements such as profit and loss sharing joint ventures, profit and loss sharing partnerships and leasing to comply with Shari’ah.
- The System of National Accounts, 2008 (2008 SNA) and the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) do not currently contain comprehensive internationally-endorsed recommendations to account for Islamic finance within a holistic macroeconomic statistical framework.

### Prevalence and magnitude
- Global Islamic finance asset statistics (Islamic Finance Development Report 2020):
  - Global Islamic finance assets increased from US$1761 billion in 2012 to US$2875 billion in 2019.
  - In 2019, GCC held US$1253 billion, or 43.6 per cent, of global Islamic finance assets.
  - Middle East and North Africa (excluding GCC) held US$755 billion, or 26.3 per cent.
  - Southeast Asia held US$685 billion, or 23.8 per cent.
- By segment in 2019:
  - Islamic banking assets: US$1993 billion (69.3 per cent).
  - Islamic capital markets (Sukuk, other Islamic financial institutions and Islamic funds): US$831 billion (28.9 per cent).
  - Islamic insurance sector (gross contributions): US$51 billion (1.8 per cent).
- Islamic banking is considered systemically important in 15 jurisdictions of the Islamic Financial Services Board (IFSB).

### Main statistical issues to resolve
- Classification of Islamic financial instruments within the 2008 SNA and BPM6 frameworks and appropriate terminology for the investment income on instruments classified as deposits, loans and debt securities.
- Feasibility and terminology for applying the 2008 SNA FISIM formula to Islamic deposits and loans, including which reference rate(s) to use.
- Sectorization and output measurement for entities unique to Islamic finance (including Islamic windows and off-balance sheet restricted investment accounts).
- Determination of economic ownership of non-financial assets underlying sales, equity and leasing arrangements under Islamic finance versus legal ownership recorded in Islamic accounting frameworks.
- Statistical treatment of Islamic insurance and reinsurance (takaful and retakaful).

### Institutional response and task team
- Parallel updates of the 2008 SNA and BPM6 created an opportunity to develop coherent recommendations for Islamic finance in national and external sector accounts.
- An Islamic finance task team (IFTT) was formed in 2020 to develop recommendations addressing the identified issues.
- The IFTT drew on prior work by an Islamic finance task force (IFTF) formed in 2017 under the Intersecretariat Working Group on National Accounts (ISWGNA) and other existing materials from standard setters and statistical manuals.

### Scope of IFTT recommendations (six topics)
- Terminology for the investment income for Islamic deposits, loans and debt securities.
- Sectorization and output of Islamic financial entities.
- Economic ownership of non-financial assets related to sales, lease, and equity financing which are legally owned by Islamic financial corporations.
- Classification of Islamic financial instruments and corresponding investment income.
- Reference rates and terminology to calculate Islamic FISIM.
- Islamic insurance (takaful and retakaful).

### Terminology: investment income on Islamic deposits, loans and debt securities
- Recommendation (Issue 1.1): use the term "interest and similar returns" to:
  - Retain "interest" for continuity with 2008 SNA and BPM6 terminology for conventional instruments.
  - Use "similar returns" to describe broader interest-like returns on Islamic deposits, loans and debt securities.
  - Do not use the term "investment" in the terminology due to its broad meaning in the financial account and IIP.
- Presentation preference (Issue 1.2):
  - Prefer retaining current classification of investment income components, renaming "interest (D41)" to "interest and similar returns (D41)", and give economies with significant Islamic activities the option to create a sub-category within D41 labeled "Returns on Islamic deposits, loans and debt securities."
- Proposed SNA/BPM textual changes (Issues 1.3):
  - Amend paragraphs (e.g., SNA 7.113, SNA 7.114, BPM 11.48) to include "interest and similar returns" and explicitly include Islamic financial instruments among instruments that yield such returns.
  - Review paragraphs describing interest as a form of investment income to include "interest and similar returns" and consider footnote/examples of "similar returns" when first referenced.
  - No structural changes to SNA and BPM are proposed because returns on Islamic deposits, loans and debt securities are functionally parallel with interest payments by conventional banks.

### Sectorization and output of Islamic financial entities (issues 2.1–2.4)
- Entities identified for sectorization review:
  - Off-balance sheet restricted investment accounts.
  - Islamic windows in conventional banks.
  - Waqf funds established for a defined purpose and managed by financial institutions.
  - Hajj funds as dedicated vehicles for Muslims to save to perform pilgrimage duties.
- Table 1 summary recommendations (classification, sectorization, output methods):
  - Off-balance sheet restricted investment accounts
    - Institutional unit: Yes
    - Sectorization: Non-money market investment funds (S124)
    - Output: Sum of costs and FISIM on financing arrangements such as Murabaha and Ijarah
  - Islamic windows in conventional banks
    - Institutional unit: Yes
    - Sectorization: Deposit-taking corporations except the central bank (S122)
    - Output: Combination of FISIM, fees and commissions
  - Waqf funds
    - Institutional unit: Yes
    - Sectorization: Captive financial institutions and money lenders (S127)
    - Output: Sum of costs
  - Hajj funds
    - Institutional unit: Yes
    - Sectorization: Non-money market investment funds (S124)
    - Output: Sum of costs
- Off-balance sheet restricted investment accounts recommendation:
  - Classify such accounts that comply with Islamic finance accounting standards as institutional units because funds of account holders are placed in an investment fund managed independently, complete sets of accounts are maintained, Mudaraba contracts limit IFI authority, funds are not mixed with IFI funds, and the IFI’s link is limited to a share of investment income recorded as a single income item.
- Islamic windows recommendation:
  - For windows established to take deposits under Mudaraba with full accounts and independent management including a Shari’ah Council, treat Islamic windows as institutional units independent of the conventional banks.

### Waqf funds and Hajj funds: definitions and sectorization guidance
- Waqf funds:
  - Defined as a dedicated, open-ended asset fund managed according to Shari’ah principles; charitable institution is beneficiary and economic owner of all units; donors’ investments are irrevocable donations; waqf funds keep a complete set of accounts.
  - Recommendation: waqf funds meet criteria to be institutional units.
  - Sectorization: Captive financial institutions and money lenders subsector (S127).
  - Financial instrument classification: beneficiary has "other equity" (F519) claim on waqf fund assets.
  - Donors’ “purchases” of units imputed as miscellaneous current transfers (D75) by donors to the beneficiary.
- Hajj funds:
  - Term: "Hajj fund" — market enterprise managing long-term savings for individuals intending to undertake the Hajj in compliance with Shari’ah.
  - Institutional unit: Can be institutional units if legally established with autonomous management and complete accounts.
  - Sectorization:
    - If savings meet conditions of deposits: sectorize into deposit-taking corporations except the central bank (S122).
    - More commonly: sectorize into non-MMF investment funds subsector (S124) where savers bear investment performance risk.

### Calculation of output for Islamic financial entities
- Output methods depend on sectorization:
  - Sum of costs for many entities (financial auxiliaries managing funds and re-routing fees).
  - FISIM plus explicit fees for deposit-taking corporations (formula: (rL–rr)×YL+(rr–rD)×YD).
  - Explicit fees for financial auxiliaries and asset managers.
  - Wakalah fees for takaful/retakaful operators; sum of costs for takaful/retakaful funds.
- Example (waqf funds): fees payable by waqf fund to fund manager classified as:
  - Gross output (P11) of financial auxiliaries subsector (S126).
  - Intermediate consumption (P2) and gross output (P11) of captive financial institutions and money lenders subsector (S127).
  - Fees re-routed as payable by beneficiary to waqf fund; corresponding additional profit imputed to waqf fund payable as property income to beneficiary.

### Economic ownership of non-financial assets (Issues 3.1–3.2)
- Observation: Islamic accounting often records legal ownership of non-financial assets on Islamic financial corporations' balance sheets even when assets are not used productively by the corporation or held only briefly, which can give the impression of greater non-financial activity.
- Recommendations on economic ownership and recording:
  - Islamic financial corporations can establish separate institutional units that become the economic owner of underlying non-financial assets (e.g., real estate co-investment).
  - If no separate unit, Islamic financial corporations can act as facilitators by transferring economic ownership from seller to client so the IFI is not classified as economic owner.
  - Brief ownership by IFIs (constructive or physical possession) should not be considered economic ownership.
  - Economic owners should be the ultimate purchasers who obtain benefits or assume risks from use of assets.
  - Record acquisition when economic ownership changes hands; if unclear, entering in the books of transaction partners or physical possession and control is an indication (reference: 2008 SNA para 3.169).
  - If client defaults on payment, the client is still considered economic owner because default is a default on a financial payment; confiscation by IFI may be possible if feasible.

### Classification of Islamic financial instruments and decision factors (slotting-in approach)
- Sub-task team adopted a "slotting-in" approach within current SNA and BPM frameworks rather than a fundamentally new conceptual framework.
- Classification depends on substantive properties and may be conditional on particular features:
  - Decision factors include:
    - Form of institutional unit represented by recipient (equity only possible if recipient is a corporation).
    - Whether instrument provides profit with comparatively high reliability.
    - Whether instrument is recorded on IFI balance sheet.
    - Whether investment account holder has an investment-like claim on ventures/funds.
    - Whether investment account holder has claim on residual value of issuing institution.
    - Whether lender is supplier of goods/services (trade credit vs loan).
    - Whether instrument is negotiable.
    - Whether equity holdings exceed 10 per cent threshold for FDI.
    - Existing FDI relationships.
- Recommendation: construct a “decision tree” incorporating these parameters for a compilation guide to assist classification.

### FISIM: relevance, reference rates, scope, cross-border treatment, terminology, and empirical testing (Issues 5.1–5.6)
- Key research issues:
  - Relevance of using FISIM formula for Islamic deposit-taking corporations (Issue 5.1).
  - Reference rate(s) to use if FISIM formula applied (Issue 5.2).
  - Scope of Islamic instruments to include in Islamic FISIM (Issue 5.3).
  - Reference rate for exports/imports of Islamic FISIM (Issue 5.4).
  - Terminology for Islamic FISIM (Issue 5.5).
  - Invitation for empirical tests (Issue 5.6).
- Two options for Issue 5.1:
  - Option 1: Use the 2008 SNA FISIM formula—measure intermediation services as difference between borrower rates and a reference (service-free) rate plus difference between reference rate and depositor rate.
  - Option 2: Do not apply FISIM; measure intermediation services directly as income on Islamic loan-like instruments less distributions on Islamic deposit-like instruments.
- Options for reference rate (Issue 5.2):
  - Option 1: One unique reference rate for conventional and Islamic FISIM (consistent with 2008 SNA and BPM6).
  - Option 2: One unique reference rate with explicit recognition of different risk profiles for Islamic deposit-taking corporations.
  - Option 3: Different reference rates for conventional and Islamic FISIM, based on Shari’ah-compliant restrictions.
- Scope (Issue 5.3):
  - Examine inclusion of Qard, Wadiah, Amanah, Qard-hasan deposits in FISIM on deposits and Qard-hasan financing in FISIM on loans; note these may pay hibah or no investment income.
  - Preference to use total deposits and total loans rather than instrument-by-instrument approach.
- Cross-border reference rates (Issue 5.4):
  - Apply separate reference rates for each currency involved in cross-border Islamic deposits and loans; rate taken from financial markets of home market of currency (BPM6 para 10.130).
- Terminology (Issue 5.5):
  - Use "financing and investment income" and "distribution of profits to depositors/investors" aligned with investment income terminology for Islamic instruments.
- Empirical testing (Issue 5.6):
  - Empirical tests by three economies (Indonesia, Malaysia and the State of Palestine) revealed that using a single reference rate versus separate reference rates resulted in quite significant differences in nominal FISIM on conventional and Islamic deposits and loans.
  - Recommendation to invite economies to participate in empirical tests on reference-rate choices for domestic and cross-border FISIM on Islamic deposits and loans denominated in the same currency.

### Takaful and retakaful: classification, sectorization, output (Issues 6.1–6.3)
- Structural differences from conventional insurance:
  - Takaful arrangements are based on mutual assistance (ta’awun), donations commitment (tabarru’) and cooperative risk-sharing; participants, funds and operators constitute distinct groups.
- Institutional-unit recommendations (Issue 6.1):
  - Classify takaful operators and takaful funds as separate institutional units; similarly for retakaful operators and funds.
  - Two variations:
    - “Light” takaful: treat combined unit as an institutional unit and sectorize as conventional insurance where segregation and tabarru’ not required.
    - Takaful windows: treat as institutional units if identified assets/liabilities and separate capital/accounts exist.
- Sectorization (Issue 6.2):
  - Takaful operators → financial auxiliaries subsector (S126).
  - Takaful funds → insurance corporations subsector (S128).
  - "Light" takaful → insurance corporations subsector (S128).
  - Takaful windows → insurance corporations subsector (S128).
- Output calculation (Issue 6.3):
  - Takaful operators — output = wakalah fees charged to administer takaful funds and/or share of profits earned from investing takaful funds.
  - Takaful funds — output = sum of costs including wakalah fees payable to takaful operators and/or share of profit payable to takaful operators plus other intermediate consumption, if any.
  - "Light" takaful — calculate output using existing 2008 SNA methods for conventional insurance.
  - Takaful windows — output = sum of costs.
- Cross-border takaful/retakaful:
  - Resident takaful/retakaful providers supply services to non-residents and can purchase from non-resident providers; record these transactions in external sector statistics.
  - Measurement approaches:
    - Direct reporting by resident firms of exported/imported takaful/retakaful fees and transactions; or
    - Estimation using combinations of sources, including ratios and partner economy data.

### Annex B: classification of Islamic financial instruments (selected mappings)
- General principle: apply slotting-in approach mapping Islamic instruments into existing SNA/ESS instrument categories and investment income types, conditional on instrument features.
- Selected instrument mappings (FA = Financial asset classification; Income = recorded investment income):
  - Qard, Wadiah, Amanah (liabilities)
    - FA: Transferable deposits (F22) or Other deposits (F29)
    - Income: Interest and similar returns (D41)
  - Qard-hasan (liability)
    - FA: Other deposits (F29)
    - Income: Interest and similar returns (D41)
  - Mudaraba / Profit Sharing Investment Account (PSIA) — restricted vs unrestricted
    - Restricted Mudaraba FA options: Other deposits (F29) or Equity (F51)
    - Income: Interest and similar returns (D41) or Dividends (D421)
  - Participation term certificates
    - FA: Debt security (F3) or Equity security (F5)
    - Income: Interest and similar returns (D41) or Dividends (D421)
  - Profit and loss sharing certificates
    - FA: Other deposits (F29) or Debt securities (F3)
    - Income: Interest and similar returns (D41)
  - Sukuk (general)
    - FA: Debt security (F3) or Equity security (F5)
    - Income: Interest and similar returns (D41) or Dividends (D421)
  - Wakalah deposits
    - FA: Transferable deposits (F22) or Other deposits (F29)
    - Income: Interest and similar returns (D41)
  - Murabaha, Bai Muajjal, Bai Salam, Istisna'a, Tawarruq, Ju’alah, Istijrar (uses of funds)
    - Typical FA: Loans (F4) or Trade credits and advances (F81)
    - Income: Interest and similar returns (D41)
  - Ijarah
    - Operating Ijarah: treated as operating lease; market output (P11)
    - Financing Ijarah: FA: Loans (F4); Income: Interest and similar returns (D41)

### Outstanding issues and consultation questions
- Outstanding issue highlighted: choice of reference rates to calculate FISIM (Issue 5.2) — no conclusive view in draft; empirical testing recommended.
- IFTT consultation questions posed for Global Consultation and AEG/BOPCOM Meetings include, among others:
  - Agreement on term "interest and similar returns" (Issues 1.1–1.3).
  - Agreement on sectorization and methods to calculate output for entities in Annex D and Table 1 (Issues 2.1–2.4).
  - Agreement on economic ownership outcomes and client default treatment in Murabaha and Bai Muajjal (Issues 3.1–3.2).
  - Agreement on slotting-in classification and construction of a decision tree (Issues 4.1–4.2).
  - Agreement on use of FISIM formula for Islamic deposit-taking corporations (Issue 5.1) and which reference rates to use (Issues 5.2–5.4); and participation in empirical tests (Issue 5.6).
  - Agreement on classification, sectorization, and output methods for takaful/retakaful and related models (Issues 6.1–6.3).
  - Support for inclusion of special SNA/BPM section or appendix on Islamic finance and development of an Islamic finance compilation guide and optional satellite account.

*Guidance note — Islamic finance task team (IFTT); International Monetary Fund*

### 1. Comprehensive internationally-endorsed recommendations to account for Islamic finance

### 1. Comprehensive internationally-endorsed recommendations to account for Islamic finance

### Nature and rationale
- Islamic finance follows Shari’ah principles prohibiting "riba" (interest), "gharar" (excessive uncertainty), "maysir" (gambling), and short sales or financing activities considered harmful to society; parties must share risks and rewards and transactions should have a real economic purpose without undue speculation.
- Islamic financial corporations use special financing arrangements such as profit and loss sharing joint ventures, profit and loss sharing partnerships and leasing to comply with Shari’ah.
- The System of National Accounts, 2008 (2008 SNA) and the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) do not currently contain comprehensive internationally-endorsed recommendations to account for Islamic finance within a holistic macroeconomic statistical framework.

### Prevalence and magnitude
- According to the Islamic Finance Development Report 2020:
  - Global Islamic finance assets increased from US$1761 billion in 2012 to US$2875 billion in 2019.
  - In 2019, GCC held US$1253 billion, or 43.6 per cent, of global Islamic finance assets.
  - Middle East and North Africa (excluding GCC) held US$755 billion, or 26.3 per cent.
  - Southeast Asia held US$685 billion, or 23.8 per cent.
  - By segment in 2019:
    - Islamic banking assets: US$1993 billion (69.3 per cent).
    - Islamic capital markets (Sukuk, other Islamic financial institutions and Islamic funds): US$831 billion (28.9 per cent).
    - Islamic insurance sector (gross contributions): US$51 billion (1.8 per cent).
  - Islamic banking is considered systemically important in 15 jurisdictions of the Islamic Financial Services Board (IFSB).

### Main statistical issues to resolve
- Classification of Islamic financial instruments within the 2008 SNA and BPM6 frameworks and appropriate terminology for the investment income on instruments classified as deposits, loans and debt securities.
- Feasibility and terminology for applying the 2008 SNA FISIM formula to Islamic deposits and loans, including which reference rate(s) to use.
- Sectorization and output measurement for entities unique to Islamic finance (including Islamic windows and off-balance sheet restricted investment accounts).
- Determination of economic ownership of non-financial assets underlying sales, equity and leasing arrangements under Islamic finance versus legal ownership recorded in Islamic accounting frameworks.
- Statistical treatment of Islamic insurance and reinsurance (takaful and retakaful).

### Institutional response and task team
- The current parallel updates of the 2008 SNA and BPM6 created an opportunity to develop coherent recommendations for Islamic finance in national and external sector accounts.
- An Islamic finance task team (IFTT) was formed in 2020 to develop recommendations addressing the identified issues.
- The IFTT drew on prior work by an Islamic finance task force (IFTF) formed in 2017 under the Intersecretariat Working Group on National Accounts (ISWGNA) and other existing materials from standard setters and statistical manuals.

### Scope of IFTT recommendations (six topics)
- Terminology for the investment income for Islamic deposits, loans and debt securities.
- Sectorization and output of Islamic financial entities.
- Economic ownership of non-financial assets related to sales, lease, and equity financing which are legally owned by Islamic financial corporations.
- Classification of Islamic financial instruments and corresponding investment income.
- Reference rates and terminology to calculate Islamic FISIM.
- Islamic insurance (takaful and retakaful).

### Observations on functional equivalence and nuance
- Returns on Islamic deposits, loans and debt securities may be functionally indistinguishable from conventional interest flows but can represent a broader concept that may include equity-like, rental or sales features; the 2008 SNA and BPM6 may need nuance to accommodate such broader investment income concepts.
- Islamic banks may establish separate entities or Islamic windows within conventional banks; some entities unique to Islamic finance (e.g., off-balance sheet restricted investment accounts, waqf funds, hajj funds) require assessment as potential institutional units, their sectorization, and output calculation.

### Economic ownership principles and implications
- Economic ownership in the 2008 SNA and BPM6 is based on rewards, risks and the identity of the actual user of the underlying non-financial assets in production; assets should be recorded on the balance sheets of their economic rather than legal owner.
- For certain Islamic financing arrangements, legal ownership is often recorded on the balance sheets of Islamic financial corporations under Islamic accounting frameworks; guidance is required on recording economic ownership in national and external sector accounts to ensure correct sectorization and output measurement.
- Financing arrangements mentioned for review include Murabaha, Bai Muajjal, Mudaraba, diminishing Musharaka, Bai Salam, Istisna'a, Operating Ijarah, Financing Ijarah and Tawarruq.

### Evidence on FISIM reference rates and empirical findings
- Some economies use separate reference rates to calculate FISIM on conventional and Islamic deposits and loans denominated in the same currency, which appears inconsistent with the 2008 SNA recommendation to use a single reference rate.
- Empirical tests by three economies (Indonesia, Malaysia and the State of Palestine) revealed that using a single reference rate versus separate reference rates resulted in quite significant differences in nominal FISIM on conventional and Islamic deposits and loans.
- The IFTT had not previously discussed the reference rate to use for cross-border FISIM on Islamic deposits and loans; the guidance note addresses feasibility of using FISIM for Islamic deposit-taking corporations and recommends reference rates.

### Options considered for terminology and presentation of investment income on Islamic debt-like instruments
- Terminology alternatives considered for interest-like returns on Islamic deposits, loans and debt securities:
  - “interest and similar investment returns”; and
  - “financing and investment income”.
- Presentation options for updated SNA and BPM:
  - a. Assign a separate code to these returns within interest (D41) or its proposed new nomenclature, taking into account the universality of international statistical standards; or
  - b. Retain current classification of investment income but allow economies with significant Islamic financial activities the option to create a sub-category within interest (D41) or its proposed new nomenclature to present these returns.
- The sub-task team reviewed the 2008 SNA and BPM6 to identify how relevant paragraphs could be nuanced to reflect these interest-like returns.

### Entities and units identified for sectorization review
- Off-balance sheet restricted investment accounts.
- Islamic windows in conventional banks.
- Waqf funds established for a defined purpose and managed by financial institutions.
- Hajj funds as dedicated vehicles for Muslims to save to perform pilgrimage duties.

*Guidance note prepared by the Islamic finance task team (IFTT) providing recommendations to account for Islamic finance in national accounts and external sector statistics.*

### Annex F.2 provides more details on these entities.

### if1-gn-islamic-finance-eng - Annex F.2 provides more details on these entities.

### Economic ownership of non-financial assets and client default (Issues 3.1–3.2)
- Islamic financial corporations often generate income through financing arrangements such as Murabaha, Bai Muajjal, Mudaraba, diminishing Musharaka, Bai Salam, Istisna'a, Operating Ijarah, Financing Ijarah and Tawarruq which include the sale or leasing of underlying goods and equity financing (paragraph 18).
- Islamic finance accounting standards recommend recording the ownership of underlying non-financial assets on the balance sheets of Islamic financial corporations even when assets:
  - are not used in productive activities by the corporation, or
  - are held only briefly (paragraph 18).
- Statistical risk: balance sheets may give the apparent impression that Islamic financial corporations are more involved in non-financial activities than is economically true, creating a need to determine the economic ownership of these non-financial assets (paragraph 18, footnote 17).
- When clients default on payment in financing arrangements such as Murabaha or Bai Muajjal, there is a need to determine the economic ownership of the non-financial assets recorded on Islamic financial corporations' balance sheets (paragraph 19).
- Related detailed discussions and descriptions are provided in Annex F.2 and Annex F.3 (opening lines and paragraph references).

### Classification of Islamic financial instruments and investment income (Issues 4.1–4.2)
- The sub-task team adopted a "slotting-in" approach within current SNA and BPM frameworks rather than a fundamentally new conceptual framework, anticipating some possible revisions in terminology such as to 'interest' (paragraph 20).
- The slotting-in approach aims to assess coverage, factual description and proposed accounting treatment for Islamic financial instruments and may be more suitable for some instruments than others; a “decision tree” for a compilation guide was discussed to facilitate future classification decisions (paragraphs 20–21).
- Classification depends on substantive properties of instruments; proposed classifications may be conditional on particular features of instruments (paragraph 21).

### Reference rates, terminology and calculation of Islamic FISIM (Issues 5.1–5.6)
- Key research issues identified (paragraph 22):
  - Relevance of using the FISIM formula to measure services of Islamic deposit-taking corporations (issue 5.1).
  - Reference rate to use to calculate FISIM on Islamic deposits and loans if FISIM formula is used (issue 5.2).
  - Scope of Islamic financial instruments to include in Islamic FISIM (issue 5.3).
  - Reference rate to use in calculation of exports and imports of Islamic FISIM (issue 5.4).
  - Terminology to use in the Islamic FISIM formula (issue 5.5).
  - Invitation for economies to participate in empirical tests (issue 5.6).
- Two options for issue 5.1 (paragraph 23):
  - Option 1: Use the FISIM formula in the 2008 SNA—measure intermediation services as difference between borrower rates and a reference (service-free) rate plus difference between reference rate and depositor rate.
  - Option 2: Do not apply the FISIM concept to Islamic deposit-taking corporations; instead measure financial intermediation services directly as income on Islamic loan-like instruments less distributions on Islamic deposit-like instruments.
- Options for the reference rate if FISIM formula is used (issue 5.2, paragraph 24):
  - Option 1: One unique reference rate for conventional and Islamic FISIM (consistent with 2008 SNA and BPM6).
  - Option 2: One unique reference rate with explicit recognition of different risk profiles for Islamic deposit-taking corporations.
  - Option 3: Different reference rates for conventional and Islamic FISIM, based on the prohibition on interest and Shari’ah-compliant activity restrictions.
- Scope issues (issue 5.3, paragraph 25):
  - Examination of whether Qard, Wadiah, Amanah, and Qard-hasan deposits should be included in FISIM on deposits and whether Qard-hasan financing should be included in FISIM on loans, noting these may pay hibah or no investment income.
  - Consideration of instrument-by-instrument classification approach for FISIM calculation.
- Cross-border reference rates (issue 5.4, paragraph 26): assessment of suitable reference rates for cross-border FISIM on Islamic deposits and loans.
- Terminology recommendations (issue 5.5, paragraph 27):
  - Use terms such as "financing and investment income" in place of "interest receipts" and "distribution of profits to depositors/investors" in place of "payments of interest to depositors."
  - Align recommended terminologies with those for investment income for Islamic deposits, loans and debt securities.
- Empirical testing (issue 5.6, paragraph 28):
  - Feasibility of inviting economies to test reference-rate choices for domestic and cross-border FISIM on Islamic deposits and loans denominated in the same currency, due to significant differences observed in empirical tests conducted by three economies under the IFTF.

### Takaful and retakaful (Issues 6.1–6.3)
- Sub-task team discussed differences between takaful/retakaful arrangements and conventional insurance and options to resolve:
  - Whether takaful operators and takaful funds should be separate institutional units (issue 6.1).
  - Sectorization of takaful operators and takaful funds if separate institutional units (issue 6.2).
  - Calculation of output of takaful operators and takaful funds if they are separate institutional units (issue 6.3) (paragraph 29).
- Rationale: Shari’ah principles result in three groups of units in takaful/retakaful arrangements—takaful participants, takaful funds and takaful operators—and Islamic finance accounting standards require separate complete sets of accounts and balance sheets for takaful funds and takaful operators, prompting evaluation of classification as institutional units under SNA rules (paragraph 30).
- Recommendations and conclusions for takaful apply equally to retakaful activities (paragraph 30).

### Terminology recommendation for investment income on Islamic deposits, loans and debt securities (Issues 1.1–1.3)
- Issue 1.1 recommendation (paragraph 31):
  - Use the term "interest and similar returns" to:
    - Retain "interest" for continuity with 2008 SNA and BPM6 terminology for conventional instruments.
    - Use "similar returns" to describe broader interest-like returns on Islamic deposits, loans and debt securities.
  - Do not use the term "investment" in the terminology due to its broad meaning in the financial account and IIP.
- Issue 1.2 presentation preference (paragraph 32):
  - Prefer second option: retain current classification of investment income components, rename "interest (D41)" to "interest and similar returns (D41)", and give economies with significant Islamic activities the option to create a sub-category within D41 labeled "Returns on Islamic deposits, loans and debt securities."
  - This preserves universality of international statistical standards.
- Issue 1.3 proposed textual changes (paragraphs 33–34):
  - Recommend changing SNA and BPM key paragraphs to include "interest and similar returns" and to describe that term as a form of investment income receivable on deposits, debt securities, loans and possibly other accounts receivable, explicitly including Islamic financial instruments (proposed edits to SNA 7.113, SNA 7.114, BPM 11.48).
  - Recommend reviewing all paragraphs describing interest as a form of investment income to include "interest and similar returns" and exploring footnote/examples of "similar returns" when first referenced.
  - No structural changes to SNA and BPM are proposed because returns on Islamic deposits, loans and debt securities are functionally parallel with interest payments by conventional banks (paragraph 34).

### Sectorization and output of Islamic financial entities (Issues 2.1–2.4)
- The sub-task team agrees with recommended sectorization of Islamic financial corporations and methods to calculate their output as set out in annex D and discussed further for entities in table 1 (paragraph 35).
- Table 1: Summary of recommendations for classifying, sectorizing and calculating output of Islamic financial entities (paragraph 35 and table content):
  - Off-balance sheet restricted investment accounts
    - Are they institutional units (issue 2.2)? Yes
    - Sectorization (issue 2.3): Non-money market investment funds (S124)
    - Methods to calculate output (issue 2.4): Sum of costs and FISIM on financing arrangements such as Murabaha and Ijarah
  - Islamic windows in conventional banks
    - Are they institutional units? Yes
    - Sectorization: Deposit-taking corporations except the central bank (S122)
    - Methods to calculate output: Combination of FISIM, fees and commissions
  - Waqf funds
    - Are they institutional units? Yes
    - Sectorization: Captive financial institutions and money lenders (S127)
    - Methods to calculate output: Sum of costs
  - Hajj funds
    - Are they institutional units? Yes
    - Sectorization: Non-money market investment funds (S124)
    - Methods to calculate output: Sum of costs
- Issue 2.2 institutional-unit recommendation for off-balance sheet restricted investment accounts (paragraph 36):
  - Recommend classifying such accounts that comply with Islamic finance accounting standards as institutional units because:
    - funds of account holders are placed in an investment fund managed independently from the Islamic bank (IB);
    - a complete set of accounts including financial position showing equity of account holders is maintained;
    - Mudaraba contracts do not give the IB authority over decisions regarding use and distribution of funds, only administration and management;
    - funds of the IB are not mixed with funds in these accounts;
    - the IB's link to the accounts is limited to its share of investment income as Mudarib, recorded as a single income item in the IB’s income statement.
- Islamic windows (paragraph 37):
  - Annex F.2 outlines different organizational forms of Islamic windows.
  - For Islamic windows within conventional banks established to take deposits under Mudaraba and required to maintain a full set of accounts and independent management including a Shari’ah Council, the sub-task team recommends treating these Islamic windows as institutional units independent of the conventional banks.

*International Monetary Fund*

### 38. Annex F.2 describes the different waqf arrangements and how they relate to waqf funds.

### 38. Annex F.2 describes the different waqf arrangements and how they relate to waqf funds.

### Waqf funds — definition and institutional-unit recommendation (paragraph 38; 42)
- Waqf fund is defined as a distinctive arrangement in which a charitable institution (such as a waqf) contracts with a fund manager to establish a dedicated, open-ended asset fund managed according to Shari’ah principles and open to the public to make donations by “purchasing” units of the fund.
- The charitable institution is the beneficiary and is the economic owner of all the units.
- Under the agreement:
  - the waqf fund will reinvest or distribute specified amounts of the fund's profits to the beneficiary;
  - the waqf fund will charge fund management fees;
  - the donor's investment in the fund constitutes an irrevocable donation to the beneficiary;
  - the function of the fund is to provide financial management of the beneficiary's portfolio of assets.
- Waqf funds are required to keep a complete set of accounts.
- Recommendation: waqf funds meet the criteria to be institutional units.
- Sectorization recommendation (paragraph 42):
  - Waqf funds should be sectorized into the captive financial institutions and money lenders subsector (S127), reflecting that the beneficiary is the sole client and these funds are similar to endowment funds.
  - Financial instrument classification: the beneficiary has an "other equity" (F519) claim on the assets of the waqf fund.
  - “Purchases” of units in the waqf fund by donors should be imputed as miscellaneous current transfers (D75) by donors to the beneficiary.

### Hajj funds — definition and sectorization guidance (paragraph 39; 43)
- Term used: "Hajj fund" — a market enterprise that undertakes as a significant part of its activities the management of long term savings open to individuals intending to undertake the Hajj pilgrimage in compliance with Shari’ah principles.
- Recommendation: Hajj funds can be considered institutional units if they are legally established entities with autonomous management and keep a complete set of financial accounts.
- Sectorization guidance:
  - If savings meet the conditions of deposits, the fund can be sectorized into the deposit-taking corporations except the central bank subsector (S122) — likely when the Hajj fund is a regulated deposit-taking entity (bank or similar).
  - More commonly, Hajj funds are collectively organized, not restricted to monetary investments, and savers bear investment performance risk — such Hajj funds should be sectorized into the non-MMF investment funds subsector (S124), provided general conditions for that classification are met.

### Sectorization of Islamic financial entities (paragraphs 40–43)
- Off-balance sheet restricted investment accounts:
  - Recommendation: sectorize as non-money market investment funds (non MMF) (S124).
  - Rationale: clients' money is held in segregated investment funds; losses are borne by providers of the funds except in cases of breach of trust or misconduct by fund managers; profits are distributed in proportion to investors' holdings.
- Islamic windows in conventional banks:
  - Recommendation: sectorize into the deposit-taking corporations except the central bank subsector (S122).
  - Rationale: funds provided to these windows under the Mudaraba contract have the characteristics of deposits and are used to provide financing via various Islamic financial instruments.

### Calculation of output for Islamic financial entities (paragraph 44)
- Output methods depend on sectorization.
- Many entities' output is calculated as the sum of costs, reflecting financial auxiliaries managing funds and re-routing fees.
- Example for waqf funds:
  - Fees payable by the waqf fund to the fund manager should be classified as:
    - gross output (P11) of the financial auxiliaries subsector (S126);
    - intermediate consumption (P2) and gross output (P11) of the captive financial institutions and money lenders subsector (S127).
  - Although fees are contractually payable by the waqf fund rather than by the beneficiary, they should be re-routed as payable by the beneficiary to the waqf fund because they are payable out of profits.
  - A corresponding additional quantum of profit should be imputed to the waqf fund, payable as property income to the beneficiary.

### Economic ownership of non-financial assets in Islamic financing arrangements (Issue 3.1–3.2; paragraphs 45–48)
- Recommendation (paragraph 45):
  - Islamic financial corporations can establish a separate institutional unit (possibly in partnership) that becomes the economic owner of the underlying non-financial assets (example: real estate co-investment).
  - If no separate institutional unit is set up, Islamic financial corporations can act as facilitators by transferring economic ownership from seller to client so the financial corporation is not classified as economic owner.
  - Brief ownership by Islamic financial corporations can be considered constructive (qabd hukmi) or physical possession (qabd fe'eli) and should not be considered economic ownership.
- Economic ownership outcome (paragraph 46):
  - The economic owners of the underlying non-financial assets should be considered the ultimate purchasers who obtain the assets through Islamic financial corporations, since they claim benefits or assume risks from use of assets.
- Timing of recording acquisition (paragraph 47):
  - Record acquisition when economic ownership changes hands.
  - If change of ownership is not obvious, the moment of entering in the books of transaction partners is a good indication; failing that, when physical possession and control is acquired (paragraph 3.169 of the 2008 SNA).
- Client default (Issue 3.2; paragraph 48):
  - If a client defaults on payment, the client is still considered the economic owner because default is a default on a financial payment.
  - It may be possible for the Islamic financial corporation to confiscate the underlying assets, if feasible.

### Classification of Islamic financial instruments and decision factors (paragraphs 49–51)
- Annex B provides recommended classification (slotting-in approach) and corresponding investment income; not necessarily one-to-one.
- Deciding factors for classification include:
  - form of institutional unit represented by the recipient of the finance (equity classification only possible for an entity that is a corporation);
  - whether the instrument is designed to provide a profit with comparatively high reliability as to its magnitude;
  - whether the instrument is recorded on the balance sheet of the Islamic financial institution;
  - whether the investment account holder has an investment-like claim on ventures or funds (and hence the venture/fund behaves like an institutional unit);
  - whether the investment account holder has a claim on the residual value of the issuing institution;
  - whether the lender is the supplier of the goods or services being financed (trade credit or loan classification);
  - whether the financial instrument provides negotiable securities (e.g., participation term certificates);
  - whether equity holdings exceed the 10 per cent threshold for foreign direct investment;
  - whether an existing foreign direct investment relationship already exists.
- Recommendation: construct a “decision tree” incorporating these parameters to enable compilers to classify Islamic financial instruments appropriately in both the SNA and ESS (issue 4.2); include this decision tree in a proposed compilation guide on Islamic finance.

### Reference rates, terminology and calculation of Islamic FISIM (paragraphs 52–57)
- Relevance (Issue 5.1; paragraph 52):
  - Most sub-task team members recommend using the FISIM formula in the 2008 SNA to calculate financial intermediation services provided by Islamic deposit-taking corporations (option 1), since Islamic financial corporations are classified as deposit-taking corporations.
- Reference-rate options (Issue 5.2; paragraph 53):
  - Option 1: one unique reference rate recognized for conventional and Islamic FISIM (proponents argue reference rate is service-free and should be common).
  - Option 2: one unique reference rate with explicit recognition of different risk profiles for Islamic deposit-taking corporations (provides flexibility to consider profit-sharing and other transaction differences).
  - Option 3: different reference rates for conventional and Islamic FISIM (justified where Islamic activity is bifurcated into a separate Islamic finance subsector).
- Instrument scope (Issue 5.3; paragraph 54):
  - General agreement to include relevant Islamic instruments in the deposits/loans bundle to calculate FISIM and SNA interest, accounting for service elements (safe keeping, record maintenance).
  - Preference to use total deposits and total loans rather than instrument-by-instrument approach.
- Cross-border reference rates (Issue 5.4; paragraph 55):
  - Separate reference rates should be applied for each currency involved in cross-border Islamic deposits and loans.
  - Rate should be taken from financial markets of the home market of the currency (paragraph 10.130 of BPM6).
  - Whether these reference rates differ from those for conventional cross-border deposits/loans depends on outcome of Issue 5.2.
- Terminology (Issue 5.5; paragraph 56):
  - For consistency, use terminology recommended by the sub-task team on terminology for investment income for Islamic deposits, loans and debt securities.
- Empirical tests (Issue 5.6; paragraph 57):
  - Recommendation to invite economies to participate in empirical tests on what reference rate(s) to use in calculation of domestic and cross-border FISIM on Islamic deposits and loans; results will inform final recommendation for Issue 5.2.

### Takaful and retakaful — unitization, sectorization, and output measurement (paragraphs 58–62)
- Institutional-unit recommendations (Issue 6.1; paragraph 58):
  - Classify takaful operators and takaful funds as separate institutional units in national and international accounts, similarly for retakaful operators and funds.
  - Rationale: both have main attributes of institutional units, including complete sets of accounts and balance sheets.
  - Two variations:
    - “Light” takaful: less complex; insurance contracts need not be based on tabarru and no segregation of operator and fund — treat combined unit as an institutional unit (statistically similar to conventional insurance).
    - Takaful windows: parts of conventional financial institutions with distinctly identified assets and liabilities, separate in capital, accounts, profits/losses — treat takaful/retakaful windows as institutional units.
- Sectorization (Issue 6.2; paragraphs 59–60):
  - If classified as institutional units:
    - Sectorize takaful operators into the financial auxiliaries subsector (S126).
    - Sectorize takaful funds into the insurance corporations subsector (S128).
  - Rationale: takaful funds function like insurance corporations (collect contributions equivalent to premiums; have reserves belonging to them); takaful operators manage/administer takaful funds and charge fees without taking economic ownership.
  - “Light” takaful: sectorize combined unit into insurance corporations subsector (S128).
  - Takaful windows: sectorize into insurance corporations subsector (S128).
- Output calculation (Issue 6.3; paragraphs 61–62):
  - If classified as institutional units:
    - Takaful operators — calculate output as the wakalah fees they charge to administer takaful funds and/or the share of profits earned from investing takaful funds.
    - Takaful funds — calculate output as sum of costs: wakalah fees payable to takaful operators and/or share of profit payable to takaful operators plus other intermediate consumption, if any.
  - For “light” takaful, calculate output using existing methods for conventional insurance in the 2008 SNA.
  - Takaful windows: calculate output as the sum of costs.

*Source: Guidance note — sub-task team (paragraphs 38–62).*

### 63. In many economies, the local takaful/retakaful industry is likely to provide its services to

### Islamic finance in the national and external accounts — takaful/retakaful, recommendations, and consultation questions

### Cross-border takaful/retakaful transactions
- Resident takaful/retakaful providers often supply services to non-residents, and resident units can purchase takaful/retakaful services from non-resident providers, requiring these transactions to be recorded in the external sector statistics.
- Recommended approaches to measure cross-border takaful/retakaful transactions:
  - Directly ask resident takaful/retakaful and other units to provide estimates of takaful/retakaful fees and other transactions (such as contributions, claims and investment income) exported and imported.
  - If direct reporting is not possible, estimate cross-border transactions using a combination of sources, including ratios (for example, relating contributions paid by non-residents to total contributions) and partner economy data.

### General recommendations on Islamic finance statistics and visibility
- Recognized challenges:
  - Capturing transactions, other flows and positions related to Islamic finance in the national and international accounts can be daunting in economies with widespread Islamic financial activities.
  - Islamic finance statistics will inevitably be invisible in highly aggregated macroeconomic accounts.
- IFTT recommendations:
  - a. Include a special section or an appendix on Islamic finance in the updated SNA and BPM which:
    - highlights the differences between conventional and Islamic finance,
    - brings together all the entries in the accounts connected with Islamic finance, and
    - explains their interconnections.
  - b. Develop an Islamic finance compilation guide to:
    - (i) discuss the differences between conventional and Islamic finance;
    - (ii) provide guidance on developing an Islamic finance satellite account to enhance its statistical visibility; and
    - (iii) provide practical guidance and illustrative numerical examples on how to record Islamic financial activities in the national and international accounts.

### Questions for Global Consultation and AEG/BOPCOM Meetings
- Terminology for the investment income for Islamic deposits, loans and debt securities:
  - 65. For issue 1.1, do you agree with the recommendation to use the term “interest and similar returns” to broaden the scope of interest to encompass interest-like returns on Islamic deposits, loans and debt securities?
  - 66. For issue 1.2, do you agree with the recommendation to present the data on the investment income on Islamic deposits, loans and debt securities in the updated SNA and BPM?
  - 67. For issue 1.3, do you agree with the recommendation to nuance paragraphs 7.113 and 7.114 of the 2008 SNA and paragraph 11.48 of the BPM6 to reflect the interest and similar returns on Islamic deposits, loans and debt securities?

- Sectorization and output of Islamic financial entities:
  - 68. Do you agree with the overall recommended sectorization of Islamic financial corporations and the methods to calculate their output in annex D (issue 2.1)?
  - 69. Do you agree with the below recommendations for the Islamic financial entities in table 1:
    - a. Classification as institutional units (issue 2.2)?
    - b. Sectorization into subsectors of financial corporations sector (issue 2.3)?
    - c. Methods to calculate output (issue 2.4)?

- Economic ownership of non-financial assets related to sales, lease, and equity financing which are legally owned by Islamic financial corporations:
  - 70. For issue 3.1, do you agree that Islamic financial corporations:
    - a. Can set up separate institutional units which will then be the economic owners of the underlying non-financial assets for Islamic financial arrangement, and/or
    - b. Can facilitate transferring the economic ownership of these non-financial assets from the sellers to clients?
  - 71. For issue 3.2, do you agree that clients who default on payment for the underlying non-financial assets in Murabaha and Bai Muajjal are still the economic owners of these assets?

- Classification of Islamic financial instruments and corresponding investment income:
  - 72. Do you agree with the suggested classification of Islamic financial instruments contained in annex B using the slotting-in approach from an economic statistics perspective and that this approach is capable of future application if and as Islamic finance evolves (issue 4.1)?
  - 73. Do you agree with the recommendation to construct a “decision tree” for inclusion in a compilation guide that would help facilitate future classification decisions (issue 4.2)?

- Reference rates and terminology to calculate Islamic FISIM:
  - 74. For issue 5.1, do you agree with the recommendation to use FISIM formula in the 2008 SNA to calculate the financial intermediation services provided by Islamic deposit-taking corporations (option 1)?
  - 75. For issue 5.2, which reference rate(s) should be used to calculate conventional and Islamic deposits and loans which are denominated in the same currency?
  - 76. For issue 5.3, do you agree with the recommendation to include Qard, Wadiah, Amanah, and Qard-hasan deposits and Qard-hasan financing in the bundle of deposits/loans to calculate Islamic FISIM and to use total deposits and total loans to calculate Islamic FISIM?
  - 77. For issue 5.4, do you agree with the recommendation to use separate reference rates for each currency involved in cross-border Islamic deposits and loans?
  - 78. For issue 5.6, do you agree that economies should be invited to participate in empirical tests such as what reference rate to use to calculate domestic and cross-border FISIM on Islamic deposits and loans? If yes, please indicate if you would like to participate in the empirical tests?

- Takaful and retakaful:
  - 79. For issue 6.1, do you agree with the recommendations to classify the following as institutional units:
    - a. Takaful operators and takaful funds in the common takaful model?
    - b. Combined units in “light” takaful?
    - c. Takaful windows?
  - 80. For issue 6.2, do you agree with the recommendations on the sectorization of:
    - a. Takaful operators and takaful funds?
    - b. The combined units in “light” takaful?
    - c. Takaful windows?
  - 81. For issue 6.3, do you agree with the recommendations on the methods to calculate the output of:
    - a. Takaful operators?
    - b. Takaful funds?
    - c. The combined units in “light” takaful?
    - d. Takaful windows?

- General consultation questions (closing):
  - 82. Do you agree with the recommendations to:
    - a. Include a special section or an appendix on Islamic finance in the updated SNA and BPM?
    - b. Develop an Islamic finance compilation guide (which will also include guidance on developing an Islamic finance satellite account)?

*Islamic Finance Task Team; International Monetary Fund*

### Annex B: Classification of Islamic financial instruments and corresponding investment income

### Annex B: Classification of Islamic financial instruments and corresponding investment income in the System of National Accounts and External Sector Statistics

### Source of funds — Liabilities: instrument descriptions and suggested SNA/ESS classifications
- Qard, Wadiah, and Amanah
  - Description: Deposits withdrawable on demand, at par, not linked to profit-making ventures; IFIs guarantee nominal value; usually offer no returns but sometimes small returns as gift (hibah).
  - FA: Transferable deposits (F22) or Other deposits (F29)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Currency and deposits: Transferable deposits or other deposits
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Qard-hasan (as liability)
  - Description: Return-free deposits voluntarily placed to participate in financing for needy individuals or social purposes; interest-free.
  - FA: Other deposits (F29)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Currency and deposits: Other deposits
  - Income (external sector): N/A

- Mudaraba / Profit Sharing Investment Account (PSIA)
  - General description: Contract where IFI as silent partner invests deposits; profit-sharing pre-determined; restricted vs unrestricted types per AAOIFI FAS No. 27.
  - Restricted Mudaraba
    - Description: Investor restricts investment use; no mixing of funds; IFI manages as mudarib or wakil; off-balance sheet restricted PSIA disclosed separately.
    - FA: Other deposits (F29) or Equity (F51)
    - Income: Interest and similar returns (D41) or dividends (D421)
    - FA/IIP: Other investment: Currency and deposits: Other deposits or Portfolio investment: Equity
    - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O) or Portfolio investment: Dividends (D42P)
  - Unrestricted Mudaraba
    - General: Investor fully authorizes IFI; mixing of funds permitted; three types below.
    - Mudaraba - not fixed
      - FA: Other deposits (F29)
      - Income: Interest and similar returns (D41)
      - FA/IIP: Other investment: Currency and deposits: Other deposits
      - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)
    - Mudaraba – fixed
      - FA: Other deposits (F29)
      - Income: Interest and similar returns (D41)
      - FA/IIP: Other investment: Currency and deposits: Other deposits
      - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)
    - Mudaraba – fixed with mudaraba certificates
      - Description: Fixed term arranged through negotiable instruments (investment deposit certificates or mudaraba certificates); characteristics similar to conventional market securities.
      - FA: Debt security (F3) or Equity security (F5)
      - Income: Interest and similar returns (D41) or dividends (D421)
      - FA/IIP: Portfolio investment – Debt or Equity security
      - Income (external sector): Primary income: Portfolio investment: Debt or equity securities: Interest and similar returns (D41O) or dividends (D42P)

- Participation term certificates
  - Description: Long-term investment instruments entitling holder to share of corporation’s profit; classified as debt securities if treated as debt liabilities of IFI and as equity if part of capital base.
  - FA: Debt security (F3) or Equity security (F5)
  - Income: Interest and similar returns (D41) or dividends (D421)
  - FA/IIP: Portfolio investment – Debt or Equity security
  - Income (external sector): Primary income: Portfolio investment: Debt or equity securities: Interest and similar returns (D41P) or dividends (D42P)

- Profit and loss sharing certificates
  - Description: Investors’ deposits resembling company shares but not providing claim on residual value or governance participation; classified as other deposits if not negotiable and debt securities if negotiable.
  - FA: Other deposits (F29) or Debt securities (F3)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment – Currency and deposits OR Portfolio investment – Debt securities
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O) OR Primary income: Portfolio investment: Interest and similar returns (D41P)

- Sukuk (general)
  - Description: Investment certificates representing undivided ownership in tangible/intangible assets, services, debts, or a business venture; may involve SPEs; should be classified as debt securities unless owner has claim on residual value of issuing entity (then equity).
  - FA: Debt security (F3) or Equity security (F5)
  - Income: Interest and similar returns (D41) or dividends (D421)
  - FA/IIP: Portfolio investment – Debt or Equity security
  - Income (external sector): Primary income: Portfolio investment: Interest and similar returns (D41P) or dividends (D42P)
  - Equity-like Sukuk
    - Examples: Musharaka; Mudaraba
    - FA: Equity security (F5)
    - Income: Dividends (D421)
    - FA/IIP: Portfolio investment – Equity security
    - Income (external sector): Primary income: Portfolio investment: Equity securities: Dividends (D42P)
  - Fixed-income Sukuk
    - Examples: Murabaha; Salaam; Istisna’a; Ijarah
    - FA: Debt security (F3)
    - Income: Interest and similar returns (D41)
    - FA/IIP: Portfolio investment – Debt security
    - Income (external sector): Primary income: Portfolio investment: Interest and similar returns (D41P)
  - Variable-profile Sukuk
    - Examples: Wakalah; Hybrid sukuk
    - FA: Debt security (F3) or Equity security (F5)
    - Income: Interest and similar returns (D41) or dividends (D421)
    - FA/IIP: Portfolio investment – Debt or Equity security
    - Income (external sector): Primary income: Portfolio investment: Debt or equity securities: Interest and similar returns (D41P) or dividends (D42P)

- Wakalah deposits
  - Description: Bank acts as agent for investment of depositor’s funds in exchange for a fee, usually in the 1½ to 2 per cent range; indicative return offered; depositor receives actual return if lower; bank keeps excess as “incentive fee” if actual return higher.
  - FA: Transferable deposits (F22) or Other deposits (F29)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Currency and deposits: Transferable deposits or other deposits
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

### Use of funds / Financing — Assets: instrument descriptions and suggested SNA/ESS classifications
- Qard-hasan (as asset)
  - Description: Return-free financing to needy individuals or social purposes; debtor repays only principal, may voluntarily pay extra amount.
  - FA: Loans (F4)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Murabaha financing
  - Description: Sale of goods at cost plus agreed profit margin; IFI purchases goods on client’s request and client makes deferred payments covering costs and profit margin; disclosure of cost necessary; resembles collateralized loan.
  - FA: Loans (F4)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Bai Muajjal
  - Description: Financing supplying commodities or services with deferred payments; classified as loans if commodities/services from third parties or as trade credit if direct extension by supplier.
  - FA: Loan (F4) or Trade credits and advances (F81)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)
  - Alternative FA/IIP when trade credit: Other investment: Trade credit and advances

- Bai Salam
  - Description: Short-term agreement where IFI makes full prepayment for future delivery of specified goods; classified as loans if goods/services not for IFI’s own use, trade credit if for IFI’s use.
  - FA: Loan (F4) or Trade credits and advances (F81)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans OR Other investment: Trade credit and advances
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Istisna’a financing
  - Description: Partnership where IFI finances manufacture/construct goods or buildings; IFI may contract with ultimate purchaser at higher price to generate profit; classified as loans if goods/buildings not for IFI’s own use.
  - FA: Loan (F4) or Trade credits and advances (F81)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans OR Other investment: Trade credit and advances
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Ijarah
  - Description: Lease-purchase in which IFI purchases capital equipment/property and leases to enterprise; two types per AAOIFI FAS No. 8:
    - Operating Ijarah: Title not transferred; ownership risks borne by IFI; treated like conventional operating lease.
      - Production account treatment: market output (P11)
      - CA: Trade in Services: Other business services
    - Financing Ijarah: Involves lease and transfer of ownership at end; resembles conventional financial lease.
      - FA: Loans (F4)
      - Income: Interest and similar returns (D41)
      - FA/IIP: Other investment: Loans
      - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Musharaka
  - Description: Partnership where both IFI and enterprise contribute capital; profits shared per agreement; losses shared by contribution ratio. Can be structured as loan (IFI no claim on residual value) or equity participation.
  - FA: Loan (F4) or equity (F5)
  - Income: Interest and similar returns (D41) or dividends (D421)
  - FA/IIP: Other investment – Loans OR Portfolio investment – Equity security
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O) OR Primary income: Portfolio investment: Equity securities: Dividends (D42P)

- Mudaraba Financing
  - Description: Partnership where IFI provides capital and client provides labor; profits shared; losses borne by IFI except for client misconduct; classified as Loan because of fixed-term nature representing fixed-term claim.
  - FA: Loan (F4)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment – Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Tawarruq (commodity murabaha)
  - Description: Buyer purchases commodity from IFI on deferred basis and sells to third party for spot cash; effectively a borrowing of cash arranged via sale transactions.
  - FA: Loan (F4)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment – Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Bai bil Wafa, Bai bil-Istighlal
  - Description: Sale where seller has contractual right to repurchase underlying property by refunding purchase price; majority of jurists view ba'i al-wafa as impermissible though contemporary East Asian jurists may permit; used as Shari’ah foundation for Islamic capital market products in some jurisdictions.
  - FA: Loan (F4)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment – Loans
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Ju’alah
  - Description: Essentially an Istisna'a applicable for services.
  - FA: Loan (F4) or Trade credits and advances (F81)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment: Loans OR Other investment: Trade credit and advances
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Mushtarakah
  - Description: Combination of Musharaka and Mudaraba.
  - FA: Loan (F4) or equity (F5)
  - Income: Interest and similar returns (D41) or dividends (D421)
  - FA/IIP: Other investment – Loans OR Portfolio investment – Equity security
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O) OR Primary income: Portfolio investment: Equity securities: Dividends (D42P)

- Istijrar
  - Description: Agreement where buyer purchases commodities under a single agreement in parts over time once all terms are finalized.
  - FA: Trade credits and advances (F81)
  - Income: Interest and similar returns (D41)
  - FA/IIP: Other investment – Trade credit and advances
  - Income (external sector): Primary income: Investment income: Other investment: Interest and similar returns (D41O)

*Source: Annex B: Classification of Islamic financial instruments and corresponding investment income in the System of National Accounts and External Sector Statistics (IMF).*

### Annex C: Diagrams illustrating the flows between Islamic financial

### Annex C: Diagrams illustrating the flows between Islamic financial corporations and their clients for various Islamic financial instruments

### A. Sources of Funds
- Instrument 1) Qard, Wadiah, Amanah
  - Notes: Hibah: at the discretion of the IFI, on basis of gift, likely to be small or nil. Although non-contractual, may be expected by Client.
  - National accounts:
    - FA: Transferable deposits (F22) if directly usable for making payments by check, draft, giro order, direct debit, or direct payment facility.
    - Otherwise: Other deposits (F29)
    - Income: Property income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: currency and deposits: Transferable deposits or other deposits.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 2) Qard-Hasan
  - Notes: Return-free deposits voluntarily placed for needy individuals / social purposes, etc.
  - National accounts:
    - FA: Other deposits (F29)
    - Income: Property income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: currency and deposits: Other deposits.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 3) Mudaraba, or Profit-Sharing Investment Account (PSIA) [i]
  - Notes:
    - Client invests capital and IFI provides entrepreneurship in a commercial venture. Client and IFI share any profits on a pre-determined basis.
    - Commercial venture may be a business, market investment fund, etc.
    - Categories: restricted / unrestricted Mudaraba; fixed period / continuing basis; Mudaraba may be on-balance or off-balance sheet for IFI.

- Instrument 3) Restricted Mudaraba (or PSIA); on-balance sheet for IFI [ii]
  - Notes:
    - Restricted Mudaraba: Client restricts where, how or for what purpose funds are invested.
    - IFI: on-balance sheet; maintains Statement of Restricted Investment.
  - National accounts:
    - FA: Other deposits (F29)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: Currency and deposits: Other deposits
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 3) Restricted Mudaraba (or PSIA); off-balance sheet for IFI [iii]
  - Notes:
    - Restricted Mudaraba: Client restricts where, how or for what purpose funds are invested.
    - IFI: off-balance sheet.
  - National accounts:
    - FA: Equity (F51), if imputed to a non-banking sector counterparty.
    - Income: Dividends (D421)
  - External sector statistics:
    - FA/IIP: Portfolio investment: Equity
    - Income: Portfolio investment: Dividends (D42P)

- Instrument 3) Unrestricted Mudaraba (or PSIA) [iv]
  - Notes:
    - Unrestricted Mudaraba: management of funds authorized to IFI. Mixing of funds from other sources including shareholder funds permitted.
    - On-balance sheet for IFI; but separate disclosure required.
    - Three types by maturity: not fixed maturity; fixed maturity; fixed maturity with Mudaraba certificates.

- Instrument 3) Unrestricted Mudaraba (or PSIA); not-fixed maturity [v]
  - Notes:
    - Unrestricted Mudaraba: management of funds authorized to IFI. Mixing of funds from other sources including shareholder funds permitted.
    - On-balance sheet for IFI; but separate disclosure required.
  - National accounts:
    - FA: Other deposits (F29).
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: Currency and deposits: Other deposits
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 3) Unrestricted Mudaraba (or PSIA); fixed maturity [vi]
  - Notes:
    - Unrestricted Mudaraba: management of funds authorized to IFI. Mixing of funds from other sources including shareholder funds permitted.
    - On-balance sheet for IFI; but separate disclosure required.
  - National accounts:
    - FA: Other deposits (F29).
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: Currency and deposits: Other deposits
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 3) Unrestricted Mudaraba (PSIA); fixed period, negotiable certificates [vii]
  - Notes:
    - Unrestricted Mudaraba: management of funds authorized to IFI. Mixing of funds from other sources including shareholder funds permitted.
    - On-balance sheet for IFI; but separate disclosure required.
  - National accounts:
    - FA: Debt securities (F3); or Equity securities (F5), if claim on residual value of (IFI).
    - Income: Interest and similar returns (D41); or Dividends (D421).
  - External sector statistics:
    - FA/IIP: Portfolio investment: Debt security; or Equity security
    - Income: Primary income: Portfolio investment: Debt securities or Equity securities: Interest and similar returns (D41P); or Dividends (D42P)

- Instrument 4) Participation term certificates
  - Notes:
    - Long-term investment instrument that entitle holder to share of the corporation’s profit.
    - Treat as equity if part of the capital base of the issuer.
  - National accounts:
    - FA: Debt security (F3) or Equity security (F5)
    - Income: Interest and similar returns (D41); or Dividends (D421)
  - External sector statistics:
    - FA/IIP: Portfolio investment: Debt or Equity securities
    - Income: Primary income: Portfolio investment: Debt or Equity securities: Interest and similar returns (D41P); or Dividends (D42P)

- Instrument 5) Profit and loss-sharing certificates
  - Notes:
    - Investors’ deposits that resemble shares in a company, but do not provide a claim on residual value of IFI and participation in its governance.
  - National accounts:
    - FA: Other deposits (F29), if not negotiable; otherwise, Debt securities (F3)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: currency and deposits; or, Portfolio investment: Debt securities
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O). Or Portfolio investment: Interest and similar returns

- Instrument 6) Sukuk
  - Notes:
    - Investment certificates issued/originated by IFIs. Sukuk can be securitization vehicles overlying multiple alternative contractual arrangements.
    - If issued by a special purpose entity (SPE), consider whether SPE constitutes an institutional unit, and is counterparty.
    - Sukuk may have equity-like features (Musharaka, Mudaraba); fixed-income features (Murabaha, Salam, Istisna’a, Ijarah); or variable/hybrid features (Wakalah, hybrid basis).
  - National accounts:
    - FA: Equity securities (F5); or Debt securities (F3), depending on type of Sukuk.
    - Income: Dividends (D421); or Interest and similar returns (D41).
  - External sector statistics:
    - FA/IIP: Portfolio investment: Debt securities or Equity securities.
    - Income: Primary income: Portfolio investment: Interest and similar returns (D41P); or, Equity securities, Dividends (D42P)

- Instrument 7) Wakalah deposits
  - Notes:
    - Bank acts as agent for depositor, charging a fee, e.g. 1.5% to 2%.
    - Investors are offered an indicative return; actual return may differ. IFI can retain excess of profits over indicative return; has incentive to cancel fee.
  - National accounts:
    - FA: Transferable deposits (F22), if applicable; or Other deposits (F29)
    - Income: Property income: Interest and similar return (D41).
  - External sector statistics:
    - FA/IIP: Other investment: currency and deposits: Transferable deposits or other deposits.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

### B. Uses of Funds
- Instrument 1) Qard-Hasan financing
  - Notes:
    - Financing offered to needy individuals or for a social purpose. No formal fees charged, but debtor at their discretion may pay additional amount as a token of appreciation to creditor.
    - As discretionary payments conform to an established norm for Qard-Hasan, treat as Interest and similar returns (D41).
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans (F4).
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 2) Murabaha
  - Notes:
    - Form of purchase finance: IFI sells goods to client at cost plus agreed profit.
    - Price of underlying goods is disclosed to client.
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 3) Bai Muajjal
  - Notes:
    - Form of purchase finance similar to Murabaha: IFI sells goods in form of 'Sale on credit' with no necessary mark-up profit. Both profit and loss may arise.
    - No obligation to disclose the cost price and the profit mark-up separately to the Client.
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 4) Bai Salam
  - Notes:
    - Supplier finance: IFI buys goods in advance from client at discount to expected future price; profit is difference between spot payment and future value of goods.
    - IFI may undertake “Parallel Salam” as independent contract; rights/obligations of one contract must not depend on the parallel contract.
  - National accounts:
    - FA: Loans (F4), if goods not for IFI own use. If goods for own use of lender, then Trade credit (F81).
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans; or, trade credit.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns. (D41O)

- Instrument 5.1) Istisna’a
  - Notes:
    - Typically a form of construction or project finance.
    - Profit is difference between payment to Contractor and deferred payment by Customer.
    - Trade credit if project/building for lender’s own use; otherwise loans.
  - National accounts:
    - FA: Loans (F4); or, Trade Credit and advances (F81)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans; or, trade credit.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 5.2) Ju’alah
  - Notes:
    - Ju’alah is essentially an Istisna’a contract applicable to provision of services.
    - Profit is difference between payment to Contractor and deferred payment by Customer.
    - Trade credit if project/building for lender’s own use; otherwise loans.
  - National accounts:
    - FA: Loans (F4); or, Trade Credit and advances (F81)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans; or, trade credit.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 6) Ijarah
  - Notes:
    - Ijarah: lessor leases physical asset to lessee in return for predetermined rentals for a known time period.
    - Two types: Operating Ijarah (similar to operating lease) and Financing Ijarah (similar to financial lease).
    - Financing Ijarah involves a second contract for transfer of ownership at end of period (promise of sale or gift in separate document).
  - National accounts:
    - Operating Ijarah: PA: Production account: market output (P11)
    - Financing Ijarah: FA: Loans (F4); Income: Interest and similar return (D41)
  - External sector statistics:
    - Operating Ijarah: CA: Trade in Services: Other business services
    - Financing Ijarah: FA/IIP: Other investment: Loans (F4)
    - Income: Primary income: Investment income: Other investment: Interest and similar return (D41)

- Instrument 7) Musharaka
  - Notes:
    - Partnership where each party contributes capital; profits and losses shared by pre-agreed ratio.
    - IFI contribution can be equity or loan participation.
  - National accounts:
    - FA: Loans (F4); or, Equity (F5)
    - Income: Interest and similar returns (D41); or, Dividends (D421)
  - External sector statistics:
    - FA/IIP: Other investment: loans; or, Portfolio investment: Equity security.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O); Portfolio income: Equity securities: Dividends (D42P)

- Instrument 8) Mudaraba financing
  - Notes:
    - Partnership where IFI provides capital and client provides labour/skills; fixed term. Profits shared by agreement; losses (subject to exceptions) borne by IFI.
    - Mudaraba classified as loan, not equity.
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 9) Tawarruq financing (commodity Murabaha)
  - Notes:
    - Extension of Murabaha; buyer purchases asset on deferred payment and sells to third party on spot basis for liquidity management.
    - Not widely used due to conflicting views of Islamic scholars.
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 10) Bai bil Wafa, Bai bil-Istighlal
  - Notes:
    - Sale in which seller has contractual right to repurchase underlying asset from buyer at the same price. Buyer pledges to sell back to original owner (not a third party) at fixed future date.
  - National accounts:
    - FA: Loans (F4)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: loans.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

- Instrument 11) Istijrar
  - Notes:
    - Commodities financing under a single agreement with different instalments; sale price computed as average of market prices during financing period based on public undisputed price source.
    - Contract has embedded non-tradable options for buyer and IFI to fix sale price at predetermined levels; contract backed by real purchase, ownership and sale of commodity.
  - National accounts:
    - FA: Trade credit and advances (F81)
    - Income: Interest and similar returns (D41)
  - External sector statistics:
    - FA/IIP: Other investment: trade credit and advances.
    - Income: Primary income: Investment income: Other investment: Interest and similar returns (D41O)

*International Monetary Fund*

### Annex D: Sectorization of Islamic financial corporations and methods to calculate their output

### Annex D: Sectorization of Islamic financial corporations and methods to calculate their output

### Sectorization and examples of Islamic financial corporations
- Central Bank (S121)
  - Generic examples: Central Bank, Monetary Authority
  - Examples of financial services provided: Monetary policy services; Financial intermediation services; Borderline cases, such as supervisory services
  - Proposed method to calculate output:
    - Monetary policy services — Sum of costs
    - Financial intermediation services — FISIM formula
    - Borderline cases:
      - Market output – explicit fees
      - Non-market output – Sum of costs

- Deposit-taking corporations except the central bank (S122)
  - Generic examples: Islamic Banks; Commerce and Development Banks; Online Banks; Commercial Banks; Islamic Microfinance Banks; Islamic Windows in conventional Banks
  - Examples of financial services provided: Financial intermediation services
  - Proposed method to calculate output:
    - Output is a combination of:
      - (a) For loans and deposits calculated using the FISIM formula, i.e., (rL–rr)×YL+(rr–rD)×YD, where rL, rD, rr, YL and YD represent the loan dividend rate, deposit dividend rate, reference rate, average stock of loans and average stock of deposits, respectively
      - (b) Explicit fees

- Money market funds (MMFs) (S123)
  - Generic examples: Sharī`ah-compliant MMFs
  - Examples of financial services provided: Sharī`ah-compliant investment services
  - Proposed method to calculate output:
    - The output and value added of Islamic MMFs can be treated in the same way as conventional MMFs.
    - Output may be computed as the sum of various fees that MMFs charge investors on transactions, namely purchase and redemption fees, exchange fees, account fees, and operating fees.

- Non-MMF investment funds (S124)
  - Generic examples: Sharī`ah-compliant Non-MMF investment funds
  - Examples of financial services provided: Sharī`ah-compliant investment services
  - Proposed method to calculate output:
    - The output and value added of Islamic non-MMFs can be treated in the same way as conventional non-MMFs.
    - Output may be computed as the sum of various fees that non-MMFs charge investors on transactions, namely purchase and redemption fees, exchange fees, account fees, and operating fees.
    - Also, in the case of off-balance sheet restricted investment accounts, FISIM on loans such as Murabaha or Ijarah may need to be calculated.
    - Example: Off-balance sheet restricted investment accounts; Hajj Funds.

- Other financial intermediaries except insurance corporations and pension funds (S125)
  - Generic examples: Islamic investment banks; Investment companies
  - Examples of financial services provided: Sharī`ah-compliant (advisory) investment banking services such as structured finance (Istisna’a or Ijarah), investment placement, raising funds (often on the basis of joint Mudaraba) in equity and debt markets and trade finance (Murabaha contracts being the dominant Sharī`ah principle); Murabaha or Bai Ajel installment sales
  - Proposed method to calculate output:
    - Output is a combination of:
      - (a) Explicit fees
      - (b) Implicit financial service charge, calculated as (rL–rr)×YL, where rL, rr and YL represent the lending return, reference rate and average stock of loans, respectively

- Financial auxiliaries (S126)
  - Generic examples: Asset management corporations complying with Sharī`ah
  - Examples of financial services provided: Management of Sharī`ah-compliant investments and funds; Brokerage (e.g. takaful products)
  - Proposed method to calculate output:
    - Explicit fees

- Takaful and retakaful operators
  - Generic examples: Takaful operators and retakaful operators; Islamic finance advisory boards
  - Examples of financial services provided: Manage and administer the takaful and retakaful funds on behalf of the participants; Sharī`ah advisors
  - Proposed method to calculate output:
    - The output of takaful and retakaful operators is calculated as the wakalah fees they charge to administer takaful and re-takaful funds and/or the share of profits earned from investing takaful and retakaful funds
    - Sum of costs (for advisory boards and some other ancillary activities)

- Captive financial institutions and money lenders (S127)
  - Generic examples: Holding companies; Sharī`ah-compliant money lenders; Waqf funds
  - Examples of financial services provided: Holding of assets (controlling-levels of equity) of subsidiary corporations which provide Islamic financial services; Sharī`ah-compliant money lending services; Holding the Waqf assets and working on its growth and development
  - Proposed method to calculate output:
    - Holding companies and Waqf funds — Sum of costs
    - Sharī`ah-compliant money lenders — Output is a combination of:
      - (a) Explicit fees
      - (b) Implicit financial service charge, calculated as (rL–rr)×YL, where rL, rr and YL represent the lending return, reference rate and average stock of loans, respectively

- Insurance corporations (S128) — Takaful and retakaful funds and windows
  - Generic examples: Takaful funds; Retakaful funds; Family takaful plans; General takaful plans; Retakaful undertakings; Takaful windows; The “light” version of takaful observed in some economies
  - Proposed method to calculate output:
    - The output of takaful and retakaful funds is computed as the wakalah fees they pay to takaful operators and/or the share of profit payable to takaful operators plus other intermediate consumption, if any.
    - Output is calculated using the insurance formulae in the 2008 SNA.
    - The “light” version of takaful that is similar to conventional insurance arrangements is sectorized into the insurance corporations subsector (S128).
    - Sum of costs (where applicable)

- Pension funds (S129)
  - Generic examples: Defined contribution pension funds; Defined benefit pension funds
  - Examples of financial services provided: Pension fund services
  - Proposed method to calculate output:
    - Sum of costs

### Methods to calculate output: FISIM and explicit fees, wakalah fees, and sum of costs
- FISIM application and formulas:
  - For deposit-taking institutions and other lenders, FISIM for loans and deposits uses the FISIM formula: (rL–rr)×YL+(rr–rD)×YD, with rL, rD, rr, YL, YD defined as loan dividend rate, deposit dividend rate, reference rate, average stock of loans, average stock of deposits, respectively.
  - For other financial intermediaries the implicit financial service charge may be calculated as (rL–rr)×YL, where rL, rr and YL represent the lending return, reference rate and average stock of loans, respectively.
  - Off-balance sheet restricted investment accounts may require FISIM on loans such as Murabaha or Ijarah.

- Explicit fees and wakalah fees:
  - MMFs and non-MMF investment funds: output computed as the sum of various fees charged on transactions (purchase and redemption fees, exchange fees, account fees, operating fees).
  - Financial auxiliaries and investment management: output via explicit fees.
  - Takaful and retakaful operators: output via wakalah fees charged to administer funds and/or the share of profits earned from investing takaful and retakaful funds.

- Sum of costs approach:
  - Central bank monetary policy services, captive financial institutions and Waqf funds, pension funds, and certain advisory or supervisory activities are recommended to use Sum of costs to calculate output.

### Proposed changes to the 2008 SNA and BPM6 related to Islamic finance
- General recommendations:
  - Include a short introduction to the applicability of the SNA to Islamic finance, and anticipate development of an Islamic finance compilation guide to provide practical guidance and numerical examples.
  - Consider inclusion of a special section or an appendix that consolidates entries in the accounts connected with Islamic finance and explains their inter-connectedness.

- Terminological change and supplementary category:
  - Recommend changing terminology from 'interest' to 'interest and similar returns' within the concept of property income to clarify that property income arising from Islamic finance (typically termed 'profits' rather than 'interest') should be classified to this category.
  - For economies with significant Islamic financial activities, allow an optional supplementary sub-category within Interest and similar returns (D41): "Interest and similar returns: of which Investment income on Islamic deposits, loans and debt securities" with suggested code XD41IS (supplementary item convention).

- Suggested amendments to SNA text:
  - Amend para 7.113 and add new paragraph text to explain:
    - Definition of Interest and similar returns as income receivable by owners of deposits, debt securities, loans and accounts receivable.
    - In context of Islamic finance, prohibition of 'riba' means provider of finance may not impose a fixed or unconditional calculation of finance charge independent of borrower’s use; terminology such as 'profits' or 'gifts' is typically used.
    - Interest and similar returns also includes profits receivable or other expected accruals such as gifts earned by providers of finance in Islamic finance on financial instruments classified as deposits, debt securities, loans and possibly other accounts receivable.
    - For economies with significant Islamic financial activities, consider optional supplementary sub-category XD41IS.

- Suggested amendments to BPM6:
  - Amend para 11.48 to retain the definition of Interest and similar returns as investment income on deposits, debt securities, loans, and other accounts receivable, and note commissions or fees are charges for financial services.
  - Add a footnote to para 10.126 of BPM6, and identical footnote to para 6.163 of the 2008 SNA:
    - "FISIM should likewise be understood to arise in Islamic banking services whenever there are margins between rates of profit (or, 'interest and similar returns') on depositor or borrower funds."

- FISIM guidance:
  - Retain the 2008 concept, formula, instrument scope and terminology for FISIM as applied to Islamic financial intermediation activities.
  - Clarify in opening paragraphs of SNA and BPM that FISIM is applicable to Islamic banking, given reliance of FISIM terminology on 'interest' and 'interest rates'.

- Outstanding issue:
  - Issue 5.2: Reference rates to calculate FISIM — current draft indicates no conclusive view; an appropriate recommendation should be considered when resolved.

### Terminology for the investment income for Islamic deposits, loans and debt securities (Annex F.1 key points)
- Rationale for nuance:
  - Under the 2008 SNA and BPM6, investment income on Islamic instruments classified as deposits, loans and debt securities would automatically be classified as interest, which may conflict with the prohibition of interest in Shari’ah and overlook participatory features of many Islamic instruments.
  - English terminology challenges: 'riba' has no perfect modern English translation; statistical uses of 'interest' differ from everyday and Islamic usage.
  - Para 7.113 of the 2008 SNA effectively defines 'interest' as income earned on certain financial instruments regardless of structure; conversely, Islamic descriptions use 'profit' and avoid 'interest'.

- Recommendation:
  - Nuance the updated SNA and BPM to reflect broader interest-like returns for Islamic deposits, loans and debt securities, allowing comparable and appropriate statistical treatment across countries.

*Annex D and Annexes E–F.1, IMF Guidance Note on Islamic Finance sectorization and methods to calculate output*

### 4. In  order  to  be  compliant  with  Islamic  principles,  in  many  cases  an  Islamic  financial

### Guidance note: Investment income terminology, sectorization, and measurement for Islamic finance

### Investment income terminology and classification of Islamic financial instruments
- Islamic financial instruments often generate an anticipated amount of profit that "may be more or less dependable as to its magnitude, but cannot be fixed in advance with certainty." The outcome for the investor must have a dependence on the outcome for the borrower.
- Where an Islamic financial instrument is designed to produce a profit with a comparatively high reliability as to its magnitude, the recommended classification is as a debt instrument yielding "interest and similar returns" as a flow of income.
- Participative, longer-term arrangements such as Mudaraba may suggest a quasi-equity flavour, but equity recording in the SNA / BPM frameworks is only possible if the venture involves creation of an institutional unit (or a notional unit) acting as a distinct corporation or quasi-corporation; otherwise classification as a debt relationship is difficult to avoid.
- The sub-task team coordinated terminology for investment income on Islamic deposits, loans and debt securities with the team on classification of Islamic financial instruments, concluding that Islamic financial activities can be integrated into conventional macroeconomic statistical frameworks without necessarily revisiting those frameworks.

- Recommended terminology and presentation:
  - Use "interest and similar returns" to capture broader interest-like returns on Islamic deposits, loans and debt securities.
  - Tables F.1.1 and F.1.2 reflect this terminology and Table F.1.2 shows an optional category "Returns on Islamic deposits, loans and debt securities" for economies where Islamic finance is prevalent.

- Extract from Table F.1.1 (Primary Income Account, table 11.1 of BPM6) showing where "Interest and similar returns" appears:
  - Direct investment: Interest and similar returns (D41D)
  - Portfolio investment: Interest and similar returns (D41P)
  - Other investment: Interest and similar returns (D41O)
  - Reserve assets: Interest and similar returns (D41R)

- Extract from Table F.1.2 (Change to property income in the 2008 SNA):
  - D4 Property income
  - D41 Interest → D.41 Interest and similar returns
    - of which: Returns on Islamic deposits, loans and debt securities (optional)
  - D42 Distributed income of corporations
    - D421 Dividends
    - D422 Withdrawals from income of quasi-corporations
  - D43 Reinvested earnings on direct foreign investment
  - D44 Other investment income
    - D441 Investment income attributable to insurance policy holders
    - D442 Investment income payable on pension entitlements
    - D443 Investment income attributable to collective investment fund shareholders
  - D45 Rent

### Sectorization and output of Islamic financial entities
- Islamic finance principles: prohibition of 'riba', products with excessive doubts (gharar), gambling; transactions backed by real economic activities; sharing of risks in economic transactions.
- Islamic financial institutions (IFIs):
  - May undertake multiple activities (e.g., Islamic banks, IBs) and use various contracts and investment accounts.
  - Off-balance-sheet restricted investment accounts: account holders impose restrictions on use/deployment of funds; underlying assets/liabilities are not reported on the IBs' balance sheets; investments are not guaranteed by IBs, deposit insurance schemes, or third parties; early withdrawal penalties are proportional to the percentage of investments in the investment funds.
- Islamic windows:
  - Separate parts of conventional financial institutions providing Shari’ah-compliant services; expected to keep separate financial reports in most countries.
  - Islamic windows considered in the guidance note: established within conventional banks for taking deposits under Mudaraba to invest in Islamic financial instruments only; conventional banks required to maintain a full set of accounts (including balance sheet) for these windows and have independent management and a Shari’ah Council to ensure fund segregation.
- Waqf institutions:
  - Waqf separates legal and beneficial ownership of specified assets to apply for charitable or private purposes.
  - Charitable waqf institutions not controlled by government are highly applicable to the 2008 SNA sector classification NPISHs.
  - Investment management strategies vary; classification should follow the 2008 SNA depending on circumstances (examples: hold deposits (F21); invest in investment funds (F522) with counterparts in S122 or S123/S124; contract asset management to S126 while retaining assets on balance sheet).
  - Waqf fund concept (as considered by the sub-task team): a charitable institution contracts with a fund manager to establish a dedicated, open-ended Shari’ah-compliant asset fund open to the public to make donations by "purchasing" units; the charitable institution is the economic owner of all units; the fund reinvests or distributes specified profits to the beneficiary and charges fund management fees; donors’ contributions constitute irrevocable donations; waqf funds must keep a complete set of accounts.
- Hajj funds:
  - Savings plans associated with pilgrimage (Hajj) management; can be market arrangements or involve subsidies; organized by private entities or government units.
  - Classification follows normal criteria (market producer? government ownership/control?).
  - Term "Hajj fund" recommended for a market enterprise that manages long-term savings open to individuals intending to undertake the Hajj in compliance with Shari’ah principles.
  - Hajj funds may be professionally managed collective investment schemes with long-term horizons; funds are invested using Islamic financial instruments including restricted investment accounts; quota-induced waiting lists mean pilgrim savings/investment schemes are often integrated into Hajj funds.

### Economic ownership of non-financial assets in Islamic financial arrangements
- Islamic financial corporations often record legal ownership of underlying non-financial assets on their balance sheets—even if held briefly or not used productively—because Islamic accounting frameworks (e.g., IFSB’s DFS) recommend the Islamic bank must have legal ownership during the transaction period and thereby incur associated risks and rewards.
- Accounting framework implications:
  - Determination of amounts at which assets, liabilities, and equity of investment account holders and owners are recognized in the IFI’s statement of financial position.
  - Economic ownership and changes in ownership are fundamental to macroeconomic accounts and are recorded on the balance sheet when ownership is acquired by the IFI.
- Typical Islamic financing arrangements: Murabaha, diminishing Musharaka, Mudaraba, Bai Salam, Istisna'a, Bai Muajjal, operating Ijarah, financing Ijarah, Tawarruq—generally based on trading models or profit-and-loss-sharing models involving underlying real non-financial assets.
- Operating Ijarah vs Financial Ijarah (differences summarized from Table F.3.1):
  - Definition:
    - Operating Ijarah: lease where risks/rewards remain with lessor; asset returned after agreed lease term.
    - Financial Ijarah: risks/rewards related to ownership transferred to lessee.
  - Ownership:
    - Operating Ijarah: ownership remains with lessor for entire lease period.
    - Financial Ijarah: ownership transfer option available at end of lease period; title may or may not be transferred.
  - Accounting effect:
    - Operating Ijarah: treated like renting; lease payments treated as operating expenses; asset does not show on balance sheet.
    - Financial Ijarah: treated like a loan; asset appears on lessee’s balance sheet.
  - Purchase option:
    - Operating Ijarah: no purchase option during leasing period.
    - Financial Ijarah: lessee has option to buy during leasing period.
  - Lease term:
    - Operating Ijarah: lease term < 75% of projected useful life of the asset.
    - Financial Ijarah: lease term generally substantial economic life of the asset.
  - Expenses borne:
    - Operating Ijarah: lessee pays monthly lease payment; other expenses borne by lessor.
    - Financial Ijarah: lessee bears insurance, maintenance, taxes.
  - Tax benefit:
    - Operating Ijarah: lease payment is expense; no depreciation claim by lessee.
    - Financial Ijarah: lessee can claim interest and depreciation.
  - Running and administrative costs:
    - Operating Ijarah: borne by lessor.
    - Financial Ijarah: borne by lessee.
  - Examples:
    - Operating Ijarah: projectors, computers, laptops, coffee dispensers.
    - Financial Ijarah: plant and machinery, land, office building.

### Reference rates, terminology, and measuring FISIM for Islamic deposit-taking corporations
- Two views on measuring financial services provided by Islamic deposit-taking corporations:
  - First view (option 1 in issue 5.1 of the guidance note): measure financial services using the FISIM formula in the 2008 SNA, because Islamic deposit-taking corporations provide intermediation similar to conventional deposit-taking corporations; the SNA is a general system intended to apply broadly and should not apply differently to different segments of society; Shari’ah prohibition of interest does not exclude financial intermediation; the FISIM core concept in the 2008 SNA applies to Islamic deposit-taking corporations.
- Annex F.4 elaborates alternative views on choice of reference rate(s) to use in the calculation of FISIM on Islamic and conventional deposits and loans denominated in the same currency.

*Guidance note and sub-task team, IMF*

### 3. The alternative view (i.e., option 2 in issue 5.1 in the guidance note) notes that the concept

### 3. The alternative view

### Applicability of FISIM to Islamic deposit-taking corporations
- The alternative view (option 2 in issue 5.1 in the guidance note) notes that the concept of FISIM does not apply to Islamic deposit-taking corporations as Sha’riah prohibits interest.
- In interest free systems, returns can be generated by sharing the risk involved in profit-sharing arrangements between Islamic deposit-taking corporations and their clients.
- With profit and losses arrangements, Islamic deposit-taking corporations do not levy interest as such but rather participate in the yield resulting from the use of funds, while proceeds and losses are divided between depositors and the Islamic deposit-taking corporations.
- This process can help derive estimates of bank production directly without reference to interest and the FISIM method.
- The financial intermediation services provided by Islamic deposit-taking corporations can, instead, be directly measured as:
  - the sum of income generated on Islamic loan-like instruments less the distributions paid on Islamic deposit-like instruments.
- The view describes an alternative concept of interest-like production provided by Islamic banking — “Islamic Financial Intermediation Services (IsFIS) is similar to the method to estimate FISIM in the 1993 SNA.”

### Views on use of the FISIM formula and choice of reference rates
- There are multiple views on using the FISIM formula in the 2008 SNA to measure services provided by Islamic deposit-taking corporations and on the choice of reference rates:

  - First view (option 1 in issue 5.2 in the guidance note):
    - Supports the use of one unique reference rate in the calculation of Islamic and conventional FISIM on deposits and loans which are denominated in the same currency.
    - This view is consistent with the guidance in the 2008 SNA and BPM6.
    - Preference for a single reference rate is driven by the view that FISIM should include liquidity transformation services and by recognition that exclusion of liquidity transformation services would (often) result in implausibly low estimates of a bank’s output.
    - The basis and calculation of that single reference rate should reflect national circumstances.
    - A single rate should be used for transactions in the domestic currency, whereas different rates should be applied for loans and deposits in other currencies.

  - Second view (option 2 in issue 5.2 in the guidance note):
    - Supports the use of one unique reference rate, with explicit recognition of different risk profiles for Islamic deposit-taking corporations.
    - Notes that treatment of credit default risk (CDR) in the calculation of FISIM on conventional loans was discussed at the eighth meeting and tenth meeting of the AEG and there was no consensus on whether to exclude or include CDR in the calculation of FISIM.
    - Observes that in some Islamic financial arrangements such as profit-sharing investment accounts (PSIA), gains or losses on banks’ financings funded by PSIA are shared between the bank and the investment account holder (IAH); this may be different in nature from the CDR discussion and is the basis for this view.

  - Third view (option 3 in issue 5.2 in the guidance note):
    - Supports the use of different reference rates to calculate conventional and Islamic FISIM on deposits and loans denominated in the same currency.
    - Rationale: special features of Islamic finance — (1) prohibition on interest and (2) restrictions to engage only in Shari’ah-compliant activities and transactions — will tend to internalize Islamic banking activity within a specific subsector of the general economy.
    - There could be “partial bifurcation” of mixed conventional/Islamic financial systems such that Islamic activity is limited to an Islamic finance subsector comprised of entities that seek to deposit in Islamic banks and choose Shari’ah-compliant financing.
    - Banks themselves will be constrained to use only Shari’ah-compliant instruments and to transact primarily with other Islamic financial institutions.

*Source: IMF guidance note (if1-gn-islamic-finance-eng).*

### Annex F.5: Takaful and retakaful

### Purpose and main issues
- The annex discusses treatment of Islamic insurance and reinsurance in national and international accounts.
- It recognizes structural differences between conventional and Islamic insurance and reinsurance and examines implications for classification, sectorization, output calculation, and recording of transactions, other flows, and positions of takaful and retakaful.
- The paper identifies three main issues after analyzing various types and business models of takaful and retakaful and presents recommendations for classification and sectorization of units and for calculation of resulting output.

### Takaful/retakaful principles and definitions
- Takaful business arrangements avoid uncertainty, gambling and predetermined interest-based investments and are based on mutual assistance (ta’awun), donations commitment (tabarru’) and cooperative risk-sharing.
- Takaful is defined as “the process in which a group of people, who face certain risk(s), agree that each of them contributes a specific amount, based on cooperation, to a non-profit fund that is to be used for compensating anyone of them for the harms he would encounter when the risk in question materializes, as per signed contracts and adopted regulatory legislations.”
- Business types:
  - General takaful: protection against material loss or any form of damage on a short-term basis.
  - Family takaful: combination of protection and long-term savings, usually covering a period of more than one year; generally deemed composite unless regulation requires separate registration.

- Retakaful:
  - Retakaful is reinsurance based on Islamic finance principles to mitigate takaful business risk and increase capacity, particularly for high value properties.
  - Small and developing retakaful markets in many Islamic economies may lead to significant cross-border trade in retakaful activities.

### Organizational structure and accounting
- Islamic Shari’ah principles result in three groups of units in takaful/retakaful arrangements: takaful participants, takaful funds and takaful operators.
- Takaful funds and takaful operators are required to compile complete and separate sets of accounts, including balance sheets, to conform to Islamic finance accounting standards.
- A takaful operator is not an insurer in the conventional sense; participants are simultaneously insurer and insured.
- Two contractual relationships characterize takaful:
  1. Tabarru’ among participants governing mutual cooperation and donation of part of contributions to the takaful fund.
  2. Contractual relationship between participants and the takaful operator (Mudaraba, Wakalah, Ju’alah, or combinations) governing management and investment of the takaful fund.
- Takaful contributions, profits from investments and resulting surplus belong collectively to participants.

### Main takaful business models
- Four prevailing takaful business models:
  - Mudaraba-based takaful: operator (Mudarib) receives a share of profits from investment of takaful funds; losses borne by takaful fund except in case of operator negligence.
  - Wakalah-based takaful: operator (Wakil) is paid an agency fee as a percentage of participants’ contributions; surplus from investments goes to participants.
  - Wakalah-Mudaraba (hybrid): operator receives both a fee on contributions and a share of profits from investments.
  - Waqf takaful model: surplus is retained in the takaful fund by the takaful operator and not transferred to participants.

- Family takaful often disaggregates the takaful fund into:
  - Participants’ Investment Fund (PIF) — invested for investment/savings.
  - Participants’ Risk Fund (PRF) — used to meet claims, settle retakaful charges and allocate reserves.

### Underwriting surplus and distribution
- Underwriting surplus = excess of premium contributions during the financial period plus technical reserves and profits, after deducting all indemnities and expenses including retakaful operations.
- Disposal of surplus should serve common interest of participants (accumulate reserves, reduce contribution, charitable donations, distribution), depending on adopted takaful model:
  - Wakalah: surplus transferred to participants.
  - Mudaraba: surplus shared with takaful operators per contract terms.
  - Waqf: surplus retained in takaful fund.

### Statistical recording considerations
- Islamic insurance processes require different arrangements from conventional insurance for identifying the service component:
  - Service component is clearly identified under a wakalah contract when participants appoint the takaful operator as an agent to manage the fund.
  - Different options exist to record the share of surplus depending on the takaful business model.
- Many consistencies with conventional insurance remain in statistical recording of positions and financial transactions:
  - Takaful contributions and claims recorded within secondary income.
  - Profits and losses from investment activities recorded among primary income.

*Source: IMF guidance note (if1-gn-islamic-finance-eng).*

### Annex F.5.1: Published standards on takaful and retakaful
- AAOIFI Shari’ah Standard:
  - Standard No. (26) on Islamic Insurance
  - Standard No. (41) on Islamic Reinsurance
- AAOIFI Financial Accounting Standards (FAS):
  - FAS 12 - General Presentation and Disclosure in the Financial Statements of Islamic Insurance Companies
  - FAS 13 - Disclosure of Bases for Determining and Allocating Surplus or Deficit in Islamic Insurance Companies
  - FAS 15 - Provisions and Reserves in Islamic Insurance Companies
  - FAS 19 - Contributions in Islamic Insurance Companies
- IFSB Standards:
  - IFSB-8 (December 2009) Guiding Principles on Governance for Takâful (Islamic Insurance) Undertakings
  - IFSB-11 (December 2010) Standard on Solvency Requirements for Takâful (Islamic Insurance) Undertakings
  - IFSB-14 (December 2013) Standard On Risk Management for Takāful (Islamic Insurance) Undertakings
  - IFSB-18 (April 2016) Guiding Principles for Retakāful (Islamic Reinsurance)
  - IFSB-20 (December 2018) Key Elements in the Supervisory Review Process of Takâful/Retakâful Undertakings
  - IFSB-25 (December 2020) Disclosures to Promote Transparency and Market Discipline for Takāful/Retakāful Undertakings

*Source: IMF guidance note (if1-gn-islamic-finance-eng).*

### Annex F.5.2: Specific differences between conventional insurance and takaful business arrangements
- Key contrasts (selected):
  - Indemnification:
    - Conventional insurance: commercial relationship between insurance company and the insured.
    - Takaful: indemnification based on mutual assistance (ta’awun) and reciprocal donation (tabarru’).
  - Contract nature:
    - Conventional: contract of exchange (sale and purchase of insurance policy).
    - Takaful: combination of tabarru’ contract and agency and/or profit-sharing contract.
  - Ownership of contributions/premiums:
    - Conventional: company owns premiums; premiums and returns part of company revenue and profits.
    - Takaful: takaful fund owns contributions; returns belong to policyholders collectively after deduction of operator share; surplus distributed among them or given to charity.
  - Liability for claims:
    - Conventional: company obligated to pay claims from its assets even if claims exceed premiums.
    - Takaful: if claims paid from the takaful fund exceed contributions, participants should increase their contributions.
  - Risk transfer:
    - Conventional: risks transferred from insured to insurer.
    - Takaful: risks distributed across participants and shared equitably.
  - Investment constraints:
    - Conventional: premiums might be invested in interest-bearing securities.
    - Takaful: premiums must be invested in Islamic Shari'ah-compliant instruments and halal businesses.

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/iftt/if1-gn-islamic-finance-eng.pdf_