## Proposed Recommendations Document: 1.21 Islamic finance ## Source details **Canonical URL:** [Proposed Recommendations Document: 1.21 Islamic finance](https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-121-islamic-finance.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-121-islamic-finance.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-121-islamic-finance.pdf.json) --- ### Summary of purpose and scope - The recommendations propose ways to incorporate specific issues arising from the intrinsic nature of Islamic finance in the update of GFSM 2014. - Proposes a terminology change, replacing "interest" with "interest and similar returns" to encompass both conventional and Islamic finance. - Proposes additional guidance to ensure Islamic financial instruments and institutions are properly accounted for in government finance statistics (GFS), including overview, sectorization, classification, economic ownership, and integration into conventional macroeconomic frameworks used in GFS. ### Background and key issues - Islamic finance follows Shari’ah principles that prohibit interest and require risk- and reward-sharing and real economic purpose without undue speculation. - Islamic financing arrangements include profit and loss sharing joint ventures, profit and loss sharing partnerships, and leasing. - Key statistical challenges identified: - Classifying Islamic institutions and financial instruments. - Determining appropriate terminology for investment income. - Applying the formula to calculate implicit financial services on loans and deposits (referred to as financial intermediation services indirectly measured (FISIM) in 2008 SNA). - Addressing economic ownership of non-financial assets. - Statistical treatment of Islamic insurance. - Growth of Islamic finance (preserve exact figures): - Global assets rose from "$1,761 billion in 2012 to $2,875 billion in 2019". - Existing international guidance: - GFSM 2014 and the Public Sector Debt Statistics Guide (PSDSG) are silent on Islamic finance and refer to the Monetary and Financial Statistics Manual and Compilation Guide (MFSMG) 2016 (Annex 4.3) for Islamic financial corporations and classification within monetary and financial statistics aligned with the 2008 SNA. - Draft 2025 SNA and Draft BPM7 introduced a series of recommendations to address Islamic financing; the GFSM 2014 update aims to align with these drafts. ### Specific issues to be addressed in the GFSM update - The GFSM update should address: a. Terminology for the investment income for Islamic deposits, loans, and debt securities; b. Sectorization of Islamic financial entities; c. Economic ownership of non-financial assets related to sales, lease, and equity financing which are legally owned by Islamic financial institutions; d. Classification of Islamic financial instruments and corresponding investment income; and e. Statistical Treatment of Islamic insurance. ### Proposed recommendations (explicit) - a. Replace the term “interest” with the term “interest and similar returns” defined in line with draft 2025 SNA, (para. 8.119) as: - “investment income or interest-like income that is receivable by the owners of certain kinds of financial assets, namely: deposits, debt securities, loans, and other accounts receivable and some similar instruments in the case of Islamic finance, for putting the financial asset at the disposal of another institutional unit”. - b. Introduce additional guidance in the updated GFSM to clarify how to properly account for Islamic finance and insurance arrangements in the GFS. The guidance would be based on the joint SNA/BPM Chapter on Islamic finance (2025 SNA Chapter 26 / BPM7 Chapter 17) and include: - A general overview of Islamic finance and how it is different from conventional finance; - A review of Islamic financial institutions and their sectorization; - A review of Islamic financial arrangements, and how these may be reflected in macroeconomic financial instruments (classification and corresponding investment income); - Clarification of economic ownership of nonfinancial assets in Islamic finance arrangements; - Clarification of Islamic financial instruments, specifically, discussing the different sukuk arrangements and how to treat these in GFS as well as including examples of other Islamic finance instruments in the relevant asset and liability categories. ### Rationale - Harmonize the updated GFSM with the 2025 SNA and BPM7, a key objective of the GFSM 2014 update process. - Provide clarification for the treatment of Islamic finance within the existing GFS conceptual framework. ### Proposed textual changes in GFSM 2014 - Revise GFSM 2014 (paras. 5.108-5.110 and 6.62-6.75) to incorporate the term “interest and similar returns” and align the definition and supporting text with that in the draft 2025 SNA (paras. 8.119-8.122) and draft BPM7 (paras. 12.61-12.63). - Reflect other aspects of Islamic financing, both in terms of Islamic financial institutions and instruments, as set out in the draft 2025 SNA (Chapter 26), and draft BPM7 (Chapter 17) in the relevant sections of the updated GFSM. ### Notes on instruments (sukuk) - Sukuk are described as: - Investment certificates issued by Islamic financial institutions to obtain funding. - Sukuk (plural of sakk, known as Islamic bonds) are certificates, with each sakk representing a proportional undivided ownership right in tangible and intangible assets, monetary assets, usufruct, services, debts or a pool of predominantly tangible assets, or a business venture (such as mudaraba or musharaka). - These assets must be clearly identifiable and may be in a specific project or investment activity in accordance with Shariah rules and principles. --- _Source: https://www.imf.org/-/media/files/data/statistics/gfsm/global-consultations/proposed-recommendations-gfsm-2014-update-121-islamic-finance.pdf_