IMF Executive Board Adopts Decisions to Strengthen the Financial Stability in Countries with Islamic Banking
IMF News, February 21, 2017
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Bibliographic details
- Published: February 21, 2017
Background and context
- Press Release No. 17/53; dated February 21, 2017.
- Executive Board held its first formal discussion on Islamic banking (IB) on February 3, 2017.
- IMF has provided technical advice on IB issues for the past 20 years.
- IB presence:
- Established a presence in more than 60 countries.
- Has become systemically important in 14 jurisdictions.
- IB differs from conventional banking in operations, balance sheet structures, and risks, creating challenges for supervisory authorities and central banks.
- Need for an environment that promotes IB financial stability and sound development, including:
- legal frameworks,
- prudential frameworks,
- financial safety nets,
- anti-money laundering and countering the financing of terrorism (AML/CFT),
- liquidity management frameworks.
Executive Board assessment and findings
- Directors welcomed staff proposals contained in the staff paper “Ensuring Financial Stability in Countries with Islamic Banking” and accompanying country case studies.
- Views:
- IB presents an opportunity to enhance financial intermediation and inclusion and mobilize funding for economic development.
- Growth and complexity of IB pose new challenges and unique risks for regulatory and supervisory authorities.
- Stronger efforts are needed to establish policy frameworks and environments that promote financial stability and sound development, particularly where IB is systemically important.
- Support for IMF role:
- Directors supported staff’s proposed approach to developing and providing policy advice on IB-related issues in the context of Fund surveillance, program design, and capacity development.
- Directors called for continued IMF support to relevant international standard setters and other international bodies to address gaps in the international regulatory framework for IB.
Policy actions, recommendations, and follow-up
- Standards and recognition:
- Directors saw merit in considering formal recognition of the "Core Principles for Islamic Finance Regulation for Banking," prepared by the Islamic Financial Services Board, as a standard under the Fund/Bank Standards and Codes Initiative.
- Directors looked forward to receiving a formal proposal for Board endorsement in the context of a forthcoming paper before end-April 2018.
- Implementation and supervisory capacity:
- Call for full implementation and consistent application of developed legal, governance, regulatory, and supervisory frameworks for IB.
- Strengthen supervisory capacity with respect to Islamic banking.
- Resolution regimes and safety nets:
- Emphasized importance of robust Islamic banking-specific resolution regimes and other financial safety nets where Islamic banking operates.
- Noted slow progress; underscored need for additional work with relevant international bodies on design of legal regimes and institutional arrangements for:
- Islamic banking resolution,
- deposit insurance schemes,
- AML/CFT,
- adapting conventional lender-of-last-resort frameworks to cover Islamic banking.
- Liquidity and markets:
- Agreed availability of high-quality liquid assets for Islamic banking is important for effective liquidity management and financial stability, and sustainable development of the industry.
- Called for increased efforts to deepen the government Sukuk markets.
- Noted importance of having in place relevant central banking liquidity facilities and instruments.
- Hybrid products and emerging risks:
- Noted emergence of hybrid financial products in IB that replicate aspects of conventional finance may bring benefits but also raise financial stability concerns.
- Identified concerns: emergence of new complex risks, applicability of existing prudential regimes, governance and consumer protection concerns, and reputational risk.
- Encouraged additional work by staff and other international bodies and standard setters to better understand these activities and effective regulatory approaches.
Contact and administrative details
- IMF Communications Department, MEDIA RELATIONS; PRESS OFFICER: Randa Mohamed Elnagar.
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
IMF Executive Board Adopts Decisions to Strengthen the Financial Stability in Countries with Islamic Banking — Press Release No. 17/53 (February 21, 2017).