## IMF Survey : Islamic Finance: Meeting Global Aspirations _IMF News, November 9, 2015_ ## Source details **Canonical URL:** [IMF Survey : Islamic Finance: Meeting Global Aspirations](https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew110915a) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/sonew110915a/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/sonew110915a/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/sonew110915a/bundle-manifest.json) ## Bibliographic details - Published: November 9, 2015 --- ### Overview and context - Publication: IMF Survey; November 9, 2015. - Event: Islamic Finance: Meeting Global Aspirations conference taking place on November 11, 2015 in Kuwait City. - Industry scale: - Worldwide Islamic finance industry assets exceed $1.87 trillion—up from $150 billion in the mid-1990s. - Market reach and inclusion: - Research suggests over one third of the world's adult population—about 2.5 billion people—lacks access to formal financial services. - Terminology and institutions referenced: Shari’ah, Sukūk, microTakāful, Islamic Financial Services Board (IFSB), International Islamic Liquidity Management Corporation (IILM), Basel Committee on Banking Supervision, Basel III, Financial Sector Assessment Programs (FSAPs). ### Main findings on Islamic finance growth and characteristics - Drivers of recent growth: - Core characteristics (profit-and-loss sharing; socially responsible and environmentally sustainable investments; linking finance with real economic activities) gained popularity since the global financial crisis of 2008. - Rising demand for Shari’ah-compliant retail and corporate services and infrastructure financing in both Islamic and non-Islamic countries, attracting conventional banks via Islamic windows. - Development of innovative Islamic financial products and instruments—expanding client services but creating supervisory challenges. - Availability of conducive regulatory frameworks and enabling infrastructure in many countries with legal and regulatory amendments to accommodate Islamic finance. - Remaining structural features and limits: - Islamic finance remains fragmented, bank-centric, and concentrated in a few countries. - Islamic financial assets account for only 1 percent of global financial assets. ### Key challenges and regulatory themes - Market development challenges: - Low market penetration despite notable strides. - Heavy bank-centric structure and country concentration. - Need for improvements in legal, regulatory, and disclosure norms and stronger market infrastructure (including secondary markets) to develop Sukūk for infrastructure financing and sustainable development. - Supervisory and regulatory challenges: - Ensuring an enabling supervisory, regulatory and legal environment, suitable accounting and auditing frameworks, supportive financial market infrastructure, and capacity building. - Ensuring consistent application of "rules of the road" set by Islamic standard setters; inconsistent application may stifle development and create systemic vulnerabilities. - Evolving regulatory issues: ensuring a level playing field for Islamic finance; implementing Basel III reforms; complementing micro with macro-prudential regulations; cross-sector and cross-border supervision; safety nets and resolution regimes. - Liquidity and prudential relevance: - Sukūk have the potential to serve as high quality liquid assets relevant for Basel III liquidity and capital adequacy frameworks, but market development is required for this role. ### Role of the IMF and recommended IMF engagement - Current and past IMF involvement: - IMF played a key role in the establishment of the IFSB and has an Interdepartmental Working Group for Islamic finance. - Suggested areas for IMF action: - Provide policy advice and capacity building, including technical assistance and training to strengthen regulation and supervision of Islamic financial institutions and to develop domestic Sukūk markets. - Focus on delivering key regulatory practices in areas such as liquidity and Shari’ah governance to achieve further convergence. - Promote further integration of Islamic finance with international financial standards to foster financial stability and improve prudential regulations across jurisdictions, including in the IMF’s annual economic consultations and FSAPs. - Facilitate assessment of regulation and supervision of the Islamic banking sector using the IFSB Core Principles for Islamic Finance Regulation. ### Country example — Kuwait - Financial system structure: - Kuwait has a bank-centric financial system, with the banking sector accounting for about 84 percent of the domestic financial sector. - Islamic finance in Kuwait: - Islamic finance in Kuwait dates back to 1977 when the first Islamic bank, the Kuwait Finance House, was established. - Islamic finance now constitutes almost 39 percent of the country’s entire banking system. - Legal and supervisory developments: - In 2003, the Central Bank of Kuwait promoted a legislative framework by adding a special section to existing Law No. 32 of 1968 to establish prudent regulatory and supervisory policies and procedures for Islamic finance. - Prudential regulations for Islamic banks were developed drawing from the Basel Committee on Banking Supervision and the IFSB to establish a level playing field between Islamic and conventional banks. - Institutional contributions: - The Central Bank of Kuwait was a founding member of the IFSB and the IILM and continues active participation through board membership and technical committees. ### Policy implications and priorities - Foster financial inclusion via Islamic microfinance, financing to small and medium-sized enterprises, and microTakāful, alongside broader efforts to enhance access to basic banking services, regulatory environments, and public financial awareness. - Prioritize consistent application and refinement of regulatory frameworks informed by Basel Committee and IFSB recommendations to reduce systemic vulnerabilities. - Develop Sukūk and other long-term instruments for infrastructure financing by improving legal, regulatory, disclosure norms, and market infrastructure (including secondary markets). - Continue collective stakeholder efforts—industry, regulators, and international institutions—to sustain innovation, market development, and convergence with international financial standards. *IMF Survey : Islamic Finance: Meeting Global Aspirations — November 9, 2015* --- ## Content in this bundle - [New110915aapdf (PDF)](/-/media/websites/imf/imported/external/arabic/pubs/ft/survey/so/2015/new110915aapdf.pdf){rel="external" type="application/pdf"} --- ## References - [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus) - [PRESS CENTER](http://presscenter.imf.org/) - [In The News](https://www.imf.org/en/news/search) - [Visit the Conference page](http://www.imf.org/external/np/seminars/eng/2015/islamicfinance/index.htm) - [The IMF and Islamic Finance](http://www.imf.org/external/themes/islamicfinance/) - [Islamic Finance: Meeting Global Aspirations](http://www.imf.org/external/np/seminars/eng/2015/islamicfinance/) - [recent IMF study](http://www.imf.org/external/pubs/cat/longres.aspx?sk=42871) - [Financial Sector Assessment Program](https://www.imf.org/external/np/exr/facts/fsap.htm) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew110915a_