An Overview of Islamic Finance
IMF Working Papers, June 2, 2015
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- An Overview of Islamic Finance
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Bibliographic details
- Authors: Mumtaz Hussain, Asghar Shahmoradi, Rima A Turk
- Published: June 2, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513590745.001
Summary
- Islamic finance has started to grow in international finance across the globe, with some concentration in few countries.
- Nearly 20 percent annual growth of Islamic finance in recent years seems to point to its resilience and broad appeal, partly owing to principles that govern Islamic financial activities, including equity, participation, and ownership.
- In theory, Islamic finance is resilient to shocks because of its emphasis on risk sharing, limits on excessive risk taking, and strong link to real activities.
- Empirical evidence on the stability of Islamic banks, however, is so far mixed.
- While these banks face similar risks as conventional banks do, they are also exposed to idiosyncratic risks, necessitating a tailoring of current risk management practices.
- The macroeconomic policy implications of the rapid expansion of Islamic finance are far reaching and need careful considerations.
Key findings and observations
- Growth: Nearly 20 percent annual growth of Islamic finance in recent years.
- Resilience (theoretical): Emphasis on risk sharing, limits on excessive risk taking, and strong link to real activities suggest resilience to shocks.
- Empirical stability: Evidence on the stability of Islamic banks is mixed.
- Risk profile: Islamic banks face similar risks as conventional banks and additional idiosyncratic risks.
- Risk management: Exposure to idiosyncratic risks necessitates tailoring of current risk management practices.
- Macroeconomic implications: Rapid expansion of Islamic finance has far reaching macroeconomic policy implications requiring careful consideration.
Subject areas and keywords
- Subject: Asset and liability management, Banking, Central banks, Financial sector policy and analysis, Financial sector stability, Financial services, Islamic banking, Islamic finance, Liquidity management, Open market operations
- Keywords: assets data, bank, bank act, bank management, banking assets, central bank certificate, conventional bank, equity capital, Financial sector stability, Financial Stability, Global, Islamic Banking, Islamic Finance, Liquidity management, monetary policy, Open market operations, profit share, profit sharing, profit-sharing financing, rate of return, Shari'ah, Sukuk, WP
Content in this bundle
- Annex I. Key Instruments of Islamic Finance