Fri, Oct 20, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Islamic Finance Intelligence

Industry Snapshot: IFSB-IRTI-IDB Islamic Finance and Global Stability Report

Thursday, April 29, 2010

This particular report (see reference link) has been published very recently (April of this year) and is a joint collaboration between the ISFB, IRTI and the IDB. We felt a desire to further scrutinize this study since it seems that not enough attention has been given to its findings. Even their own press release failed to include a link to the actual report and almost every media outlet (in particular those that claim to be internet savvy) could not - or would not - bother to include a simple hyperlink to the online document. In any case, the output can be easily described with one word: lucid. It provides a concise, refreshing and pragmatic overview of the Islamic financial industry today and provides poignant signals as to its future.

The report itself is in fact the amalgamation of work performed by three different task forces that worked on the following areas:

  1. Appreciating the Islamic Finance Model
  2. The State of Islamic Financial Services Industry
  3. Challenges and Strategies for Strengthening Financial Stability in the Islamic Financial System

Essential Features of Islamic Finance


Source: IFSB, IRTI, IDB Report

All three sections deserve attention, for instance the attached graph from the first area (Appreciating the Islamic Finance Model) provides a succinct overview of Islamic finance. Nevertheless, it is the third area (Challenges and Strategies for Strengthening Financial Stability in the Islamic Financial System) that provides very useful indicators in terms of governance. The report takes a predominantly forward looking perspective and it identifies three key areas of priority that warrant greater attention from policy makers and regulators, so as to strengthen and enhance the "Islamic finance ecosystem":

  1. Strengthening the infrastructural building blocks of the Islamic financial services industry to further enhance the industry's resilience. The report identifies a set of 8 building blocks required for strengthening industry infrastructure., and this incorporates a strong governance approach that is closely aligned with the efforts of the IFSB:
    1. Comprehensive set of cross-sectoral prudential standards
    2. Development of a liquidity management infrastructure
    3. Strengthening financial safety nets
    4. Effective crisis management and resolution framework
    5. Accounting auditing & disclosure standards
    6. Macro-prudential surveillance
    7. Strengthening rating processes
    8. Capacity building and talent development
  2. Accelerating the effective implementation of Shari'ah and prudential standards and rules to facilitate the creation of a more stable, efficient and internationally integrated Islamic financial services industry. Here the report zooms in on the need for:
    1. a better implementation of prudential standards (i.e. IFSB guidelines, etc);
    2. encouraging mutual understanding of Shari'ah views on key issues across different jurisdictions (i.e. communication) ; and
    3. emphasis for Islamic finance to be a more inclusive system (i.e. integration).
    The main takeaway is that there is a clear understanding that industry cohesion is necessary and this can occur despite the various schools of thought and the different stages of market maturity.
  3. Creating a common platform for the regulators of the Islamic financial services industry to enhance constructive dialogue. The most significant recommendation put forward by the report is for the establishment of a platform for constructive dialogue which is termed the "Islamic Financial Stability Forum" (IFSF). This is expected to take the form of a task force within the IFSB that will be "a strategic platform for conducive and constructive dialogue among the regulators of the international Islamic financial system". While this will be a significant undertaking it would benefit from having the input of practitioners and active market participants as well (some represented within the IFSB membership).

The overall recommendations are focused on macroeconomic issues, policy concerns, as well as crisis management. Nevertheless, it also suggests that increased attention will be given to "issues of coherence and convergence, and on opportunities to increase the efficiency, integrity and stability of Islamic financial markets". If these can be developed within an aggressive timeframe and if they have the implicit buy-in of IFSB members (regulatory bodies in particular) then we are looking at a governance initiative that could have far reaching consequences for the industry.

Your feedback and comments are very important to us, please feel free to contact the author via email.



Article Link

<< Go Back to Archive

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad