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Alejandro López Mejía, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, Inwon Song, and Ms. Michaela Erbenova

I. Introduction Islamic banking (IB) has grown rapidly across several regions and is systemically important in key economies ( Figure 1 ). 2 Indeed, the IB sector has expanded by over 15 percent per annum during the last five years and its assets are estimated to exceed US$1.5 trillion. Moreover, while IB is particularly large in many Muslim countries (and systemic in many countries including Iran, Sudan, Saudi Arabia, Kuwait, and Qatar), there is an increasing interest in Islamic finance in non-Muslim countries. Figure 1. The Growing Importance of

International Monetary Fund, World Bank, International Monetary Fund. Strategy, Policy, &, Review Department, International Monetary Fund. African Dept., International Monetary Fund. Legal Dept., International Monetary Fund. Middle East and Central Asia Dept., and International Monetary Fund. Monetary and Capital Markets Department
This paper provides a proposal to incorporate the Core Principles for Islamic Finance Regulation (Banking Sector) (CPIFR) issued by the Islamic Financial Services Board (IFSB), as part of the standards used in assessing the banking regulatory and supervisory regimes of relevant member jurisdictions under the Financial Sector Assessment Program (FSAP) and the Reports on Observance of Standards and Codes (ROSCs). The CPIFR largely reflects the order of the Basel Core Principles on Effective Banking Supervision (BCP), with five additional principles that are specific to Islamic banking operations. Thus, for countries that have systemically significant Islamic banking sector, the assessment of the banking regulation and supervision regime of the jurisdiction would be against the CPIFR (for fully Islamic banking systems) or BCP and the five additional core principles under the CPIFR (for dual banking systems). The Fund staff is seeking the endorsement of the Executive Board on this proposal.
International Monetary Fund, World Bank, International Monetary Fund. Strategy, Policy, &, Review Department, International Monetary Fund. African Dept., International Monetary Fund. Legal Dept., International Monetary Fund. Middle East and Central Asia Dept., and International Monetary Fund. Monetary and Capital Markets Department

inclusion for large parts of their unbanked populations where conventional finance may have less acceptance. Directors encouraged the Fund to continue developing alternative criteria to determine the significance of the IB sector in a country, beyond the simple market share in the financial market. A number of Directors saw merit in future work on developing comprehensive standards for Islamic financial services. Directors emphasized the importance of close cooperation between the Fund and relevant key institutions on IB issues. In order to avoid duplication of efforts

International Monetary Fund. Middle East and Central Asia Dept.

Introduction 1. This background paper, which is a supplement to the board paper on “Ensuring Financial Stability in Countries with Islamic Banking (IB) Sectors”, presents country experiences with reforms to strengthen regulatory oversight of the IB sector . It reviews experiences with and the progress made in adapting prudential, safety nets and resolution frameworks to the specifics of IB. The selection of several countries from a range of regions with different levels of development and approaches to IB was designed to provide a representative sample of

International Monetary Fund. Middle East and Central Asia Dept.
This paper presents country experiences with reforms to strengthen regulatory oversight of the Islamic banking sector. Based on the selected country experiences, a number of important lessons and policy options can be drawn that have implications for the stable and sound development of Islamic banking. An enabling regulatory and institutional framework and a level playing field for conventional and Islamic banks is critical for the sound and stable growth of the Islamic banking industry. The country experiences also underscore the importance of providing an enabling framework while letting market forces determine the size of the industry.
Aledjandro Lopez Mejia, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, and Mr. In W Song
This paper aims at developing a better understanding of Islamic banking (IB) and providing policy recommendations to enhance the supervision of Islamic banks (IBs). It points out and discusses similarities and differences of IBs with conventional banks (CBs) and reviews whether the IBs are more stable than CBs. Given the risks faced by IBs, the paper concludes that they need a legal, corporate and regulatory framework as much as CB does. The paper also argues that it is important to ensure operational independence of the supervisory agency, which has to be supported by adequate resources, a sound legal framework, a well designed governance structure, and robust accountability practices.
Aledjandro Lopez Mejia, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, and Mr. In W Song
International Monetary Fund. Middle East and Central Asia Dept.
International Monetary Fund, World Bank, International Monetary Fund. Strategy, Policy, &, Review Department, International Monetary Fund. African Dept., International Monetary Fund. Legal Dept., International Monetary Fund. Middle East and Central Asia Dept., and International Monetary Fund. Monetary and Capital Markets Department
Aledjandro Lopez Mejia, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, and Mr. In W Song