Press Release - IMF Executive Board Adopts Decisions to Strengthen the Financial Stability in Countries with Islamic Banking
On February 3, 2017, the Executive Board of the International Monetary Fund (IMF) held its first formal discussion on Islamic banking (IB), and adopted a set of proposals on the role that the Fund should play in this area. These proposals, and the case for adopting them, are contained in the staff paper “Ensuring Financial Stability in Countries with Islamic Banking” and the accompanying country case studies paper.
IB continues to grow rapidly, in size and complexity, contributing to financial deepening and inclusion in many countries, but also posing a challenge to supervisory authorities and central banks. While accounting for a small share of global financial assets, IB has established a presence in more than 60 countries and has become systemically important in 14 jurisdictions. IB involves operations, balance sheet structures, and risks that differ from their conventional banking counterparts. Accordingly, there is a need for putting in place an environment that promotes IB financial stability and sound development, including legal, prudential, financial safety nets, anti-money laundering and countering the financing of terrorism, and liquidity management frameworks.
The IMF has been providing technical advice, as needed, to member countries on IB issues for the past 20 years and has been cooperating with relevant standards setters and international organizations on efforts to develop supplementary standards for IB in areas that are not covered by existing international standards. In recent years, the number and complexity of IB issues arising during IMF country surveillance and the demand for policy advice and capacity development in this area have increased, requiring a more formal IMF involvement.
Executive Board Assessment
Executive Directors welcomed the opportunity to consider the staff's proposals to strengthen the Fund's engagement on Islamic banking and related financial stability implications. Directors concurred that Islamic banking presents an opportunity for many member countries to enhance financial intermediation and inclusion and mobilize funding for economic development. At the same time, they noted that the growth of Islamic banking and its complexities pose new challenges and unique risks for regulatory and supervisory authorities. Against this background, Directors called for stronger efforts to establish a policy framework and environment that promote financial stability and sound development of Islamic banking, particularly for countries in which Islamic banking has become systemically important.
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