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ISLAMIC FINANCE a Catalyst for Shared Prosperity?

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ISLAMIC FINANCE a Catalyst for Shared Prosperity? ISLAMIC FINANCE A Catalyst for Shared Prosperity? GLOBAL REPORT ON ISLAMIC FINANCE ISLAMIC FINANCE A Catalyst for Shared Prosperity? Copyright © 2016 by Islamic Development Bank Group Some rights reserved 1 2 3 4 20 19 18 17 This work is a product of the staff of The World Bank and Islamic Development Bank Group (IDBG) with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank and IDBG, their Boards of Executive Directors, or the governments they represent. The World Bank and IDBG do not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank and IDBG concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be considered to be a limitation upon or waiver of the privileges and immunities of The World Bank and IDBG, all of which are specifically reserved. Rights and Permissions This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) http://creativecommons.org/licenses/by/3.0/igo. Under the Creative Commons Attribution license, you are free to copy, distribute, transmit, and adapt this work, including for commercial purposes, under the following conditions: Attribution—Please cite the work as follows: World Bank and Islamic Development Bank Group. 2016. Global Report on Islamic Finance: Islamic Finance: A Catalyst for Shared Prosperity. Washington, DC: World Bank. doi:10.1596/978-1-4648-0926-2. 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The World Bank and IDBG therefore do not warrant that the use of any third-party-owned individual component or part contained in the work will not infringe on the rights of those third parties. The risk of claims resulting from such infringement rests solely with you. If you wish to re-use a component of the work, it is your responsibility to determine whether permission is needed for that re-use and to obtain permission from the copyright owner. Examples of components can include, but are not limited to, tables, figures, or images. All queries on rights and licenses should be addressed to The Islamic Development Bank Group, 8111 King Khalid Street Al Nuzlah Al Yamaniyah District, Unit #1 Jeddah 2444-22332, Kingdom of Saudi Arabia. ISBN (paper): 978-1-4648-0926-2 eISBN (electronic): 978-1-4648-0927-9 DOI: 10.1596/978-1-4648-0926-2 Cover design: Critical Stages Cover image: Yuriy Spodarenko. The Great Mosque of St. Petersburg, St. Petersburg, Russian Federation. Creative Commons Attribution-Share Alike 3.0 Unported Library of Congress Cataloging-in-Publication Data has been applied for. Contents Contents ................................................................ v Foreword ...............................................................xi Acknowledgments .......................................................xiii Glossary ............................................................... xv Abbreviations ......................................................... xxvii Overview ............................................................... 1 1 Islamic Finance and Shared Prosperity ..................................... 17 2 The State of Development and Shared Prosperity in OIC Countries ............... 41 3 The Islamic Banking Sector .............................................. 57 4 Islamic Capital Markets ................................................ 75 5 TakƗful (Islamic Insurance), RetakƗful, and MicrotakƗful ...................... 103 6 Nonbank Financial Institutions .......................................... 119 7 Alternative Asset Classes ............................................... 139 8 Islamic Social Finance ................................................. 153 9 Public Policy Measures to Enhance Shared Prosperity ......................... 181 Chapter Attributions .................................................... 201 Index ................................................................ 203 GLOBAL REPORT ON ISLAMIC FINANCE v vi CONTENTS GLOBAL REPORT ON ISLAMIC FINANCE BOXES 1.1 The World Bank Group Approach to Enhancing Shared Prosperity. 22 1.2 The Islamic Development Bank Group Strategy for Development .............23 1.3 Key Institutions in an Ideal Islamic Economy ............................27 1.4 Why Is Debt Finance So Prevalent? ....................................30 1.5 Key Instruments of Redistribution in Islamic Finance ......................33 1.6 How Development of the Financial Sector Could Promote Shared Prosperity ....35 3.1 Abu Halima Mud. Ɨrabah Greenhouse Project in Sudan .....................58 3.2 Channels of Financial Inclusion from an Islamic Finance Perspective ..........59 3.3 Islamic Banking: Is It Good for Growth? ...............................68 4.1 Issuances in IDB’s Medium-Term Note Program ..........................94 5.1 Similarities and Differences between Conventional Mutuals/Cooperatives and TakƗful ....................................................104 5.2 Country Case: Regulation and Challenges in Nigeria .....................114 6.1 Case 1. Green Suknjk and the Rising Trend in Responsible Investment ........125 6.2 Case 2. Liwwa: A Shari‘ah-Compliant Peer-to-Peer Lending Platform .........127 6.3 Case 3. NBFI Shari‘ah-Compliant Home Financing in Canada ..............130 6.4 Case 4. ASR Leasing in Tajikistan ....................................131 8.1 Case 1. Revolving Credit out of Pooled Sadaqa¯ t and Zaka¯t Proceeds: Akhuwat, Pakistan ...............................................156 8.2 Case 2. Community-Driven Development: Dompet Dhuafa Republika, Indonesia ...157 8.3 Case 3. A Zaka¯t Fund: Al-Aman Microfinance Fund, Sudan................159 8.4 Case 4. Corporate Waqf: Johor Corporation’s Waqaf Al-Noor, Malaysia ......160 8.5 Case 5. Using Waqf to Fund Microfinance: The Fa’el Khair Program, Bangladesh .....................................................161 8.6 The Role of Islamic Finance in Empowering Women: The Islami Bank Bangladesh Limited Microfinance Program.............................177 9.1 Indonesia’s Initiative to Take Islamic Finance to the Next Level of Development . 189 9.2 Diversified Institutions and Efforts toward Financial Inclusion: Highlights of Some Policy Initiatives of the State Bank of Pakistan .....................191 9.3 Integrating Islamic Finance into Global Finance: IMF–World Bank Joint G-20 Note .....................................................195 9.4 Regulatory Developments at the International Level: Supporting Shared Prosperity ................................................196 GLOBAL REPORT ON ISLAMIC FINANCE CONTENTS vii FIGURES 1.1 GDP Growth Reduces Poverty .......................................19 1.2 Percentage of Income Held by the Top and Bottom 10 Percent in Select Countries . 21 1.3 Islamic Framework to Achieve Sustainable Development and Shared Prosperity . 24 B1.4.1 Global Outstanding Debt ...........................................30 B1.4.2 Stock Markets versus Debt Securities ..................................31 1.4 The Contrasting Effects on Growth of Different Forms of Financial Expansion . 32 2.1 Progress in Meeting Millennium Development Goals 1–5 ...................42 2.2 Poverty Headcount Ratios, Income-Level Classification ....................43 2.3 Poverty Headcount Ratios, Regional Classification........................44 2.4 Income Distribution by Decile .......................................45 2.5 Per Capita Income (Consumption) of the Bottom 40 Percent and the Total Population ......................................................46 2.6 Change in the Gap between Per Capita Consumption (Income) of the Bottom 40 Percent and the Overall Population between 2007 and 2014 ........46 2.7 Rule of Law Index, Income-Level Classification ..........................48 2.8 Government Effectiveness Index, Income-Level Classification................49 2.9 Correlation between Consumption and Real GDP, Income-Level Classification ....50 2.10 Relative Value of Market Capitalization of Listed Companies, Ratio of OIC to Non-OIC Countries .........................................51 2.11 Sources People Use to Obtain Funds, Ratio of OIC to Non-OIC Countries, Regional and Income-Level Classification...............................51 2.12 Social Inclusion, Ratio of OIC to Non-OIC Countries .....................52 2.13 Domestic Credit to the Private Sector ..................................53 2.14 Gross Portfolio Debt Assets to GDP ...................................54 2.15 Gross Portfolio Equity Assets to GDP ..................................54
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