Islamic Finance Advisory and Technical Assistance Expanding Into New Frontiers 03 What Is Islamic Finance?

IsDB STRATEGIC PILLARS EXPANDING INTO NEW

ECONOMIC & SOCIAL CAPACITY FRONTIERS INFRASTRUCTURE DEVELOPMENT ISLAMIC ISLAMIC FINANCE SECTOR FINANCE ADVISORY DIGEST DEVELOPMENT AND TECHNICAL PRIVATE SECTOR COOPERATION ASSISTANCE DEVELOPMENT BETWEEN MCS

INCLUSIVE SOCIAL DEVELOPMENT

Islamic Development Bank 8111 King Khaled St Al Nuzlah Yamania Unit 1 Jeddah 22332-2444 Kingdom of Saudi Arabia

 (+966-12) 6361400  (+966-12) 6366871  [email protected]

 www.isdb.org CONTENTS "THE DEVELOPMENT OF ISLAMIC FINANCIAL SERVICES HAS BECOME INCREASINGLY AN ESSENTIAL TOOL ISLAMIC FINANCE: EMBEDDED AND FORMALIZED IN IsDB’S FOR DEVELOPMENT 02 STRATEGY OVER THE YEARS. THE PRINCIPLES ISLAMIC FINANCE IN IsDB’S STRATEGY 03 OF ISLAMIC FINANCE ARE WELL-SUITED TO THE WHAT IS ISLAMIC FINANCE? 04 PURSUIT OF THE SDGs – AND TO DEVELOPMENT IFATA IN NUMBERS 06 IN THE BROADEST SENSE – BECAUSE INCLUSION, IFATA AND ITS MAJOR WORK PROGRAMS 08 FAIRNESS, ACCOUNTABILITY, AND SUSTAINABILITY TECHNICAL ASSISTANCE 10 ARE ALL EMBEDDED IN ITS PRINCIPLES. THE IsDB CAPACITY BUILDING AND AWARENESS PROGRAM 12 IS COMMITTED TO SUPPORTING ITS MEMBER ENABLING INSTITUTIONS 14 COUNTRIES IN REALISING THEIR AMBITIONS LOOKING FORWARD 16 TO DEVELOP SOUND, RESILIENT AND EFFECTIVE ISLAMIC FINANCE INDUSTRIES" DR BANDAR M. H. HAJJAR CHAIRMAN, ISLAMIC DEVELOPMENT BANK GROUP ISLAMIC FINANCE: ISLAMIC FINANCE IN IsDB’S STRATEGY AN ESSENTIAL TOOL FOR DEVELOPMENT The Islamic Development Bank fosters innovative Islamic finance is uniquely suited to the The development of Islamic financial services significant Islamic financial sectors and more and sustainable solutions to the world’s pursuit of the SDGs – and to development has become increasingly embedded and than 40 countries have specific regulations in development challenges. As we work towards in the broadest sense – because inclusion, formalized in IsDB’s strategy over the years. The place to cover Islamic financial activities. The achieving the UN’s Sustainable Development fairness, accountability and sustainability are provision of technical assistance and advisory maturation of the Islamic financial services sector Goals (SDGs) by 2030, it has become clear that all embedded in its principles. Moreover, a key programmes accelerated from 2007, and in 2013 and the increasing recognition of its important securing sufficient financial resources to deliver principle of Islamic finance is to avoid excessive the IsDB Board of Governors confirmed a special role in development is reflected in its inclusion as on the SDGs is itself a challenge. leverage and speculation in favor of providing allocation of 2% of the Bank’s net income towards one of IsDB’s three strategic objectives and as a financial support to real economic activity. Islamic finance Technical Assistance programs. strategic pillar (see Figure 1). The financing gap to achieve the SDGs in developing countries is estimated to be These principles make Islamic finance Since the approval of this special allocation in Within IsDB, the Islamic Finance Advisory US$ 2.5 trillion per year. Meanwhile, Islamic particularly useful for value chain development, 2013, IsDB has approved over US$ 14 million for and Technical Assistance (IFATA) division finance is one of the fastest growing sectors in which underpins much of IsDB’s work. The more than 120 technical assistance, advisory and of the Islamic Financial Sector Development the global financial industry. From a market size Organization of Islamic Cooperation’s (OIC) capacity building projects for the development of Department (IFSDD) serves as a focal point for of US$ 200 billion in 2003, it grew to an estimated member countries are home to 40% of the world’s the Islamic financial services industry in Member Islamic finance advisory services and technical US$ 1.8 trillion in 2014, and is expected to reach poorest people, living on US$ 1.25 a day or less. and non-Member Countries. IsDB has also been assistance to member and non-member US$ 2.7 trillion in 2021. This growth presents In these countries, greater participation by the instrumental in providing technical expertise countries. The IFATA division also focuses on a valuable opportunity to fill the development poorest people in local and global value chains in kind to various Islamic finance infrastructure building an enabling environment for Islamic financing gap. could have transformative poverty-reducing institutions, which has resulted in the publication finance by assisting in the development of impacts. But in order to unlock that potential, a of over 125 standards of best practice for the legal, regulatory and supervisory frameworks. strong financial services industry needs to be in global Islamic finance industry. In addition, the division acts as an interface place. A well developed Islamic finance sector between IsDB and other multilateral institutions, These interventions have contributed to the could help make that happen. governments and public/private-sector increasing formalization and reach of the organizations involved in the development of industry. At least 12 countries have domestically Islamic finance. FIGURE 1 | IsDB GROUP’S 10-YEAR STRATEGIC FRAMEWORK IsDBG VISION 17 1 A VISION FOR HUMAN DIGNITY

16 2

5 3 1 AS WE WORK INCLUSIVENESS CONNECTIVITY IFS GROWTH Become a preferred partner for MC’s A strong catalyst for Leadint authority in Islamic Finance TOWARDS ACHIEVING THE 4 4 economic and social development South-South coooperation STRATEGIC 1 UN’S SUSTAINABLE DEVELOPMENT OBJECTIVES GOALS (SDGs) BY 2030, IT HAS

BECOME CLEAR THAT SECURING

5 1 SUFFICIENT FINANCIAL RESOURCES Economic and Social Private sector Inclusive social Cooperation Islamic Finance TO DELIVER ON THE SDGs IS infrastructure development development between MCs Sector development 1 2 ITSELF A CHALLENGE 6

PILLARS STRATEGIC 1 1 7 Capacity development 1 0 9 8

Resource Manage for Selectivity Financial Group Synergy Build Link Strategy

GUIDING Mobilization Results Sustainability and Governance Capabilities in to Budget and

PRINCIPLES Strategic Pillars Resources

02 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 03 WHAT IS ISLAMIC FINANCE?

Islamic finance refers to financial activities ISLAMIC FINANCE HAS EVOLVED FROM A NICHE FIGURE 2 | THE MAIN SECTORS OF ISLAMIC FINANCE conducted through a variety of financial contracts FINANCIAL SYSTEM TO AN INCREASINGLY that comply with Shari’ah (Islamic law) rules and MAINSTREAM FIELD OF FINANCIAL ACTIVITY, le for Is s availab lamic fun principles. These include the requirement for t type d ma WITH AN ESTIMATED sse last decade to of nag e a ed the fer inv em financial activities to be interest-free, to have Th volv esto en ve e nds rs a t underlying assets, and to avoid uncertainty and ha y u uit et funds ○ E mark gambling. ney Mo ome funds ○ d inc US$ TRILLION ixe nds T fu h 2 ○ ced e Modern Islamic finance emerged in the 1970s and n h ala a a B funds v s IN ASSETS ○ ative w e s 1980s, became increasingly internationalized in ern lt id e e : ○ A produc ○ e v t d tured ts o t the 1990s, and has seen rapid global growth in the n g ruc E s l y a in St ○ p v p d ○ EITs M u e e e s u s/ ○ i c d s t l t first two decades of the 21st century, particularly As Figure 2 shows, the Islamic finance sector has c c ET o y tr o a ○ n u v u in ○ ix e v d y u m e a s B e n r i since the global financial crisis of 2007-08. It has evolved from basic and more informal banking o t ○ d l r a m d o t a p n A la in s f h b e g ○ a e r in lt n c r f l evolved from a marginal alternative economy services to offer an increasingly diverse and s UKUK e u e S c o k l e m n g S a f d ○ t r e m e n f f g o r n s o i e u a d t d o e t E t to an increasingly mainstream field of financial sophisticated range of products. h e f s r c t f s u T i u d o l d t v u I u f n i s t g o e n u n e n s r l s d n d c a activity, with an estimated US$ 2 trillion dollars n a / e c n i l f d u s d s a m t s g t l One of the most important factors in the growth u k a u t i E n s d n n n g n i p d i c c e I d e in assets. e k G FROM BASIC BANKING F T r c e a i u n U o s n n s t f of Islamic finance has been the introduction of b b m N a m d I d g o u l g a e N e l e n o u : n b K SERVICES IN THE 1990S, n r g D o v a g i ﬁ c d t a The industry consists of three main sectors: more sophisticated regulatory frameworks that p N f a a c t S f s e n n s m e h n t n A s d THE ISLAMIC FINANCE INDUSTRY e a

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Islamic microfinance, awqaf (endownments), reveal, IsDB, in its capacity as the only Shari'ah- ○

MANAGEMENT, AND TAKAFUL S Zakah and Sadaqah which are penetrating into compliant Multilateral Development Bank in the

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e a a c i m I L ○ c n A u o i i d n Banking is the largest sector, with Islamic banks frameworks and in building the capacity of those ○ n c L U a A n F r o o ○ w g s F r i M o o A e p , t m m IN ff t c and conventional banks with Islamic ‘windows’ who work in the Islamic finance sector as a i c K e f e a c a i o ia A A o f e t s r f c m l N T s li h u k o i fi C r t ro holding 77% of all Islamic financial assets. whole. a fi n d e n E o d , p h v e n a at n e p p n e v t n r a r d s o a a s e u c e l fi e t Commercial banking is a significant driver of n n t lo m e op ra , t s n rt c m is l e g a t d e p to rap afu n in l fi e Meanwhile, although it is still small in fo s e m s idly Tak e r re e a p n e u f g e n m growth in Islamic finance: Morocco saw eight r d r ts n pp y o ne e e g li a od t. ort riet gi rin b e comparison to the conventional global financial ve u Th va n a d s l c is r, e m n e Islamic banks begin operations in 2017 and 2018, ih ah ts inc oto d a system, Islamic finance has also become an o h a ludes: ○ M an lth m o o n ng a co and South America’s first Islamic bank opened in ds us d s usi he s in increasingly recognized element of that system, . e erv ho ale m - s o ice -sc ra ow Suriname in 2018. Of the other sectors, Islamic ffe s ass rog e l acknowledged by major global institutions such rin ○ M e p th g ph rag or capital markets holds a 19% share of total assets ilan cove ul f as the World Bank and IMF. Major international thropic kaf of which Sukuk is the key driver, with Malaysia crota ratings agencies have started to rate Islamic ○ Mi dominating the global market. The takaful sector financial instruments and entities for their represents 4% respectively. financial creditworthiness, and big conventional market players, including the global megabanks, are becoming important providers of Islamic financial products both in Muslim countries and in Western, non-Muslim countries.

04 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 05 DISTRIBUTION OF TA AND AWARENESS SUPPORT IFATA IN NUMBERS COMPLETED | TECHNICAL ASSISTANCE & CAPACITY BUILDING  Technical Assistance  Capacity Building 16 14 12 10 TECHNICAL ASSISTANCE & CAPACITY BUILDING PROGRAMMES COMBINED | DEC 2019 8 6 4 2 TOTAL COMBINED UNDER 0

COMPLETED IMPLEMENTATION PIPELINE IFSB IIRA PROJECTS Egypt IICRA Libya Oman Sudan AAOIFIADFIMI AlgeriaBosniaCIBAFIDjibouti GambiaGuinea Kuwait Nigeria Senegal TunisiaTurkey IndonesiaIsDB HQ MalaysiaMaldives Morocco Pakistan Thailand Regional Kyrgzstan Mauritania Tajikistan Uzbekistan Afghanistan Luxembourg Saudi Arabia IMPLEMENTATION | TECHNICAL ASSISTANCE & CAPACITY BUILDING  Technical Assistance  Capacity Building 180 81 64 35 6 45% 36% 19% 5 4 3 2 1 TECHNICAL ASSISTANCE | DEC 2019 CAPACITY BUILDING | DEC 2019 0 IFSB IIRA UAE USA Libya Niger Oman Sudan Bahrain DjiboutiGambiaGuinea Nigeria Russia SenegalSomalia TunisiaTurkey Uganda Comoros Indonesia MalaysiaMaldivesMorocco PakistanPalestine Suriname Regional Azerbaijan Kyrgyzstan Uzbekistan Afghanistan BangladeshConsultancy Kazakhstan Mozambique Saudi Arabia PIPELINE | TECHNICAL ASSISTANCE & CAPACITY BUILDING  Technical Assistance  Capacity Building 18 3 41 32 2 40 1 46 3

0 KEY Iran Mali Usa TOTAL TOTAL CAPACITY Benin Chad Cibaﬁ IFSB IIFM Libya Spain  Completed AAOIFI Algeria Bosnia Gabon Guinea Nigeria Russia TunisiaUganda Ethiopia Palestine Regional Mauritania Uzbekistan TA  Under implementation BUILDING Afghanistan Bangladesh Burkina Faso Sierra Leone PROJECTS  Pipeline PROJECTS  Other  Takaful  Capacity Building 118 62 BREAKDOWN OF 6% 2% (Training and Familiarization Visits) 20% IsDB TECHNICAL  Cooperation with REGIONAL DISTRIBUTION OF RESPECTIVE NO. HUB WISE TOTAL NO. OF TECHNICAL ASSISTANCE ASSISTANCE PROJECTS Multilaterals 7% OF TECHNICAL ASSISTANCE (TA) & CAPACITY AND CAPACITY BUILDING BY ISLAMIC FINANCE  Capacity Building (Workshops, Meetings, BUILDING (CB) % SECTOR S U and Fora) 23% B 40 100 S E  C Islamic Social Finance T O 35 (Zakat, Awqaf, Philanthropy) R S

80 12% O F

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G 40 G 15 Shari’ah) 31% 10 IsDB SUPPORTS ALL 20 SPECTRUMS OF ISLAMIC 5  Knowledge product FINANCE SECTORS (Publication and translation) 0 0 7% CB TA CB TA CB TA CB TA THROUGH ITS TECHNICAL  Other 11% Cairo Abuja AlmatyAnkara Dakar Dhaka Dubai Rabat ASSISTANCE PROJECTS. AfLA ASIA MENA & REGIONAL/ JakartaKampala  Islamic Infrastructure  Islamic Capital Pramaribo EUROPE IsDB HQ Kuala Lumpur Institutions (IIIs) 18% Market (Sukuk) 11%  Sector Assessment, Studies, Policy, IsDB HQ/Regional Strategy and Master Plan 8%

06 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 07 IFATA DIVISION AND ITS MAJOR WORK PROGRAMS

The Islamic Finance Advisory and Technical IFATA division provides advisory and technical 1. Assistance (IFATA) Division is part of IsDB’s assistance on Islamic finance to Member and Islamic Financial Sector Development non-Member Countries. It has three main work TECHNICAL Department (IFSDD). programs, which are outlined briefly below. Over the following pages, each of these three work ASSISTANCE programs are described in more detail. 2. CAPACITY COUNTRY WIDE DISTRIBUTION OF TA AND AWARENESS SUPPORT KEY The Technical Assistance BUILDING AND No. of projects program helps countries  Completed  Under implementation create an enabling environment AWARENESS  Pipeline for the provision of Islamic financial services. This grant 3. activity ty pically includes the provision of technical expertise, ENABLING 1 advisory services and other The aim of the Capacity Building 3 types of assistance to financial and Awareness program is to INSTITUTIONS 1 1 institutions, regulatory bodies, raise the profile and acceptance 1 1 government departments of Islamic finance around the 1 1 1 1 1 1 3 and other key stakeholders in world and to place IsDB as a 1 1 2 1 1 order to help develop legal and leading institution supporting 1 3 4 2 2 supervisory frameworks. It also the development of the Islamic The rapid expansion of 1 4 3 1 1 1 1 1 3 includes training on Islamic finance industry. The sector the Islamic Finance sector 1 2 1 1 1 1 1 2 1 finance products and support has seen rapid growth and also exposed an absence 1 5 1 1 4 3 1 2 2 mechanisms. diversification over the past of appropriate international 1 2 3 2 1 1 two decades, and through standards of best practice. 1 1 1 1 1 1 1 1 1 2 this program, IFATA division is Many countries relied on 3 1 1 2 1 ensuring that the potential of adapting conventional 1 1 1 1 1 Islamic finance to contribute to finance standards, resulting 1 1 3 2 2 development objectives is fully in a lack of harmonization MORE THAN recognized. across jurisdictions. IsDB helped to establish six new 1 For the above and the Islamic Finance infrastructure 2 Technical Assistance program, institutions to resolve this, IsDB usually also partners 40 and IFATA division provides with other international on-going support to those organisations and MDBs COUNTRIES institutions. HAVE BENEFITED FROM IsDB'S such as the World Bank, ISLAMIC FINANCE TECHNICAL Asian Development Bank, ASSISTANCE PROJECTS United Nations Development Programme, International Monetary Fund, Organisation of Islamic Cooperation and many others.

08 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 09 By the end of 2019, IsDB’S IFATA division had fully AIMS OF THE TECHNICAL HOW TECHNICAL ASSISTANCE completed a total of 40 Technical Assistance ASSISTANCE PROGRAM WORKS projects, with a further 46 still being implemented, Demand for Islamic financial services is growing, Member Countries can approach IsDB with and 32 requests waiting in the pipeline. but many countries lack an appropriate legal, a request for Technical Assistance. The The global growth of the Islamic finance industry fiscal, regulatory, and supervisory framework. In organizations that actually make the request can 1. and its assets is a measure of the impact of this many cases, the frameworks that do exist were vary from Central Banks to Ministries of Finance, work. In the early 2000s, the provision of Islamic developed for conventional financial systems Capital Market Authorities, commercial banks, TECHNICAL finance was still relatively patchy, informal, and and are not equipped to consider the particular and national standard-setting bodies. undeveloped. Today, Islamic financial products characteristics of Islamic finance. ASSISTANCE In the majority of cases, Technical Assistance is and services are available on all six continents, The absence of supportive regulatory frameworks about helping to develop legal, regulatory, and with more than 1,000 Islamic financial institutions typically goes hand in hand with limited expertise supervisory frameworks to enable the provision around the world offering a variety of products in Islamic finance. Together, these limitations of Islamic finance in that particular jurisdiction. and services. The sector as a whole is worth an act as a constraint on the sector, preventing Training in Islamic finance is also provided, estimated US$ 2 trillion and continues to grow. investment in the country from Islamic financial building the capacity of staff within these IsDB’s Technical Assistance has helped establish services providers, even though there may be organizations to provide and advise on products the conditions for this growth. More than 40 strong market potential. and services. countries now have specific Islamic finance Conversely, good regulatory architecture creates The precise nature and scope of Technical regulations in place, and it is the provision of confidence and attracts investment. Countries Assistance will vary, depending on how these stronger legal, regulatory and supervisory that do have a strong ecosystem for Islamic developed the Islamic finance sector already is frameworks – as well as local capacity and finance – such as Malaysia and Bahrain – have and what gaps exist. knowledge – that has created the enabling seen accelerated growth in the sector. This robust environment for Islamic finance to flourish. For every request received, IsDB assigns a project ecosystem puts them on a stronger footing officer to evaluate it and ensure it fits within the when it comes to pursuing broader development mandate of the Bank. If the request is accepted, objectives. a Technical Assistance proposal is prepared and THE VALUE OF A TYPICAL IsDB TECHNICAL presented to the IsDB Management for approval. ASSISTANCE GRANT SIZE IS AROUND Subsequently, a Technical Assistance agreement is signed, and IsDB supports the implementation of the assistance program to ensure it achieves US$ 200,000 its intended objectives. Where required, external consultants may be hired to help deliver assistance. Once a project is completed, a report is prepared to assess whether the assistance achieved its objectives.

10 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 11 AIMS OF THE CAPACITY BUILDING HOW THE CAPACITY BUILDING AND THE VALUE OF CAPACITY BUILDING AND AND AWARENESS PROGRAM AWARENESS PROGRAM WORKS AWARENESS FUNDING CAN RANGE FROM The Islamic finance sector has seen significant The Capacity Building and Awareness program growth, but it still has a lower profile than is based on maximizing the value of real- 2. conventional finance. In countries with Muslim life interaction and knowledge exchange. By US$ 5,000 TO minorities, awareness and acceptance can organizing and participating in workshops, CAPACITY be particularly low. Even in Muslim-majority seminars, conferences and other events, IsDB is countries, much more could be done to increase ensuring that as many people as possible have US$ 100,000 BUILDING AND levels of understanding of Islamic Finance. the opportunity to hear from experts on Islamic PER PROJECT finance and to discuss the opportunities it offers. IsDB’s Capacity Building and Awareness program AWARENESS aims to raise the profile of Islamic finance In 2019 alone, the Capacity Building and Awareness The Islamic Financial Services Board (IFSB) throughout the world. Like the conventional program gave financial and technical support to 17 Summit 2019, themed “Islamic Finance finance sector, Islamic finance is continually events attended by more than 2,500 participants. for Sustainable Development in the Era of diversifying and developing innovative new Examples from that year include: Technological Innovation” which aimed to products and services, from technology bridge the significant gap of the Islamic International Conference on WAQF (Conakry platforms (FinTech) to blockchain and ‘green’ Financial Services Industry (IFSI) and global – Guinea) which was inaugurated by financial products. Through participation in technological advancement to provide H.E. Dr. Bandar Hajjar, Presisdent of the IsDB workshops, seminars and conferences, IsDB is greater opportunity for inclusive financial along with several heads of state, including communicating this and improving the visibility development. The Summit comprised H.E. Dr. Ibrahim Boubacar Keïta, President of of Islamic finance in new and existing markets six sessions with World Class Speakers Mali, H.E. Professor Alpha Conde, President to ensure that consumers and policymakers fully and Industry Leaders and Led by Keynote of Guinea, and H.E. Mr. Mahammed Boun understand all its features and potential benefits. Speeches by H.E. Dr. Perry Warjiyo, the Abdallah Dionne, Prime Minister of Senegal. Governor of Bank Indonesia and Chairman The conference was organised by the of IFSB Executive Committee, Dr. Zeti Aziz Islamic Development Bank (IsDB) from recipient of Royal Award for Islamic Finance 16-17 January 2019 in order to discuss and and former Governor Bank Negara Malaysia address challenges facing waqf institutions, and a Special Keynote message from the and discussed potential innovative solutions Prime Minister of Malaysia, Honourable Tun for the development of this sector. Dr. Mahathir bin Mohamad The Conference was attended by more than The program has also previously supported 400 participants including all Ministers in a summit on sukuk held in Luxembourg, and a Guinea, Chief Justice of the Supreme Court Global Waqf Conference in Bangkok, amongst and heads of many state-owned and private many others. institutions. For all of these events, the nature of the support Speakers from the West African region and given varies: it can be financial sponsorship, beyond participated in the conference. in-kind support in the form of presentations by IFATA staff, or sponsoring the participation of an expert from an external organization. A number of new jurisdictions have approached IsDB for Islamic Finance Technical Assistance since the Capacity Building and Awareness program was formalized in 2015.

12 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 13 AIMS OF THE ENABLING A CLOSER LOOK AT THE SIX INSTITUTIONS PROGRAM INSTITUTIONS The Islamic finance industry entered a period of rapid expansion from the early 2000s. Because ACCOUNTING AND AUDITING ORGANIZATION 3. there were no established international standards FOR ISLAMIC FINANCIAL INSTITUTIONS of best practice for the industry, countries with (AAOIFI) ENABLING emerging Islamic finance sectors had to rely AAOIFI, based in Bahrain, was founded in 1991. on standards that were actually designed for It is primarily responsible for the development INSTITUTIONS conventional finance. and issuance of standards for the global Islamic finance industry and has issued a total of 100 These standards – set by organizations such standards in the areas of Shari’ah, accounting, as the Basel Committee on Banking Supervision auditing, ethics and governance for international (BCBS) and the International Association Islamic finance. of Insurance Supervisors (IAIS) – were not ISLAMIC FINANCIAL SERVICES BOARD (IFSB) necessarily applicable to the Islamic finance IsDB is a founding member and is represented The IFSB, based in Kuala Lumpur, was founded sector. As a result, various interpretations of on the Board of Trustees, Technical Boards and in 2002. Since its inception, the IFSB has issued those standards were being used, leading to a Sub-Committees. 32 Standards, Guiding Principles and Technical lack of harmonized standards for Islamic finance Notes for the Islamic financial services industry. across different jurisdictions. GENERAL COUNCIL FOR ISLAMIC BANKS AND IsDB is a founding member and is represented on The IsDB has played an important role in FINANCIAL INSTITUTIONS (CIBAFI) the IFSB Council, Technical Committee, Working addressing this challenge by helping to CIBAFI, founded in 2001, is headquartered in Groups and Task Forces. establish six Islamic finance infrastructure Bahrain and affiliated with the Organization of institutions with a remit to set internationally Islamic Cooperation (OIC). It represents the recognized standards for different areas of the Islamic financial services industry globally, ISLAMIC INTERNATIONAL RATING AGENCY (IIRA) sector. The Bank supports these institutions by promoting the role of the sector and driving IIRA, founded in 2005, is headquartered in providing technical assistance and nominating cooperation among 130 members from 34 Bahrain. Its focus is on the development of local representatives on their boards and committees. jurisdictions. capital markets, primarily within the Organization Through the standardization of best practice in of Islamic Countries (OIC) region. One of its core IsDB is a founding member of CIBAFI and Islamic finance, these institutions are ensuring objectives is the application of ratings to improve is represented on its Board of Directors and that the sector has a strong foundation for transparency in markets. Working Groups. growth as part of the global economy. IsDB is a prominent shareholder and is represented through its nominated Chairman and INTERNATIONAL ISLAMIC FINANCIAL MARKET an additional member at the Board of Directors. (IIFM) The IIFM was founded in 2002 and is hosted by the Central Bank of Bahrain. Its mandate INTERNATIONAL ISLAMIC CENTRE FOR MORE THAN is to develop standardized Shari’ah-compliant RECONCILIATION AND ARBITRATION (IICRA) Financial Documentation, Product Confirmations IICRA was founded in 2005 and is headquartered and Guidelines for the Islamic financial services in the UAE. It is an international platform for the 125 STANDARDS industry. settlement of banking, financial, commercial, industrial, investment and real estate disputes OF BEST PRACTICE FOR THE GLOBAL ISLAMIC IsDB is a founding member of IIFM and is through mutual reconciliation and arbitration, in represented on the Board of Directors. FINANCE INDUSTRY HAVE BEEN PUBLISHED accordance with global standards and Shari’ah principles. IsDB is a founding member of the organization and is represented at the Board of Directors.

14 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS 15 LOOKING FORWARD CONTACT IFATA DIVISION

Over the next three years, IsDB looks forward THESE NEW INITIATIVES WILL CONTACT IFATA DIVISION TO EXPLORE HOW WE CAN SUPPORT to building on the success of existing programs COMPLEMENT THE EXISTING WORK YOUR ISLAMIC FINANCE INDUSTRY'S DEVELOPMENT while also proactively launching new initiatives OF THE DIVISION, WHICH WILL to raise the profile and impact of Islamic finance  [email protected] around the world. CONTINUE TO GROW.

One such initiative will be the launch of an Islamic Finance Country Assessment Framework (IF-CAF). This framework will enable IsDB to use a prioritization matrix to identify the most high-impact opportunities for its programs. IF-CAF will provide an early indication of the strengths and weaknesses of a country’s Islamic finance ecosystem. This analysis might relate to existing laws, regulations, supervision, tax, governance, financial inclusion, or other issues. It will ensure that Technical Assistance funds are targeted where they are most needed, and where they will have the greatest impact. Dr. Gaffar Khalid Mr. Yahya Aleem Ur Mr. Elhadi Ennahoui Manager IFATA Rehman Senior Islamic IFATA division will also proactively support the adoption of innovative financial Division Global Lead Islamic Finance Specialist products and services. This includes Islamic financial technology platforms Finance Advisory (FinTech), the use of distributed ledger technologies for Islamic finance transactions (i.e., blockchain), green Islamic finance (i.e., green Sukuk), and Islamic social finance models such as awqaf and zakah. Technical Assistance and Awareness funding will be made available specifically to help raise awareness of how these products work, and the benefits they can bring.

A third new initiative will be the launch of a platform to align the six Islamic finance infrastructure institutions supported by IsDB. This platform – the Consultative Group for Islamic Mr. Khalid Jawahir Mr. Syed Faiq Najeeb Mr. Abozer Majzoub Mr. Mehmet Eken Finance Infrastructure Institutions (CGIFII) – will help achieve Senior Islamic Senior Islamic Senior Islamic Fehmi synergies and avoid duplication by the six institutions. It will Finance Specialist Finance Specialist Finance Specialist Islamic Finance bring them together to discuss ideas and to ensure that their Specialist work plans are harmonized for the greater good of the Islamic finance industry.

ALL OF IFATA DIVISION'S CURRENT AND FUTURE WORK WILL CONTINUE TO BE GUIDED BY THE PRESIDENT’S FIVE-YEAR PROGRAM AND THE BANK’S TEN-YEAR STRATEGIC FRAMEWORK. IN DOING SO, IFATA DIVISION WILL ENSURE WILL ENSURE THAT THE Mr. Mohammed Mr. Umar Taufiq Ms. Yosra Alshangiti ISLAMIC FINANCE INDUSTRY FULFILLS ITS Azharuddin Senior Technical Administrative Senior Technical Assistant Assistant POTENTIAL OF HELPING IsDB ACHIEVE A Assistant SUSTAINABLE FUTURE FOR ALL.

This IFATA Digest has been prepared internally by the IFATA Division Team, led by Dr. Gaffar Khalid – Manager IFATA Division and implemented by Mr. Syed Faiq Najeeb (project officer) and fully supported by all IFATA division team members. It has also benefited from useful review and feedback provided by Dr. Mohamed Ali Chatti, Acting Director IFSDD as well as inputs from other IsDB colleagues and clearances by Senior Management of IsDB.

16 DIGEST ISLAMIC FINANCE ADVISORY AND TECHNICAL ASSISTANCE EXPANDING INTO NEW FRONTIERS