The International Monetary Fund (IMF) finally recognised the Islamic banking principles by endorsing a proposal on the use of the Core Principles for Islamic Finance Regulation (CPIFR), according to a statement. This effectively means that the IMF now accepts Islamic financial principles to become a globally accepted system in parallel to the conventional interest-based economy.
“The CPIFR will complement the international architecture for financial stability, while providing incentives for improving the prudential framework for Islamic banking industry across jurisdictions,” IMF said in a statement on Thursday. “The CPIFR and their associated methodology will be applied in financial sector assessments undertaken in fully Islamic banking systems and, as a supplement to the Basel Core Principles for Effective Banking Supervision (BCP) in dual banking systems where Islamic banking is systemically significant.”
Global Islamic financial assets have reached about US$2 trillion, with the banking sector accounting for about 85 percent of the total assets, an IMF report says. Islamic banking exists in more than 60 countries and the industry has become systemically important in 13 jurisdictions, while the domestic market share of Islamic banks (IB) increased in 18 countries in 2016.
The rapid growth of Islamic finance reflects both supply-push and demand-pull factors, including strong economic growth in core markets, competitive pressures, regulatory advancements and facilitative environment provided by governments. Several countries are recognising the segment’s potential, with authorities encouraging Islamic finance to improve financial inclusion.
“This is a belated realisation by the IMF which has seen the Islamic finance as an ethical and sustainable economic model that we have long been practicing and demonstrating its positive impact,” said a Dubai-based Islamic banker, requesting anonymity. “However belated than never – it is one of the best news coming out for the Islamic banking sector. I am glad that IMF has chosen to release in the holy month of Ramadan.”
The industry’s potential contribution to the United Nation’s sustainable development financing goals (SDGs) is also likely to help the industry to progress in coming years. Reflecting the importance of Islamic finance for many of its members, the IMF has had a long-standing interest in its implications for macroeconomic and financial stability.
“The Executive Board of the International Monetary Fund (IMF) today endorsed a proposal on the use of the Core Principles for Islamic Finance Regulation (CPIFR), which were developed by the Islamic Financial Services Board (IFSB) with the participation of the Secretariat of the Basel Committee on Banking Supervision. The CPIFR are intended to provide a set of core principles for the regulation and supervision of the Islamic banking industry and are designed to take into consideration the specificities of Islamic banks,” the statement said.
IMF has also released a working paper, The Core Principles for Islamic Finance Regulations and Assessment Methodology, in support of its decision.