Photo : Messenger
Islamic finance, while still constituting a modest portion of the global financial market, has experienced significant growth. This expansion is evident in the increased penetration of Islamic banking in numerous International Monetary Fund (IMF) member countries, particularly in Asia and the Middle East. Moreover, the issuance of Sukuk, the Islamic equivalent of bonds, has witnessed a notable surge, displaying an expanding international reach among issuers and investors. This phenomenon is expected to persist, propelled by robust economic growth in nations boasting large, yet relatively unbanked, Muslim populations.
The International Monetary Fund, recognising the growing importance of Islamic finance, has actively engaged with this sector. The IMF's involvement includes playing a pivotal role in establishing the Islamic Financial Services Board (IFSB) and addressing the implications of Islamic finance for macroeconomic and financial stability. This engagement is evident in the IMF's policy advice and capacity development efforts, focusing on regulatory and supervisory aspects of Islamic banks as well as the development of domestic Sukuk markets.
The surge in Islamic finance has triggered an increased demand for the IMF's attention and expertise. To meet this demand, the IMF has proactively formed an Interdepartmental Working Group. This group has set out to develop an institutional perspective on the industry, enhance in-house expertise, and improve coordination with various stakeholders. In pursuit of these objectives, the working group has intensified analytical efforts across key areas of Islamic finance, including banking regulation, macro-prudential policy, safety nets, resolution mechanisms, financial inclusion, consumer protection, monetary policy, Sukuk markets, public financial management, and tax policy.
To further fortify its stance on Islamic finance, the IMF has established an External Advisory Group. This group consists of standard-setters for Islamic finance and distinguished international experts. The primary role of this advisory group is to identify policy issues and foster better coordination with diverse stakeholders interested in Islamic finance. This collaborative approach ensures that the IMF remains at the forefront of addressing the evolving landscape of Islamic finance, aligning policies with the unique characteristics and principles of this growing sector.
The heightened focus on Islamic finance by the IMF reflects not only its economic significance but also the need for tailored regulatory frameworks and policies. Key areas of concern include ensuring effective regulation and supervision of Islamic banks, developing robust domestic Sukuk markets, and promoting financial inclusion while upholding consumer protection standards. As the industry continues to evolve, the IMF's commitment to fostering expertise and collaboration underscores its recognition of the pivotal role Islamic finance plays in the global financial landscape.
In conclusion, the trajectory of Islamic finance is marked by substantial growth, reaching beyond regional boundaries and gaining international prominence. The IMF's proactive engagement, through the Interdepartmental Working Group and External Advisory Group, positions it as a key player in navigating the challenges and harnessing the opportunities presented by this dynamic sector. As Islamic finance continues to shape the global financial narrative, the IMF's commitment to understanding, regulating, and promoting its sustainable growth is paramount for fostering economic stability and inclusivity worldwide.
The author is the Managing Director & CEO of National Bank Limited. He is a fellow member of the Institute of Cost & Management Accountants of Bangladesh (ICMAB) and the first Certified Sustainability Reporting Assurer (CSRA) in Bangladesh. He is also a post-graduate diploma from the Institute of Islamic Banking & Insurance (IIBI), United Kingdom.
Messenger/Fameema
