ISLAMIC FINANCIAL SERVICES INDUSTRY DEVELOPMENT:
10-YEAR FRAMEWORK AND FUTURE DIRECTION
PRESENTED AT:
9th IDB Global Forum on Islamic Finance | 24 June 2014
Jaseem Ahmed
Secretary General
ISLAMIC FINANCIAL SERVICES INDUSTRY
DEVELOPMENT: 10-YEAR FRAMEWORK AND
FUTURE DIRECTION
 The 10-Year Framework and Strategies for the
Islamic Financial Services Industry (IFSI)
 Roadmap for the Development of the IFSI
 The Role of Islamic Financial Services Board
(IFSB)
2
THE 10-YEAR FRAMEWORK AND
STRATEGIES FOR THE IFSI
3
BACKGROUND OF THE 10-YEAR FRAMEWORK
In March 2007, the IFSB, in collaboration with IDB, IRTI, published The IFSI Development:
10-Year Framework and Strategies
Purpose of the 10-Year Framework
Holistic financial sector strategies
Orderly development of an inclusive IFSI
Making financial services relevant
Enhancing access to financial services
Promoting national, regional and international dialogue
Sharing institutions and countries’ experiences
Creating enabling legal, tax and regulatory environment
Enabling the public to participate and benefit from
mainstream economic and financial activities worldwide
Source: IDB, IRTI
4
REVIEW OF THE 10-YEAR FRAMEWORK
Transformation and growth of the IFSI in terms of
deepening of assets, greater awareness, as well as
increasing policy, regulatory and institutional support
Factors
necessitating
the review of
the 10-Year
Framework
Increasingly challenging economic and financial
environments following the global financial crisis
Significant developments taking place in the international
financial landscape e.g. further regulatory and
supervisory reforms to promote global financial stability
In 2013, the IDB and IFSB
initiated a Mid-Term Review
(MTR) of the Ten-Year
Framework
• To assess progress made by the industry in
implementing the 2007 recommendations
• To amend the recommended Ten-Year Framework
in the light of developments since its publication
5
MID-TERM REVIEW PROCESS
A Forum on prelim.
findings of the MTR of
the 10Y Framework on
14 May 2013 in Kuala
Lumpur, Malaysia
A Roundtable on the
MTR of the 10Y
Framework on 6 April
2013 in Doha, Qatar
A high-level Review
Committee Meeting on
17 September 2013 in
Istanbul, Turkey
An industry-wide
Survey between June
and August 2013 for
the RSAs and IIFS
On 27 March 2014, the MTR of the 10-Year Framework and Strategies for IFSI
Development was approved by the IFSB Council in its 24th Meeting held in Bandar
Seri Begawan, Brunei
6
MID-TERM REVIEW OF THE 10-YEAR
FRAMEWORK: DISTINCT FEATURES
Establishment of a stronger
Implementation Plan to be
undertaken by the stakeholders
of the IFSI
Development of Key
Performance
Indicators to track
individual progress
Introduction of
3 new
recommendations
Introduction of 3 Pillars –
Enablement,
Performance and Reach
7
MAIN FINDINGS OF THE 10-YEAR FRAMEWORK
While none of the objectives of the original 10Y Framework has been
fully achieved, there has been significant progress in the last five
years across a number of important metrics.
The IFSI continues to grow in terms of assets and geographical
expansion. Growth is triggering large knock-on impacts nationally
and globally, which, if sustained, could be transformative.
Greater public awareness of Islamic finance. However, more work
needs to be done to increase education and awareness.
There is vigorous policy and regulatory support being provided in a
number of national jurisdictions, taking up both the spirit and the form
of the original 10Y Framework.
While the national take up by policy makers and regulators is not
seen uniformly across jurisdictions, once the IFSI grows beyond a
certain size, it begins to receive the policy and institutional support
that the 10-Year Framework called for.
8
RECOMMENDATIONS OF THE MTR
The MTR of the 10-Year Framework provides 16 Core Recommendations which
are categorised into 3 themes, as well as 20 Key Initiatives to support the
implementation of the recommendations..
16 CORE RECOMMENDATIONS
ENABLEMENT
PERFORMANCE
Fostering
conditions for the
industry to thrive
Enhancing the
effectiveness of
institutions
REACH
Expanding the set
of potential
beneficiaries of the
industry
20 KEY INITIATIVES
9
WHAT’S NEXT?
The next step for all
stakeholders of the IFSI is
to bring the 16
Recommendations of the
10-Year Framework to life,
taking into account the
state of development of the
IFSI in the respective
jurisdictions
10
ROADMAP FOR THE DEVELOPMENT OF
THE IFSI
11
THE CONTEXT OF INDUSTRY’S STRONG
GROWTH…
Islamic Banking Growth Trend
Sukūk Outstanding Trend
The sector expanded by 15%-20% p.a.
over the last five years
Takāful Contribution Trend
Islamic Financial Assets by Region
(1H2013) (USD bln)
Total Takāful contributions estimated to
reach USD18.3 bln in 1H2013
Source: Islamic Financial Services Industry Stability Report 2014
12
…IS REDEFINING THE PROSPECTS FOR
ISLAMIC FINANCE…
Post global financial crisis
• The issues of financial and social stability are increasingly viewed as being interconnected.
• The essence of Islamic finance – the stress on the real economy, ethical practice, social
impact.
Alternative mode of financing
• Islamic finance as an alternative form of financing – contribute towards sustainable economic
and social development.
• Greater recognition of Islamic finance amongst developed economies – prospects for raising
investment funds by accessing the global pools of Sharī`ah-compliant savings.
Product innovation
• To achieve lower costs for financial transactions, widen financial and social inclusion.
• The importance of shaping the regulatory perimeter in a way that is proportionate to the risks.
Greater integration
• Increased cross-border financial flows and connectivity, greater collaboration among
regulators and the private sector
• The importance of mutual recognition of the diversity of Sharī`ah opinions for Islamic finance
to prosper across borders
13
THE STAKEHOLDERS OF THE 10-YEAR
FRAMEWORK…
Industry
segments and
market players
Educational
institutions and
knowledge
providers
Civil society and
public opinion
leaders
Regulatory
authorities
Working towards
achieving the 16
Core
Recommendations
of the 10Y
Framework
Regional and
institutional
institutions
Customers
Government
authorities
14
… HAVE KEY ROLES INDIVIDUALLY & TOGETHER
• Issue Sharī`ah-compliant securities to
foster ICM
• Introduce national plans for the
development of IFSI
• Encourage the participation
of private sector
• Provide initiatives for the
development of IFSI
Governments
• Contribute expertise to
assist jurisdictions
Multilateral
bodies
• Identify and promote best
practices
• Provide international standards
• Promote platforms for liquidity
management
• Undertake R&D
• Enhance collaboration and awareness
• Develop liquidity infrastructure and
Islamic money market
• Adopt and implement international
standards applicable to IFSI
• Establish Sharī`ah governance and
Sharī`ah Supervisory Board
• Promote capacity building
Regulatory
and awareness
authorities
• Undertake R&D efforts
Private
• IIFS to comply with
sector
regulations & prudential
standards
• Islamic banks and NBFIs providing
microfinance and SME products
• Education institutions offering
courses & training
15
… AMIDST GROWING RECOGNITION BY
INTERNATIONAL INSTITUTIONS
At the international level, there is now increasing recognition that the
rapid growth of Islamic finance is leading to the emergence of
systemically important industry segments in a number of key economies.
International Monetary
Fund, World Bank and
Asian Development Bank,
etc.
Larger role in
supporting Islamic
finance for
development
purposes, and to
strengthen initiatives
that contribute to
soundness and
stability of IFSI
16
THE ROLE OF IFSB
17
ABOUT THE IFSB
•
Based in Malaysia, the Islamic Financial Services Board (IFSB) was officially inaugurated on
November 2002, and started operations on 10 March 2003
•
Serves as an international standard-setting body of regulatory and supervisory agencies that have vested
interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined
broadly to include banking, capital market and Takāful
o
o
OBJECTIVES
o
o
o
o
o
o
•
Develop standards & recommend implementation
Provide guidance on effective supervision and regulation & develop risk management &
disclosure criteria
Establish cooperation with international standard-setting bodies & member countries
Enhance and coordinate initiatives to develop instruments & procedures for efficient
operation & risk management
Encourage cooperation among member countries
Facilitate capacity-building & development of human capital
Undertake research
Establish database
To this end, the work of the IFSB complements those of BCBS, IOSCO and IAIS
BCBS (Banking)
IOSCO (Capital Markets)
SPECIFICITIES
OF ISLAMIC
FINANCE
IAIS (Insurance)
18
THE IFSB’S STRATEGIC PERFORMANCE PLAN
(2012-2015)
To provide greater coverage of the needs of its key stakeholders, the IFSB has identified
four Strategic Key Result Areas (SKRAs) over the 2012-2015 period.
SKRA
1
SKRA
2
SKRA
3
SKRA
4
Formulation, Adoption and
Implementation, Publicising and
Promoting Prudential Standards
for Islamic Finance
• Increased adoption of the IFSB standards by the
regulatory and supervisory authorities (RSAs)
• Expansion of coverage of the IFSI issue areas
• Increased adoption of IFSB standards by the RSAs
Technical Assistance and
Capacity Building
Cooperation Enhancement
(creating platform for
cooperation)
Communication and Information
Sharing
• Improved cooperation with members of the IFSB
• Improved cooperation with non-members of the
IFSB
• Improved understanding of issues or problems
faced by members of the IFSB
• Increased utilisation of Islamic financial databases
for quality decision-making by members
• Increased satisfaction of members with the services
provided by the IFSB
19
…IMPLEMENTATION PROGRAMMES
2007
•
•
2008
2009
2010
2011
2012
2013
2014
FIS Workshops
– FIS Workshops Country Programme
– FIS Workshops for RSAs
FIS Speaker Programme
• FIS E-Learning Programme (Development of
E-Learning Programme for IFSB Standards)
In 2013, the IFSB conducted
13 Workshops (3 RSAs, 7
Regional, and 3 Speakers
Programmes)
• Organise Regional FIS
Workshops
• Invite external speakers for the
FIS Workshops, in particular
from member countries to
share countries experiences
• Provide customised FIS
Workshops that meet the
members’ need
• IFSB-INCEIF
Executive Forum
20
…HOWEVER, RISING DEMAND POSES NEW
CHALLENGES TO ENHANCE IMPLEMENTATION
PROGRAMME
Timeframe
•
Most jurisdictions indicated a shortening of the timeframe to implement the Standards.
o On average, 55% of the RSAs planned to implement between ‘1-3 years’ period
o 12% planned ‘within one year’ period
Challenges
•
The two key challenges faced by RSAs are:
o The need to change the regulatory and supervisory framework, and
o Lack of personnel with relevant knowledge/ experience/ training
Technical Assistance
•
•
18 out of 32 (56%) RSAs preferred to seek direct technical assistance from IFSB for
implementation of IFSB standards
There is the need to significantly ramp up the IFSB’s capabilities in direct TA programmes
for a longer term support to the member countries
21
BUILDING BLOCKS FOR THE ORDERLY
DEVELOPMENT OF IFSI…
• Design and implementation of
roadmap and sequencing of
various policies
Sequencing of
policies
• Regulatory
capabilities
• Capacity building
of staff at RSAs
and IIFS
• Product innovation
• Shariah scholars
• Public awareness
Capacity
development
• Sovereign sukuk
programme
• Islamic Interbank and
money market instruments
• Monetary control
Enabling
framework
POLICIES
Integrating
Islamic finance
into the
government’s
agenda
Liquidity risk
management
infrastructure
• Tax, legal and
regulatory
framework – level
playing field
• Shariah governance
• New laws – or
amend current law?
• Risk management framework
in Islamic financial institutions
• Risk management at
macroeconomic level
22
IFSB’S COLLABORATION WITH IDB
2002
IDB joined the IFSB as one of the nine Founding Members
Technical expertise
• Sits on the IFSB
Technical
Committee, the body
responsible for
advising the Council
on technical issues
• Shari’ah Board of
the IDB that reviews
and endorses the
IFSB standards and
guidelines
• Sits on various IFSB
Working Groups for
the development of
the IFSB Standards
Technical Assistance
grant
• USD 200k jointly
with ADB
• USD 400k jointly
with ADB
• USD 120k for FIS
Workshops
Meetings/ Awareness
Programmes
• Council Meetings –
Hosted a number of
the IFSB Council
Meetings
• Hosted IFSB events,
conferences and
seminars at its
headquarters in
Jeddah, Saudi Arabia
• Joint organisation of
various events
Publications
• 2007 – Islamic
Financial Services
Industry
Development: TenYear Framework and
Strategies, in
collaboration with
IRTI, an affiliate of the
IDB
• 2010 – Islamic
Finance: Global
Financial Stability
• 2014 - Mid-term
Review of the TenYear Framework, in
collaboration with IRTI
23
Warmest Felicitations to
Islamic Development Bank Group
on its 40th Anniversary
24
THANK YOU FOR
YOUR ATTENTION
Jaseem Ahmed
Secretary General
www.ifsb.org