National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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Legal infrastructure
Amendments to the legal infrastructure have been limited and have been aimed at securing
neutrality, especially tax neutrality, between Islamic finance and its conventional counterpart.
The Government has also made some of its own services, notably student loans, available in
Shari’ah-compliant forms.
Financial System Regulation and Supervision Framework
No material changes have been made to the financial system regulatory framework which is, in
any event, largely determined at the European level. Some unintended legal anomalies have
been removed but the system continues to treat profit-sharing investment accounts as
deposits, regulates Takaful in the same way as conventional insurance, etc.
Shariah Governance Framework
There is no provision for Shari’ah governance either at the national or firm level.
Liquidity Infrastructure
In this area the UK has been active. It has issued sukuk, and it has taken a facilitative approach
to the admissibility of other sukuk for Islamic bank liquidity purposes (PRA 2015). It has also
consulted on the development of Shari’ah-compliant central bank liquidity management
facilities.
Information Infrastructure and Transparency
The UK uses IFRS and has made no amendments to accommodate Islamic finance.
Credit ratings in the UK are dominated by the major international agencies. While some of
these have rating methodologies for Islamic institutions, there have been no UK-specific
developments.
Consumer Protection Architecture
The UK has an advanced consumer protection and financial literacy architecture, but there are
no developments specific to Islamic finance to record.
As noted above, profit-sharing investment accounts are treated as deposits for regulatory
purposes, and are therefore eligible for cover from the UK’s deposit insurer, the Financial
Services Compensation Scheme. This also covers other financial services sectors so, for
example, Takaful policyholders would be treated similarly to conventional insurance
policyholders in the event of the undertaking’s failure.
Human Capital and Knowledge Development Framework
As described above, the UK’s professional and academic institutions are highly active in Islamic
finance, primarily at their own initiatives, though with some government encouragement.
5.2.2. Strategic Approach and Achievements: Germany
Germany is in principle a country that should be in a strong position to develop Islamic finance.
In addition to the positions of its cities as global financial centres, Germany is the largest
economy in the EU and it has the largest Muslim population. It also has a strong external trade
activity, including strong historical trade links with Turkey. However, it has chosen not to take
an active strategic approach to the sector. The federal financial services regulator (BaFin) has