National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
4
appropriate models for deposit insurance. IFSB can collaborate with IADI to initiate this
project.
Human Capital and Knowledge Development Framework: Human capital and knowledge
development appear to be the strongest element of the Islamic financial architecture. However,
as the industry is expected to grow, there will be increasing demand for personnel with the
appropriate knowledge and skills, particularly in countries where the industry is relatively
new. In this regard, the public and private sector entities, along with academic institutions and
universities, can contribute to providing training and building a knowledge base for the future
growth of the industry. Various multilateral organizations such as IRTI, IDB and World Bank
GIFDC are involved in research that can promote the development of the Islamic financial
sector. There is also need to invest in research and provide training in different areas related to
Islamic architectural institutions. One key gap that needs to be filled is creating knowledge
related to infrastructure institutions and providing training to staff in public bodies that work
in the industry. While IFSB organizes workshops to familiarize its published standards and
guidelines, multilateral organizations such as IDB and WB can take initiatives to enhance such
knowledge and skills to develop other elements of infrastructure institutions though their
technical assistance programs.
The development of standards and guidelines by international multilateral institutions is one
of the key instruments for developing sound architectural institutions. Specifically, countries
with underdeveloped infrastructures can benefit by using the framework provided by
international benchmarks to develop institutions that can support the Islamic financial
industry. The study suggests strengthening the existing international infrastructure
institutions and establishing some new ones. Developing legal documents and templates can
help the development of the legal infrastructure for Islamic finance in OIC MCs. This initiative
is similar to the Law and Policy Reform Program of the Asian Development Bank and can be
best performed by IDB. While IFSB has developed many regulatory standards for the Islamic
financial industry, the published standards and guidelines for different sectors have not been
even. As the Islamic financial industry is expected to grow in the future, there may be a need to
strengthen the institutional capacity of IFSB. One way to do this is have separate divisions
within IFSB dealing with issues related to Islamic banking, takaful and Islamic capital market
segments.
Both AAOIFI and IFSB have published Shariah governance standards for Islamic financial
institutions. However, as there are no guidelines for national Shariah boards, there is a need to
come up with a framework for it. Furthermore, the work on developing Shariah standards,
parameters and templates for Islamic financial products by AAOIFI, IsFA and IIFM need to
continue to enhance cross-border and international transactions by reducing legal and Shariah
compliance risks. There is a need to develop detailed disclosure guidelines for all segments of
Islamic finance and improve Shariah compliance of products and securities. Ratings agencies
that can assess Shariah compliance and risks in equity based instruments would further
strengthen the information infrastructure for the industry.
IFSB and IIFM can develop guidelines and templates to strengthen money markets, secondary
markets for Islamic securities, and LOLR facilities for Islamic banks. Furthermore, there is a
need to establish an Islamic Monetary Fund (IsMF) that can either provide Shariah compliant
liquidity at the global level or coordinate arranging liquidity from other central banks by using
swap arrangements.