National and Global Islamic Financial Architecture:
Problems and Possible Solutions for the OIC Member Countries
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8. Summary of the Findings and Conclusion
This concluding chapter summarises the key findings of different Islamic financial architectural
elements from case studies and highlights the steps that need to be taken by different
stakeholders to further strengthen the architectural institutions. A summary of the statuses of
the Islamic architectural institutions at the national levels are presented and then the role that
various international organizations can play to strengthen these institutions are discussed. The
chapter ends by highlighting some issues related to the constraints and prospects of Islamic
finance in global financial centers.
8.1. National Financial Architecture: Status and Responsible Stakeholders
The case studies show that countries are at different levels of development of Islamic financial
architecture. Table 8.1 shows the overall average statuses of different infrastructure
institutions for the case studies. While most of the architectural elements are in the
‘developing’ stage, information infrastructure and consumer protection infrastructure are
‘underdeveloped’. The results from the legal infrastructure for Islamic finance indicate that
there is room to strengthen legal institutions. These can be done by implementing supporting
Islamic financial laws for the banking, takaful and Islamic capital markets; tax laws that level
the playing field between Islamic finance and conventional finance; and bankruptcy laws that
take into consideration the special features of the Shariah. There is also a need to
accommodate adjudication of disputes arising in Islamic finance either in civil courts or
arbitration centers. One initiative in this regard is to attempt to harmonize the civil laws of the
country with Shariah principles governing Islamic finance. As enacting laws and setting up
legal institutions are the prerogative of states, governments need to come up with the
supporting legal framework for the Islamic financial industry.
As financial sectors are one of the most regulated industries, there is a need to have an
accommodating regulatory framework for the Islamic financial industry. The regulatory
authorities need to understand the nature of the risks arising in the Islamic financial industry
to develop an appropriate regulatory framework. This may require not only appropriate
regulations for all sectors of the Islamic financial industry but also separate departments/units
in regulatory bodies dealing with the Islamic financial sectors. The key components of a sound
Shariah governance regime are existence of a national Shariah body, a framework for Shariah
boards at the financial institutions, and Shariah standards/parameters for the industry. While,
some of these features can be included in Islamic financial laws, the regulators play a key role
in setting up this framework. The national Shariah board will be responsible for issuing the
Shariah standards/parameters and promoting the harmonization of practices by ensuring
Shariah compliance of the contracts used in the industry.
A robust liquidity infrastructure constitutes appropriate instruments, efficient and liquid
financial markets and access to LOLR funds from central banks. Islamic financial institutions
need short-term tradable Shariah complaint securities to manage their liquidity needs and
risks. There is not only a scarcity of Shariah compliant liquid instruments but most
jurisdictions lack deep and efficient and deep Islamic financial markets. While the central bank
and regulatory authorities can help develop the infrastructure for financial markets, the
liquidity instruments can be supplied by both public and private entities. Arrangements for
Shariah compliant LOLR facilities for Islamic banks have to be put in place by the central banks.