National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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Table ‎8.1: Status and Responsible Stakeholders at the National Level
Infrastructure
Institutions
Overall
Averages
Overall Ranking Responsible Stakeholders
Legal Infrastructure 57.5 Developing Government
Regulation & Supervision
Framework
48.6 Underdeveloped Regulators
Shariah Governance
Regimes
47.3 Underdeveloped Government, regulators, national Shariah
board
Liquidity Infrastructure 61.1 Developing Government, regulators, central bank,
financial institutions
Information Infrastructure
& Transparency
50.0 Developing Regulators, domestic accounting
standards body, rating agencies
Consumer Protection
Architecture
41.6 Underdeveloped Government, regulators, financial
institutions, trade associations
Human Capital &
Knowledge Development
69.4 Developing Government, private sector, universities
and academic institutions
To properly reflect the transactions and operations of Islamic financial institutions, countries
can opt for using either AAOIFI accounting standards or domestic accounting standards that
are adapted for Islamic finance. Though the domestic accounting body has the responsibility to
develop the standards, the decision of requiring Islamic financial institutions to use Islamic
accounting standards has to come from the regulators. Other than the credit ratings provided
by conventional rating agencies for debt based transactions, other types of assessments may be
required for the Islamic financial sector. These include Shariah compliance ratings and
providing assessments for equity modes of financing. Accomplishing these would require
establishing processes that require knowledge and skills that are different from those used to
assess debt based transactions.
The key items identified in consumer protection architecture include laws/regulation to
protect consumers, deposit insurance and financial literacy programs. Table 8.1 indicates that
this architectural component to be the weakest for the Islamic financial sector in the countries
that were examined. One of the key issues in protecting consumers of Islamic financial sector is
to ensure Shariah compliance and its disclosure as many consumers choose Islamic finance
due to religious convictions. While instituting appropriate laws and regulations to protect
consumers and deposit insurance have to be done by the government and regulators,
improving financial literacy will require efforts at different levels. Building the content on
Islamic financial principles and products and its dissemination can be done introducing these
in the school/college curricula by the Ministry of Education and also by regulators, Islamic
financial institutions and trade associations.
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 regards, the public and private sector entities
along with academic institutions and universities can contribute providing training and
building the knowledge base for the future growth of the industry.
Given the above, the six most important policy recommendations that will strengthen the
Islamic financial architecture at the national level are as follows: