National and Global Islamic Financial Architecture:

Problems and Possible Solutions for the OIC Member Countries

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Adopt Islamic financial laws

Adopt Islamic financial regulations

Provide a legal and regulatory framework for Shariah governance

Shariah compliant liquidity instruments

Introduce accounting and auditing standards for the Islamic financial sector

Establish a consumer protection framework for Islamic finance.

8.2. International Infrastructure Institutions: Status and Responsible

Stakeholders

Development of standards and guidelines by international multilateral institutions can help

promote sound architectural institutions. The Islamic financial industry can benefit from input

of various international multilateral organizations that develop standards dealing with

different aspects of financial architectural institutions. As these standards are developed with

consultations with different stakeholders at the global level, they reflect the culmination of

knowledge that is based on high level expertise and collective efforts. 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 the establishment of a Stability Board for Islamic Finance (SBIF) to enhance

the global stability and development of a sound Islamic financial sector. Among others, SBIF

can come up with a framework of establishing Islamic Financial Sector Assessment Program

(IFSAP) and relevant Standards and Codes applicable to Islamic financial sector. SBIF will

coordinate not only the implementation of existing standards of IFSB and AAOIFI but also

contribute to filling the gaps in other architectural elements such as the legal and Shariah

governance frameworks for the Islamic financial sector globally. As the body would engage

key policy holders from different countries, the suggested SBIF can either be initiated by OIC

under the realm of COMCEC or by D-8 countries.

The gaps in legal infrastructure in terms of laws related to Islamic finance will be easier to fill if

there are model laws that the countries can refer to. Specifically, there is a need to develop

templates of Islamic banking, takaful, Islamic capital markets and bankruptcy laws and identify

issues that need to be tackled for tax neutrality purposes. Currently there are no global

initiatives that deal with legal matters. There is a need for a global organization that can

develop and publish legal documents and templates to 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. Other than

coming up with templates for Islamic financial laws, one of the issues that this initiative can do

is to come up with frameworks for harmonizing the national laws with Shariah principles

governing Islamic finance in both civil law and common law countries.

IFSB has developed many regulatory standards for the Islamic financial industry. However, the

published standards and guidelines for different sectors have not been even. For example,

while IFSB

published the Core Principles for Islamic Finance Regulations for the Islamic

banking sector, corresponding Core Principles for the

takaful

and Islamic capital markets need

yet to be published. IFSB can continue its collaboration with international organizations such

as IAIS and IOSCO to develop different standards and guidelines for the takaful and Islamic

capital markets sectors. 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 to