National and Global Islamic Financial Architecture:
Prolems and Possible Solutions for the OIC Member Countries
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provision of incentives for strong risk management; and good governance, credit reporting
systems, etc.
For Islamic finance, IFSB (2015a) identifies several preconditions that must be fulfilled for
effective regulation and supervision that can ensure the stability of Islamic financial
institutions. These include "sound and sustainable macroeconomic policies; well established
framework for financial stability policy formulation; well-developed public infrastructure; a
clear framework for crisis management, recovery and resolution; appropriate level of systemic
protection (or public safety); and effective market discipline" (IFSB 2015a: 9). A well-
developed public infrastructure would entail key architectural elements such as a system of
business laws; well-defined internationally accepted accounting principles and rules; an
efficient and independent judiciary; competent and experienced professionals; well-regulated
payment systems; credit bureaus; and the availability of basic economic, financial and social
data and information (IFSB 2015a: 10). In this study, ‘financial architecture’ and
‘infrastructural institutions’ are used interchangeably.
1.2. Aim, Objectives and Scope of the Study
Given the vital roles that architectural institutions play in promoting the growth and stability
of the financial sector, the aim of this study is to identify the unique features of the financial
architecture governing Islamic finance, assess their statuses in selected countries, and provide
policy recommendations for their improvement at both the domestic and international levels.
The specific objectives of the research are as follows:
1. Assess the status of development of key legal/regulatory institutions, level of overall
financial development, and the status of Islamic finance in OIC MCs.
2. Provide an overview of the key financial architectural elements relevant to the Islamic
financial sector.
3. Assess the statuses of the architectural institutions in 12 OIC MCs.
4. Appraise the statuses of the Islamic financial sector in five countries hosting
international financial centers.
5. Identify the gaps and strengths of architectural institutions at the national and global
levels based on the case-studies.
6. Provide policy recommendations to develop different Islamic financial institutions and
identify the roles that different domestic and international stakeholders can play in the
process.
In line with the traditional classifications of the financial sector used in literature (Crockett
2009: 18), the key financial sectors considered for the study are banking, insurance/takaful
and capital markets. As indicated, the range of elements of a sound architecture for the
development of a stable and resilient financial sector is wide. Some of the elements of financial
architecture are neutral and apply to both Islamic and conventional finance. These include
sound and sustainable macroeconomic policies, effective market discipline, well-regulated
payment and clearing systems, etc. However, there are certain unique features in the Islamic