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International Monetary Fund

countries where IBs operate or are about to be introduced. 6. The remainder of the paper is structured as follows : Section II discusses the key features of IB and risk implications. Section III discusses legal and corporate governance frameworks. Section III evaluates the regulatory, supervisory, and AML/CFT frameworks currently governing IB operations and identifies remaining gaps. Section IV covers resolution and financial safety net frameworks and highlights areas where additional work is needed. The last section presents the conclusions and lays out the

International Monetary Fund
This paper discusses the need for ensuring financial stability in countries with Islamic Banking (IB). IB continues to grow rapidly, in size and complexity, posing a challenge to supervisory authorities and central banks. The legal environment within which IBs operate can be complex and challenging and may have implications for financial stability. IBs operate in diverse legal environments, some of which are more evolved than others in providing strong legal underpinnings for IB. International governance standards apply to IB but need to be customized to consider IBs’ distinct governance features. Significant progress has been achieved in developing prudential standards for IB, although broader implementation and more consistent application are needed. Progress has been slow in developing IB’s liquidity management and money markets. In recent years, hybrid financial products in IB have emerged that replicate aspects of conventional finance in an IB context, raising financial stability concerns. The IMF has played an important role in promoting financial stability in IB jurisdictions, working closely with IB standard setters, and international organization to shape IB standards and promote best practices.
International Monetary Fund. Middle East and Central Asia Dept.

and the UK) do not require conventional banks to maintain Islamic deposit accounts (demand deposit, Unrestricted Investment Accounts (URIAs) etc.) separately from other funds under the control of the conventional bank. While many of the licensing criteria for conventional banks have the key elements to ensure financial stability, it is important that the approval process for IBs is also conditioned upon proof of ex-ante and ex-post robust Shari’ah governance framework and internal controls tailored to address risks specific to IB operations. Conventional banks

International Monetary Fund. Middle East and Central Asia Dept.
This paper presents country experiences with reforms to strengthen regulatory oversight of the Islamic banking sector. Based on the selected country experiences, a number of important lessons and policy options can be drawn that have implications for the stable and sound development of Islamic banking. An enabling regulatory and institutional framework and a level playing field for conventional and Islamic banks is critical for the sound and stable growth of the Islamic banking industry. The country experiences also underscore the importance of providing an enabling framework while letting market forces determine the size of the industry.
International Monetary Fund. Monetary and Capital Markets Department

macrofinancial developments. For instance, a decrease in business and client activity and market volume, as a result of significant market volatility, is expected to adversely affect transaction fees, commissions and margin, particularly in wealth management business and IB operations. 51 161. The empirical strategy relied on the estimation of a dynamic panel data model over the pool of banks : f c t i = α + μ 1 ⋅ f c t − 1 i + μ 2 . m a c r o t c