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Aledjandro Lopez Mejia, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, and Mr. In W Song
This paper aims at developing a better understanding of Islamic banking (IB) and providing policy recommendations to enhance the supervision of Islamic banks (IBs). It points out and discusses similarities and differences of IBs with conventional banks (CBs) and reviews whether the IBs are more stable than CBs. Given the risks faced by IBs, the paper concludes that they need a legal, corporate and regulatory framework as much as CB does. The paper also argues that it is important to ensure operational independence of the supervisory agency, which has to be supported by adequate resources, a sound legal framework, a well designed governance structure, and robust accountability practices.
Aledjandro Lopez Mejia, Suliman Aljabrin, Rachid Awad, Mr. Mohamed Norat, and Mr. In W Song

require significant enhancements in the current legal, accounting, governance, regulatory and supervisory frameworks ( sections IV and V ). Table 1. Risk Sharing and Risk Transfer IBs Risk Sharing CBs Risk Transfer Sources of funds : Investors (profit sharing investment account (PSIA holders) share the risk and return with IBs. The return on PSIA is not guaranteed and depends on the bank’s performance. Sources of Funds : Depositors transfer the risk to the CB, which guarantees a pre-specified return. Uses of funds : IBs share the

Mr. Jemma Dridi and Maher Hasan

.4 20.0 14.0 2000-2008 Sources: Central banks and Islamic banks’ annual reports. 1/ Including Islamic banks. 2/ Including Islamic windows. 3/ Growth rate is caculated for the total of wholesale and retail while market share is for retial only. Table 2. Risk Sharing and Risk Transfer IBs Risk Sharing CBs Risk Transfer Sources of funds: Investors (profit sharing investment account (PSIA) holders) share the risk and return with IBs ( Box 1 ). The return on PSIA is not guaranteed and depends on the bank

Mr. Jemma Dridi and Maher Hasan
This paper examines the performance of Islamic banks (IBs) and conventional banks (CBs) during the recent global crisis by looking at the impact of the crisis on profitability, credit and asset growth, and external ratings in a group of countries where the two types of banks have significant market share. Our analysis suggests that IBs have been affected differently than CBs. Factors related to IBs‘ business model helped limit the adverse impact on profitability in 2008, while weaknesses in risk management practices in some IBs led to a larger decline in profitability in 2009 compared to CBs. IBs‘ credit and asset growth performed better than did that of CBs in 2008-09, contributing to financial and economic stability. External rating agencies‘ re-assessment of IBs‘ risk was generally more favorable.