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Andreas Jobst and Mr. Juan Sole

sectors ( IMF, 2020b ). II. Introduction Over the past two decades, Islamic finance has undergone a rapid expansion in many emerging market and developing economies (EMDEs) (Chart), where religious principles often favor the use of financial services and products that are compliant with Islamic finance principles ( Imam and Kpodar, 2015 ). The key characteristics of Islamic finance —such as the concept of profit- and loss-sharing between lenders and borrowers, the focus on investments that are socially responsible, and the requirement of linking finance with

Andreas Jobst and Mr. Juan Sole
This paper provides a conceptual overview of key aspects of the design and implementation of solvency stress testing of Islamic banks. Based on existing regulatory standards and prudential practice, the paper explains how Islamic finance principles and their impact on various risk drivers affect the capital assessment of asset-oriented financial intermediation under stress. The formal specification of these risk factors helps operationalize and integrate the stress testing of Islamic banks within established frameworks for financial stability analysis.
International Monetary Fund

set of options for moving toward this objective by increasingly relying on indirect instruments of liquidity management consistent with Islamic finance principles. The next section analyzes the main lessons from Iran’s experience in conducting monetary policy and highlights the difficulties encountered by the Central Bank of Iran in achieving its monetary policy goals with limited instrument independence. The following section underscores the need to clarify monetary policy objectives and targets, enhance central bank instrument independence, improve the

International Monetary Fund

Front Matter Page Middle Eastern and Monetary and Exchange Affairs Departments Contents Summary I. Introduction II. Issuance of Government Securities Under Islamic Finance Principles A. Specific Funding Instruments B. General Funding Instruments C. Money Market Development III. Recent Developments in Monetary Instruments under Islamic Banking A. National Participation Paper B. Central Bank Musharaka Certificates C. Government Mudharaba Certificate Historical precedence—the Qabala system IV. Issues in Institutional

International Monetary Fund. External Relations Dept.

asset-backed securities but are structured to ensure compliance with Islamic finance principles, which, among other things, prohibit the receipt and payment of interest and stipulate that income must be derived as profits from shared business risk rather than as guaranteed return. As such, Islamic principles require sukuk investors to own the underlying asset via a special-purpose vehicle (SPV), which funds payments to investors from direct investment in real, religiously sanctioned economic activity. Fourteen types of sukuk are recognized by the Accounting

International Monetary Fund

. Leckow(LEG), and Aasim M. Husain (MCD) Prepared by a staff team led by Ghiath Shabsigh and comprising Abdullah Haron, Mohamed Afzal Norat, In Won Song, Mariam El Hamiani Khatat, Diarmuid Murphy, Atilla Arda, Rachid Awad (all MCM), Elsie Priscilla Addo Awadzi, Chady Adel El Khoury, Arz El Murr (all LEG), Inutu Lukonga MCD), and Agus Firmansyah and Artak Harutyunyan (both STA). Contents Glossary INTRODUCTION KEY FEATURES OF ISLAMIC BANKING MODEL AND RISK IMPLICATIONS A. Islamic Finance Principles and Risk Implications B. Islamic Banking