Islamic Financial Services Department

IDB’s Cross Country Experiences in Development of Islamic Finance

6th Meeting of the COMCEC Financial Cooperation Working Group

17-18 March 2016

Wasim A. Abdulwahab

Islamic Financial Services Department

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Islamic Financial Services Department

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Technical Assistance to Islamic Finance Industry

Financial

Sector Development

47TAs

US$8.8m

MDBs

Countries

Technical Support Program

Microfinance Development Program

Strategic Partnerships IFIs

Bilaterals

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Islamic Financial Services Department

47TAs

US$8.8m Objective: To develop Islamic finance enabling environment (legal, regulatory & supervisory framework) and institutional capacity building in Islamic finance

Technical Support Program

Beneficiaries: central banks, capital market authorities, supervision agencies, public sector banks, ministries of finance, as well as Islamic Infrastructure Institutions.

What have the TA Projects achieved?

Tajikistan – Standalone Islamic banking law passed by the Parliament

Djibouti – Preparing for issuing Islamic banking law

Indonesia – Detailed Masterplan for developing Islamic finance architecture under implementation by the Govt.

Kyrgyzstan – Converted EcoBank into an Islamic bank Afghanistan – Islamic banking operations introduced in Bank Milli Afghan Nigeria – Central Bank capacity building. Two Islamic banking licenses issued. Jaiz bank established.

IFSB – Standard on ‘Core Principles for Islamic finance regulation’ developed. Other prudential work.

IIRA – Fiduciary Rating Methodology developed. Assisting in issuing sovereign ratings of IDB MCs

Senegal – Provided regulatory policy advice leading to interest in Islamic finance from BCEAO

Oman – Implementation Guidelines for Sukuk & Takaful

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Islamic Financial Services Department

35%

28%

14%

14%

8% 36%

27%

15%

13%

9% Regional

SSA

MENA

CIT

Asia

By Number of TAs

By $ Approval Amount of TAs

47TAs

US$8.8m

- The Program has successfully targeted key emerging Islamic finance markets: 21 countries targeted

- Regional TAs to IIIs - Joint projects with World Bank & IMF

Objective: To develop Islamic finance enabling environment (legal, regulatory & supervisory framework) and institutional capacity building in Islamic finance

Technical Support Program

Beneficiaries: central banks, capital market authorities, supervision agencies, public sector banks, ministries of finance, as well as Islamic Infrastructure Institutions.

TAs to Regional Bodies/IIIs/MDBs’ WGs

CIBAFI IFSB IICRA IIFM IIRA GCC

IDB-WB WG IDB-IMF LOU

Geographic diversity of projects

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Islamic Financial Services Department

47TAs

US$8.8m Objective: To develop Islamic finance enabling environment (legal, regulatory & supervisory framework) and institutional capacity building in Islamic finance

Technical Support Program

Beneficiaries: central banks, capital market authorities, supervision agencies, public sector banks, ministries of finance, as well as Islamic Infrastructure Institutions.

Who are the Beneficiaries?

Bank Al Magrib (Morocco)

National Bank of Kyrgyz Republic

Ministry of Economy of Senegal

Bank of Uganda

Central Bank of Nigeria

Central Bank of Djibouti

Libya Development Bank

National Bank of Tajikistan

National Bank of Kazakhstan

Central Bank of Mauritania

Gulf Cooperation Council (GCC)

EcoIslamic Bank, Kyrgyz Republic

Bank-e-Milli Afghan Gumhouria Bank,

Libya

BAPPENAS Indonesia

Central Bank of Libya

Under Secretariat of Treasury, Turkey

Central Bank of Tunisia

Maldives Monetary Authority

Capital Market Authority Oman

Banque Centrale des Etats de l'Afrique de

l'Ouest (BCEAO)

Ministry of Finance of Oman

Bank of Mozambique

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Islamic Financial Services Department

Lessons learned

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Islamic Financial Services Department

Countries take different routes to implementing Islamic finance enabling environment

• To what extent is the legal and regulatory systems are developed (Basic, Intermediate or Advanced)?

• To what extent is the demand from the population for various Islamic finance product from the population?

• How much political will is present?

• How well developed is the country?

• What are the Government’s objectives and how much is it willing to pursue them?

• How well is the financial market developed?

Islamic Financial Services Department

Developing n ecosystem for Islamic finance by incorporating, or permitting, Islamic financial activity within a country or a group of countries’ financial system

Preparation Assessment Gap Analysis

Agree target framework

model

Obtain political support

Establish working groups

Identify other available

support groups

Evaluate & implement

change

Monitor & review

What is an Enabling Environment for Islamic Finance

Islamic Financial Services Department

Steps Required for Enabling Environment for Islamic Finance

Awareness building

Organize stakeholder groups

Understand the necessary enabling environment

Preliminary studies & gap analysis

Roadmap & Time table

Islamic Financial Services Department

Components of an Islamic Finance Enabling Environment

Legal

Regulations

Shariah

Taxation

Accounting

Liquidity Management

Islamic Banking

Islamic Capital Market

Takaful

Ijarah

Islamic Financial Services Department

Components of an Islamic Finance Enabling Environment

Legal

Regulations

Shariah

Taxation

Accounting

Liquidity Management

Islamic Banking

Islamic Capital Market

Takaful

Ijarah

Islamic Financial Services Department

Components of an Islamic Finance Enabling Environment

Legal

Regulations

Shariah

Taxation

Accounting

Liquidity Management

Islamic Banking

Islamic Capital Market

Takaful

Ijarah

Islamic Financial Services Department

Ensuring robust Islamic financial transactions, products and services can be undertaken in a vibrant Islamic financial market place requires three major elements to be working in harmony:

Legal enforceability

Commercial

Viability

Sharia'a

compliancy

Islamic Financial Services Department

Recipients: (i) Maldives Monetary Authority and (ii)

Capital Market Development Authority

Amount: US$ 150,000

TA Agreement Signed:2012

Status: Completed

The TA Project

To set up legal, regulatory and supervisory framework for

Islamic financial institutions in Maldives and to assist the

country to launch Islamic capital market instruments starting

with Sukuk

Objective - Prepare report on legal,

regulatory and supervisory framework for developing

Islamic finance sector - Develop Sharia governance

framework - Capacity building of staff from

CMDA & MMA

Scope

The Islamic Development Bank Group

The TA helped in developing

- Islamic finance enabling environment

&

the Sukuk market in Maldives and enhanced awareness about Sukuk

Impact - Regulations for Sukuk Issuance were drafted by Capital Market Development Authority. The Regulations came into force in 2013 - Issuance of the first corporate Sukuk by Housing Development Finance Corporation in September 2013

Consultant prepared detailed report on the necessary modifications needed in the legal, regulatory and supervisory framework for Islamic financial institutions

Project dissemination workshops were conducted for the concerned stakeholders including staff of MMA and CDMA

Together we build a better future

Sukuk Market Development

Capacity Building

Financial Sector

TA to Maldives Capital Market Development Authority to Develop Sukuk Market & Maldives Monetary Authority to Develop Regulatory Framework for Islamic Banking

Islamic Financial Services Department

Recipient: Capital Market Authority

Amount: US$ 150,000

TA Agreement Signed:2014

Status: Completed

The TA Project

To provide consultancy services to the CMA to

assist in the implementation of the newly developed Sukuk and Takaful regulations

Objective

Review and assist the CMA in implementing the

newly developed regulations for Sukuk and

Takaful

Scope

The Islamic Development Bank Group

TA helped in implementing the regulations related to

Sukuk and Takaful and enhanced the understanding of Sukuk and Takaful for CMA

staff

Impact Expert hired for 12 months to implement Sukuk and Takaful regulations by way of developing policies, procedures, guidelines for the CMA.

Together we build a better future

Regulations

Implementation

Capacity Building

TA to Oman Capital Market Authority to Develop Islamic Capital Market & Takaful

Oman issued its first sovereign Sukuk amounting to OMR 200 million (US$ 520 million) in October 2015. The Ijara Sukuk tenor is 5 years.

Sukuk Issuance

Islamic Financial Services Department

Recipient: Bank-e-Milli Afghan (BMA)

Amount: USD 130,000

TA Agreement Signed:2012

Status: Completed

The TA Project

Support BMA’s Islamic banking operations which

will contribute to IDB’s strategic objective of

developing and promoting Islamic financial sector in

IDB member countries

Objective - Development of Islamic finance product programs

and related policies & procedures

- Providing related capacity building training

to BMA staff

Scope

The Islamic Development Bank Group

TA helped in full-scale relaunch of Islamic banking

services comprising sophisticated product suite,

developed policies and trained staff. BMA is now better equipped to serve

client needs through innovative product solutions

Impact Auto Finance (Murabaha), Home Appliance Finance (Murabaha), Real Estate Finance (Murabaha), Trade Finance LC (Murabaha), Construction Finance (Istisna & Parallel Istisna), Working Capital Financing (Musharaka)

Together we build a better future

Regulations

Implementation

Capacity Building

TA to Oman Bank-e-Milli Afghan to Develop a Suite of Islamic Banking Products for Clients

Current accounts, Savings accounts, Term investment accounts

Liability Products

Credit procedures, Financing policy, Operations policy, Profit distribution mechanism

Policy

Documents

Islamic Financial Services Department

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Thank you