Editing Islamic banking and finance (section)

==Industry framework==
Islamic financial institutions take different forms. They may be 
#Full-fledged Islamic financial institutions (for example [[Islami Bank Bangladesh Ltd]], [[Meezan Bank]] in Pakistan);{{sfn|Khan|2013|p=290}}
#Islamic "windows" – i.e. separate, sharia-compliant units<ref name="FJIFD2012:53">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:53</ref> – in conventional financial institutions (for example: [[HSBC]] – HSBC Amanah, [[American Express Bank]], [[ANZ Grindlays]], [[BNP-Paribas]], [[Chase (bank)|Chase Manhattan]], [[UBS]], Kleinwort Benson, Commercial Bank of Saudi Arabia, [[Ahli United Bank Kuwait]], [[Riyad Bank]]);{{sfn|Khan|2013|p=290}} (Scholars debate compliance of this form, according to Faleel Jamaldeen, "primarily" because of "where" the funds for these windows come from.)<ref name="FJIFD2012:121">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:121</ref>
#Islamic subsidiaries of conventional financial institutions (for example: [[Citibank]] subsidiary Citi Islamic Investment Bank (Bahrain), [[Union Bank of Switzerland]] subsidiary Noriba Bank).{{sfn|Khan|2013|p=290}}
#Islamic [[NBFC & MFI in India|NBFCs]] or Non Banking Financial Institutions (Like small NBFCs that are operational in India)

===Size and locations===

{| class="wikitable floatright" 
|+ id="market-share-table-caption" | Percentage of world market share of Islamic banking industry by country, 2014<ref name="ey-2016">{{cite web|title=World Islamic Banking Competitiveness Report 2016. Participation industry footprint|url=http://www.ey.com/Publication/vwLUAssets/ey-world-islamic-banking-competitiveness-report-2016/$FILE/ey-world-islamic-banking-competitiveness-report-2016.pdf|website=ey.com|access-date=21 September 2016|page=12|archive-date=19 June 2018|archive-url=https://web.archive.org/web/20180619000548/http://www.ey.com/Publication/vwLUAssets/ey-world-islamic-banking-competitiveness-report-2016/$FILE/ey-world-islamic-banking-competitiveness-report-2016.pdf|url-status=dead}}</ref>
|-
! scope="row" | Saudi Arabia
| 33
|-
! scope="row" | Malaysia
| 15.5
|-
! scope="row" | UAE
| 15.4
|-
! scope="row" | Kuwait
| 10.1
|-
! scope="row" | Qatar
| 8.1
|-
! scope="row" | Turkey
| 5.1
|-
! scope="row" | Indonesia
| 2.5
|-
! scope="row" | Bahrain
| 1.6
|-
! scope="row" | Pakistan
| 1.4
|-
! scope="row" | Rest of the world
| 7.3
|}

Sharia-compliant banking grew at an annual rate of 17.6% between 2009 and 2013, faster than conventional banking,<ref name="The Economist"/> and is estimated to be $2 trillion in size,<ref name="The Economist"/>
but at 1% of total world,<ref name="The Economist"/><ref name="islamic-finance-2014"/><ref name="Hasan_2010_3-4">see also: Hasan, Maher and Jemma Dridi (2010). ''The effects of the global crisis on Islamic and conventional banks: A comparative study. IMF working paper WP 10/201, September . Washington, DC: International Monetary Fund. p.3-4''</ref> still much smaller than the conventional sector.

As of 2010, Islamic financial institutions operate in 105 countries. Statistics differ on which country has the largest Islamic banking sector. According to the 2016 World Islamic Banking Competitiveness Report (see table), [[Saudi Arabia]], [[Malaysia]], [[United Arab Emirates]], [[Kuwait]], [[Qatar]], and [[Turkey]] represented over 87% of the international Islamic banking assets.<ref>[http://www.mifc.com/index.php?ch=28&pg=72&ac=58&bb=uploadpdf World Islamic Banking Competitiveness Report 2013–14] {{Webarchive|url=https://web.archive.org/web/20140314090532/http://www.mifc.com/index.php?ch=28&pg=72&ac=58&bb=uploadpdf |date=14 March 2014 }} EY Global Centre of Excellence, Bahrain</ref> A 2006 report by ISI Analytics also lists Saudi Arabia at the top and Iran as insignificant.<ref name="askari-2010">Askari, Hossein, Zamir Iqbal and Abbas Mirakhor. 2010. ''Globalization and Islamic finance: Convergence, prospects and challenges.'' Singapore: John Wiley & Sons (Asia). cited in ...</ref>{{sfn|Khan|2013|p=5}} In Qatar, Islamic banking assets were valued at $97 billion at the end of 2017, accounting for nearly 81% of total Islamic finance assets, according to QFC Authority chief executive officer Yousuf Mohamed al-Jaida.<ref>{{Cite news|url=https://gulf-times.com/story/624607|title=Islamic banking assets in Qatar valued at $97bn by end-2017: QFC Authority CEO|date=2019-03-11|website=Gulf-Times|language=ar|access-date=2019-03-21}}</ref> The country also announced the launch of an energy-focused Islamic bank with $10 billion capital in 2019, which would make it the biggest Islamic lender for energy projects in the world.<ref>{{Cite news|url=https://www.reuters.com/article/us-qatar-energy-bank-idUSKCN1R00MR|title=Qatar to launch energy-focused Islamic bank with $10 billion capital|date=2019-03-19|work=Reuters|access-date=2019-03-21|language=en}}</ref>

However, according to Ibrahim Warde, Shia-majority Iran dominates Islamic banking with $345 billion in Islamic assets, Saudi Arabia with $258 billion, Malaysia $142 billion, Kuwait with $118 billion and UAE with $112 billion. Islamic banks in UAE also provides Islamic investment programs which are Shariah compliant.{{sfn|Khan|2013|p=290}}<ref name="IFGE2010:1">[[#IFGE2010|Warde, ''Islamic finance in the global economy'', 2000]]: p.1</ref> And according to [[Reuters]], [[List of banks in Iran|Iranian banks]] accounted for "over a third" of the estimated worldwide total of Islamic banking assets, (although sanctions have hurt Iran's banking industry and "its Islamic financial system has evolved in ways that will complicate ties with foreign banks"). According to the latest central bank data, Iran's banking assets as of March 2014 totalled 17,344 trillion riyals or $523 billion at the free market exchange rate.<ref name="Reuters-iran">{{cite news |title=MIDEAST MONEY-Iran's isolated banks may have slow, painful return to global system |url=https://www.reuters.com/article/iran-banks-idUSL5N0XV0BY20150512 |access-date=3 August 2015 |work=Reuters |date=12 May 2015}}</ref><ref>{{cite web |url=http://www.thebanker.com/news/fullstory.php/aid/6129/Iran_dominates_sharia_ranking_as_newcomers_make_their_mark.html |title=Home |author=The Banker |access-date=12 February 2015}}</ref>
According to [[The Banker]], as of November 2015, three out of ten top Islamic banks in the world based on return on assets were Iranian.<ref>{{cite web |title=The Banker's Top Islamic Financial Institutions 2015 – Methodology |website=The Banker |author=James King |date=2 November 2015 |url=https://www.thebanker.com/Reports/Special-Reports/Top-500-Islamic-financial-institutions/The-Banker-s-Top-Islamic-Financial-Institutions-2015-Methodology/(language)/eng-GB |url-access=registration <!-- Old URL: www.thebanker.com/content/.../Top%20%20Islamic%20Financial%20Institutions.pdf-->}}</ref>

{{See also|Islamic Development Bank}}

=== Sharia advisory councils and consultants ===
{{main|Shariah Board}}
[[File:KotaKinabalu Sabah BankSimpananNasional-01.jpg|thumb|right|An Islamic bank branch in the UMNO building in [[Kota Kinabalu]]]]
Because compliance with [[shariah]] law is the ''[[wikt:raison d'etre|raison d'être]]'' of Islamic finance, Islamic banks and banking institutions that offer Islamic banking products and services should establish a Shariah Supervisory Board (SSB) – to advise them on whether or not some proposed transactions or products follows the Sharia, and to ensure that the operations and activities of the banking institutions comply with Shariah principles.<ref name="IIBI">{{cite web|title=Shari'ah Supervisory Board [Religious Board] |url=http://www.islamic-banking.com/shariah_supervisory_board.aspx|website=Institute of Islamic Banking and Insurance|access-date=9 August 2017|archive-url=https://web.archive.org/web/20170810052522/http://www.islamic-banking.com/shariah_supervisory_board.aspx|archive-date=10 August 2017|url-status=dead}}</ref><ref>{{Cite web|url=https://www.noorbank.com/english/info/about-us/fatwa-and-shari'a-supervisory-board-(fssb) |title=Shari'a Supervisory Committee|website=Noorbank|language=en|access-date=23 January 2018|archive-url=https://web.archive.org/web/20180331133819/https://www.noorbank.com/english/info/about-us/fatwa-and-shari'a-supervisory-board-(fssb)|archive-date=31 March 2018|url-status=dead}}</ref>

According to various Islamic banking organizations some requirements for SSBs include: 
*that they be composed of jurists specializing in ''fiqh al-[[muamalat]]'' i.e. Islamic commercial jurisprudence, ([[Accounting and Auditing Organization for Islamic Financial Institutions]], AAOIFI);{{sfn|Khan|2013|p=315}}<ref name="AAOIFI(2005)">AAOIFI 2005. ''Accounting, auditing and governance standards for Islamic financial institutions.'' Manana, Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions</ref>
*their fatwas (legal opinions) and ruling be binding, (AAOIFI);{{sfn|Khan|2013|p=315}}<ref name=AAOIFI(2005)/>
*that they have at least three members, (Institute of Islamic Banking and Insurance);<ref name="IIBI"/>
*that their members not be employees of the financial institution they supervise; 
*and be appointed and have their remuneration set by a "general assembly" rather than the institution's board of directors, ([[International Association of Islamic Banks]]).<ref name="Warde_2000:226-27">Warde Ibrahim, 2000: Islamic finance in the global economy, Edinburg, Edinburg university press. p.226-27</ref><ref name="Nadwi-2012">{{cite book|last1=Nadwi|first1=Mohammad Abdullah|title=Analysing the Role of Shariah Supervisory Boards in Islamic Financial Institutions|date=1 February 2012|page=5|doi=10.2139/ssrn.2217926 |ssrn=2217926|s2cid=219373988 }}</ref>
In addition, their duties should include:<ref name="Grais_Pellegrini_(2006:7)">Grais, Wafik and Matteo Pellegrini. 2006. ''Corporate governance and Shari'ah compliance in institutions offering Islamic financial services.'' Policy research working paper 4054, November. Washington, DC: World Bank., p.7</ref>{{sfn|Khan|2013|p=316}}
*calculating [[zakat]] payable by Islamic financial institutions, (AAOIFI);
*disposing of non-shariah-compliant income, (AAOIFI);
*advising on the distribution of income among investors and shareholders, (AAOIFI).

Since the beginning of modern Islamic finance, the work of the Shariah boards has become more standardized.
Among the organizations that have issued guidelines and standards for Shariah compliance are the AAOIFI,<ref name="AAOIFI-2008">AAOIFI. 2008. ''Governance standards. Shari'a supervisory board: Appointment, composition and report.'' Manana, Bahrain: Accounting and Auditing Organization for Islamic Financial Institutions.</ref> Fiqh Academy of the [[OIC]], [[Islamic Financial Services Board]] (IFSB) (2009). The guidelines and standards are not regulations though, and each Islamic financial institution has its own SSB, which are not generally obliged to follow them.{{sfn|Khan|2013|p=315}}

However, their home country many have a regulatory organization that they are required to follow.
As of 2013, regulators in Bahrain, Indonesia, Jordan, Kuwait, Lebanon, Malaysia and Pakistan have developed guidelines for SSBs in their respective jurisdictions. Some countries, like Indonesia, Kuwait, Malaysia, Pakistan, Sudan, and the UAE have centralized SSBs<ref name="Askari_et_al_2010:21">Askari, Hossein, Zamir Iqbal Mirakhor. 2010. ''Globalization and Islamic finance: Convergence, prospects and challenges.'' Singapore: John Wiley & Sons (Asia), 21</ref> (In Malaysia that SSB is called the Shariah Advisory Council, and was set up at [[Bank Negara Malaysia]] (BNM).) A number of Shariah advisory firms have now emerged to offer Shariah advisory services to the institutions offering Islamic financial services.

===Financial accounting standards===
The '''[[Accounting and Auditing Organization for Islamic Financial Institutions]]''' (AAOIFI), has been publishing standards and norms for Islamic financial institutions since 1993.{{sfn|Khan|2013|p=6}} By 2010, it had issued "25 accounting standards, seven auditing standards, six governance standards, 41 ''shari'ah'' standards and two codes of ethics."{{sfn|Khan|2013|p=6}} (By 2017 it had issued 94 standards in the "areas of Shari’ah, accounting, auditing, ethics and governance".)<ref name="AAOIFI-web">{{cite web|title=About AAOIFI|url=http://aaoifi.com/about-aaoifi/?lang=en|website=AAOIFI|access-date=14 August 2017}}</ref> Although it is an independent body, its "pronouncements on the acceptability or otherwise of contractual structures in relation to Islamic financial instruments are to be viewed in the same vein as regulatory edicts."<ref name="HIHB2015:33">[[#HIHB2015|Irfan, ''Heaven's Bankers'', 2015]]: p.33</ref><ref name="irfan-33">{{cite book|last1=Irfan|first1=Harris|title=Heaven's Bankers: Inside the Hidden World of Islamic Finance|date=2015|publisher=Little, Brown Book Group.|page=33|url=https://books.google.com/books?id=uJ3ABAAAQBAJ&q=nizam|access-date=28 October 2015|isbn=9781472105066}}</ref> Its standards are mandatory for Islamic financial institutions in Bahrain, Sudan, Jordan and Saudi Arabia, and recommended for other Muslim countries and Islamic financial institutions according to Muhammad Akram Khan.{{sfn|Khan|2013|p=6}}
{{#tag:ref|According to Oxford-Analytica, as of 2010 AAOIFI's standards are mandatory for Islamic financial institutions in Bahrain, Dubai International Financial Centre, Jordan, Sudan, Syria and Qatar<ref name="Oxford-Analytica">{{cite journal|last1=Oxford Analytica|title=Islamic Finance Moves Toward Common Standards|journal=Forbes|date=9 March 2010|url=https://www.forbes.com/2010/03/08/islam-finance-sharia-business-oxford-analytica.html|access-date=14 August 2017}}</ref>|group=Note}} Established in Algiers in 1990, its original name was Financial Accounting Organization for Islamic Banks and Financial Institutions. It later moved its headquarters to Bahrain.{{sfn|Khan|2013|p=6}}

The '''International Islamic Financial Market''' – a standardization body of the '''[[Islamic Financial Services Board]]''' for Islamic capital market products and operations – was founded in November 2001 through the cooperation of the governments and central banks of Brunei, Indonesia and Sudan. Its secretariat is located in Manama Bahrain. It is not a regulatory body and its recommendations are "not implemented by most Islamic banks".{{sfn|Khan|2013|pp=309-310}} Faleel Jamaldeen differentiates its controlling body (Islamic Financial Services Board) from the other Islamic Financial standards organ, the AAOIFI, saying,<blockquote>the AAOIFI sets best practices for handling the financial reporting requirements of Islamic financial institutions, IFSB standards are mainly concerned with the identification, management, and disclosure of risk related to Islamic financial products.<ref name="FJIFD2012:54">[[Sukuk#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]:54</ref></blockquote>
Individual countries also have accounting standards. The [[Institute of Chartered Accountants of Pakistan]] issues Islamic Financial Accounting Standards (IFAS).

===Supporting institutions===
The '''Islamic Interbank Money Market''' was established by Bank Negara Malaysia on 3 January 1994, and has developed instruments to manage the liquidity needs of the Islamic financial institutions – "funding and adjusting portfolios over the short term".{{sfn|Khan|2013|pp=309-310}}

The '''[[Islamic Financial Services Board]]''' was founded on 3 November 2002 at [[Kuala Lumpur]] by central banks of Bahrain, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, Sudan along with the [[Islamic Development Bank]], [[AAOIFI]], and [[IMF]].{{sfn|Khan|2013|pp=309-310}}
As of April 2015, the 188 members of the IFSB comprise 61 regulatory and supervisory authorities, eight international inter-governmental organisations, and 119 market players (financial institutions, professional firms and industry associations) operating in 45 jurisdictions.<ref name="IFSB-us">{{cite web|title=Published Standards|url=http://www.ifsb.org/background.php|publisher=The Islamic Financial Services Board (IFSB)|access-date=7 August 2015|archive-url=https://web.archive.org/web/20150819183918/http://ifsb.org/background.php|archive-date=19 August 2015|url-status=dead}}</ref> From 2002 to 2012 it issued 17 standards, guiding principles and notes.<ref name="FJIFD2012:260">[[#FJIFD2012|Jamaldeen, ''Islamic Finance For Dummies'', 2012]]: p.260</ref>
Its objective is to standardize and harmonize the operation and supervision of Islamic financial institutions, standards and capital adequacy, risk management and corporate governance in consultation with a wide array of stakeholders and after following a lengthy process. It complements the task of the [[Basel Committee on Banking Supervision]].{{sfn|Khan|2013|pp=309-310}} As of 2015 it had published 17 standards and six guidance notes.<ref name="IFSB">{{cite web|title=Published Standards|publisher=The Islamic Financial Services Board (IFSB)|url=http://www.ifsb.org/published.php|access-date=7 August 2015|archive-url=https://web.archive.org/web/20150819192852/http://ifsb.org/published.php|archive-date=19 August 2015 |url-status=dead}}</ref>

The [[Islamic International Ratings Agency]] started operations in July 2005 in Bahrain. It is sponsored by 17 multilateral development institutions, banks and other rating agencies.<ref name="IIRA">{{cite web|title=Islamic International Rating Agency (IIRA)|url=http://www.iirating.com/|website=iirating.com|access-date=8 August 2015|archive-url=https://web.archive.org/web/20190618082427/http://iirating.com/|archive-date=18 June 2019|url-status=dead}}</ref>{{sfn|Khan|2013|pp=313-314}}

The '''[[Dow Jones Islamic Market Index]]''' (DJIMI) was established in 1996.<ref>{{cite web|title=Dow Jones Islamic Market Indecises|url=http://www.djindexes.com/islamicmarket/|website=djindexes.com|access-date=8 August 2015|archive-date=12 August 2015|archive-url=https://web.archive.org/web/20150812120654/http://djindexes.com/islamicmarket/|url-status=dead}}</ref> The Index has been approved by Fiqh Academy of the OIC.<ref name="McMillen 2008: 730">McMillen, Michael J.T. 2008. "Asset securitization sukuk and Islamic capital markets: Structural issues in these formative years." ''Wisconsin International Law Journal'' 25 (4) (Winter), p.730</ref> It uses three levels of screening—eliminating businesses involved in activities not allowed by Islamic law (alcohol, pork, gambling, prostitution, pornography, etc.); eliminating companies whose total debts divided by their 12-month average market capitalization are 33% or more of their total sources of funds; eliminating companies that have 'impure income or expenditure' (including, of course, interest) of more than 5–10 per cent of their income or expenditure (eliminating businesses with ''any'' 'impure income' being considered impractical).{{sfn|Khan|2013|pp=313-314}}

In 2006, Citigroup launched the '''Dow Jones Citigroup Sukuk Index'''. The sukuk making up the Index must be at least $250 million in size, have a maturity of at least one year and a minimum rating of BBB-/Baaa3.{{sfn|Khan|2013|pp=313-314}} In 1998, the FTSE Global Islamic Index was launched. It has 15 Islamic indices for various regions.{{sfn|Khan|2013|pp=313-314}}
In 2007, the MSCI Islamic Index series was launched, one of the "MSCI 'Faith-Based' Indexes". It is constructed from the conventional MSCI country indices and covers 69 developed, emerging and frontier markets, including regions such as the [[Gulf Cooperation Council]] and Arabian markets.{{sfn|Khan|2013|pp=313-314}}

===Central banking===
Although no Muslim country has yet banned interest on loans completely, suggestions have been made as to how to deal with monetary policy when [[central bank]]s operate in an interest-free environment and there are no longer any interest rates to lower or raise. Economist [[Mohammad Najatuallah Siddiqui|Mohammad N. Siddiqi]] has proposed that central banks offer "refinance facilities" to expand or contract credit as needed to deal with inflation or deflation.<ref>Siddiqi, Mohammad Nejatullah, ''Muslim Economic Thinking: A Survey of Contemporary Literature'', The Islamic Foundation, Leicester, 2007, p.34</ref><ref name="158:105">Siddiqi, Muhammad Nejatullah. ''Some aspects of the Islamic Economy.'' Lahore, Islamic Publications, 1970; New Delhi, Markazi Matabah Islami, 1972, 105</ref>

He also proposes that short term credit for the production sector of the economy, be estimated by the central banks and the provided by them by manipulating the "refinance ratio" and the "lending ratio".<ref>Siddiqi, Mohammad Nejatullah, ''Muslim Economic Thinking: A Survey of Contemporary Literature'', The Islamic Foundation, Leicester, 2007, p.35</ref><ref>Siddiqi, Muhammad Nejatullah. ''Ghair sudi bank kari (Banking Without Interest) Lahore, Islamic Publications, 1969. Dekhi, Markazi Maktabah Jamat'at-e-Islami Hind, 1969 pp 44–60''</ref>

According to economist and Islamic finance critic Feisal Khan, a "true" or strict Islamic banking and finance system of [[profit and loss sharing]] (the type supported by [[Taqi Usmani]] and the Shariah Appellate Bench of the [[Supreme Court of Pakistan]]) would severely cripple central banks' ability to fight a [[credit crunch]] or [[liquidity crisis]] that leads to a severe recession (such as happened in 2007–8). This is because if credit was provided by taking "a direct equity stake in every enterprise" (the PLS approach) it would contract in a credit crunch. But situations like this – when financiers are "less and less sure of the creditworthiness of their financial sector counterparties" and essentially stop lending to even the biggest and most stable borrowers or even other banks – is exactly the time when credit expansion and "flooding" the economy with liquidity is needed to prevent widespread business bankruptcy and unemployment.{{sfn|Khan|2015|pp=160-161}}