The International Monetary Fund has weighed in on Shariah-Compliant Finance and pointed out some “challenges” that the industry faces.
The Shariah-compliant finance system faces several key challenges if it is to unlock its potential and develop safely, the International Monetary Fund reported on April 6.
The sector still lacks regulatory and supervisory frameworks catering to its unique risks according to the IMF.
The IMF reports that cross-border operations of Islamic financial institutions have expanded considerably without regulatory “harmonization.”
“These developments indicate a need for increased regulatory clarity and harmonisation, closer cooperation between Islamic and conventional financial standard-setters, and further enhancement of tools for effective supervision.”
The industry is still largely nascent, lacking economies of scale and operating in an environment where legal and tax rules, financial infrastructure and access to financial safety nets and central bank liquidity are either absent or do not take its special characteristics into account, the IMF said.
Also affecting the industry are slow innovation and a scarcity of shariah scholars with financial expertise.