The IFSB Council Adopts Two New Standards for the Islamic Financial Services Industry

Dhaka, Bangladesh – The Council of the Islamic Financial Services Board (IFSB) has resolved to approve the adoption of two new standards in its 35^th Meeting of the IFSB Council in Dhaka, Bangladesh.

The two new standards are:

• TN-3: Technical Note on Financial Inclusion and Islamic Finance; and
• GN-7: Guidance Note on Shar?`ah-compliant Lender-of-Last-Resort Facilities

TN-3: Technical Note on Financial Inclusion and Islamic Finance

The aim of TN-3 is to provide guidance on good practices in regulating the financial sector to enhance financial inclusion through Islamic finance, while also considering proportionality in balancing the benefits of regulation and supervision against the risks and costs. TN-3 underscores the importance of financial inclusion, due to its intricate connection with economic growth, shared prosperity and poverty reduction, while furthering an understanding of how financial inclusion policies and regulatory initiatives can support Islamic microfinance / savings / investment activities.

TN-3 also covers recent developments in enhancing financial inclusion through digital finance and financial technology (FinTech) platforms while further identifying the current main challenges and emerging issues, as experienced by the market players and regulators, in microfinance and financial inclusion related to Islamic financial services. Finally, TN-3 explores practical modalities for the integration of social finance modes in Islamic finance with the commercial IFSI to promote financial inclusion.

In particular, the objectives of TN-3 include:

• to provide international benchmark guidelines on regulatory and supervisory policies to support financial inclusion initiatives in the IFSI;
• to provide guidance to RSAs on the application of the proportionality principle so that the benefits of regulation and supervision can be balanced against the risks and costs;
• to factor in recent developments in enhancing financial inclusion through Shari’ah-compliant mechanisms by digital finance and FinTech platforms;
• to consider a modality for the integration of modes of Islamic social finance with the commercial IFSI; and
• to highlight challenges in, and propose solutions to, emerging regulatory issues in microfinance and financial inclusion activities in the IFSI.

The scope of TN-3 includes the banking sector as well as the non-bank financial institutions and the Islamic capital market in promoting financial inclusion, where needed.

GN-7: Guidance Note on Shariah-compliant Lender-of-Last-Resort Facilities

The aim of GN-7 is to complement existing IFSB guidance on Shariah-compliant lender of last resort (SLOLR) and to offer international benchmark guidelines to regulatory and supervisory authorities (RSAs) for developing and offering SLOLR facilities as part of the financial safety net arrangement for IIFS in their jurisdictions. Specifically, GN-7 covers the following:

• preconditions for developing and implementing an SLOLR mechanism, including considerations of moral hazard and achieving a level playing field between the conventional and Islamic systems;
• Shariah perspectives on instruments, and operating modalities, for developing SLOLR facilities for IIFS; supervisory and operational considerations for SLOLR; and
• the broader integration of SLOLR within the macroprudential framework and its implications from a monetary policy perspective (if any).

GN-7 is primarily intended to serve as a benchmark for Central Banks (CBs) in establishing and operationalising an SLOLR framework that applies to full-fledged Islamic commercial banks and Islamic commercial banks that are subsidiaries of conventional banks. Among the areas highlighted above, the GN considers several essential features of an SLOLR arrangement, including eligibility criteria to access SLOLR; a non-exhaustive set of Shar?`ah-compliant structures and mechanisms that CBs could utilise for SLOLR purposes; the applicability of punitive rates to these mechanisms; Shariah-compliant eligible collateral; and the relevant disclosures to be made by CBs to IIFS in their jurisdictions.

The softcopies of TN-3 and GN-7 will be available on the IFSB website, www.ifsb.org in both English and Arabic languages in due course.

The 35^th meeting of the IFSB Council, hosted by Bangladesh Bank, was held on 11 December 2019 in Dhaka, Bangladesh. The Council Meeting was chaired by H.E. Fazle Kabir, the Governor of Bangladesh Bank and Chairman of the IFSB Council for 2019, attended by central bank Governors and Deputy Governors of regulatory and supervisory authorities and senior representatives from among the Council and Full members of the IFSB.

© Press Release 2019