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IFSB rates health of Islamic finance hubs

The Islamic Financial Services Board (IFSB) in Kuala Lumpur announced (27 April 2015) the release of its Prudential and Structural Islamic Financial Indicators (PSIFIs) for 15 member countries, analysing their current state of financial health.

Britain, France and Luxembourg, which are competing in Europe to win ever bigger slices of Islamic finance business and wean at least a part of the sector away from Asia, have yet to join the IFSB indicator system, which compares in many respects with the International Monetary Fund (IMF) financial indicator system.

The IFSB indicators are a weighty comment, taken seriously by the industry, on the financial soundness and growth of the Islamic banking systems in 15 member countries. IFSB said its initiative was in line with Article 4 of the IFSB Articles of Agreement, which mandates the IFSB to establish a global database of the Islamic financial services industry.

The indicators, called Prudential and Structural Islamic Financial Indicators (PSIFIs), are the first set of internationally comparable measures of the soundness of Islamic banking systems. The PSIFIs capture information on the size, growth and structural features of Islamic banking systems and on their macroprudential condition by looking at measures of their capital, earnings, liquidity, and exposures to various types of risks. They also cover the indicators on capital adequacy and liquidity based on newly issued IFSB Standards to complement international regulatory reforms under the Basel III regime.

The indicators are part of an international effort involving the IFSB and other organisations to construct a comprehensive picture of activity in the Islamic financial services industry. Due to rapid growth and significance of Islamic finance in many jurisdictions, such information is increasingly needed to understand the structure, soundness, and growth of the Islamic finance component within the entire financial systems.

The PSIFIs thus provide statistics that are useful to financial sector supervisors and policy-makers; fund providers and investors; academics and researchers; international financial press and media as well as the general public. Many of the PSIFIs are parallel to the widely used IMF Financial Soundness Indicators (FSIs) on the strength or vulnerabilities of financial systems, but are customised to the specific characteristics of Islamic banking. As such, they will serve to highlight the role of Islamic banking within national economies and permit comparisons between the conventional and Islamic banking systems.

PSIFIs cover aggregated data of Islamic banking institutions at the country level, compiled by the regulatory and supervisory authorities (RSAs) of the participating countries. The data are separately provided on stand-alone Islamic banks and Islamic windows of conventional banks in jurisdictions where available.

The PSIFIs will be regularly collected on a quarterly basis from the participating countries. This press release covers data from 15 of the 16 countries that have agreed to participate in the data compilation exercise. These countries are: Afghanistan, Bahrain, Bangladesh, Brunei, Egypt, Indonesia, Jordan, Kuwait, Malaysia, Nigeria, Oman, Pakistan, Saudi Arabia, Sudan, and Turkey.

The PSIFI Database currently represents PSIFI data as of December 2013. Data are provided for various types of ‘prudential indicators’ (PIFI) covering capital adequacy, leverage, nonperforming financing, earnings, liquidity, and foreign currency exposure as well as ‘structural indicators’ (SIFI) focusing on items such as number of branches, employees, and size of total assets, funding and financing portfolios. The database also includes ‘metadata’ which provides information on the design and specifications of data elements.

“The launching of the IFSB database represents an important milestone in the ongoing transformation of Islamic finance into a globally significant undertaking, said IFSB Secretary General Jaseem Ahmed.  “I am pleased to acknowledge that the IFSB PSIFIs project has benefited from the Technical Assistance from both the Islamic Development Bank and Asian Development Bank (ADB) over the years,” he said. The current phase of the project is being undertaken with a Technical Assistance from the ADB.

The PSIFI Database (full set of data with metadata) is available on the PSIFIs portal at the IFSB website

The IFSB describes itself as an international standard-setting organisation that “promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets, and insurance sectors.”

The IFSB also conducts research and coordinates initiatives on industry-related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders. Towards this end, the IFSB works closely with relevant international, regional and national organisations, research/educational institutions, and market players. The members of the IFSB comprise regulatory and supervisory authorities, international inter-governmental organisations, market players, professional firms and industry associations.

Author: Editor

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