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8.8.09

Introducing Islamic Banks into Conventional Banking Systems

Here is an interesting piece from the IMF that outlines the different approaches by which Islamic banking can develop in a country - this being relevant to markets which are not yet active. A few things to highlight, such as the discussion on Islamic windows and check pages 10-11 for a brief review of using tawarruq to transition from a conventional balance sheet to a Shariah compliant one. Most importantly, the role of regulators and/or supervisory agencies is discussed in later sections of the paper.

Introducing Islamic Banks into Conventional Banking Systems
Juan Solé
IMF Working Paper
Monetary and Capital Markets Department
July 2007

Abstract: "Over the last decade, Islamic banking has experienced global growth rates of 10-15 percent per annum, and has been moving into an increasing number of conventional financial systems at such a rapid pace that Islamic financial institutions are present today in over 51 countries. Despite this consistent growth, many supervisory authorities and finance practitioners remain unfamiliar with the process by which Islamic banks are introduced into a conventional system. This paper attempts to shed some light in this area by describing the main phases in the process, and by flagging some of the main challenges that countries will face as Islamic banking develops alongside conventional institutions."

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