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Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity

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Author Info

  • Giorgio Gomel

    ()
    (Banca d'Italia)

  • Angelo Cicogna

    ()
    (Banca d'Italia)

  • Domenico De Falco

    ()
    (Banca d'Italia)

  • Marco Valerio Della Penna

    ()
    (Banca d'Italia)

  • Lorenzo Di Bona De Sarzana

    ()
    (Banca d'Italia)

  • Angela Di Maria

    ()
    (Banca d'Italia)

  • Patrizia Di Natale

    ()
    (Banca d'Italia)

  • Alessandra Freni

    ()
    (Banca d'Italia)

  • Sergio Masciantonio

    ()
    (Banca d'Italia)

  • Giacomo Oddo

    ()
    (Banca d'Italia)

  • Emilio VadalÃ

    ()
    (Banca d'Italia)

Abstract

The paper analyses Islamic finance from the central bank and supervisory authorityÂ’s perspective, focusing on the European and Italian context. It depicts a rapidly expanding sector, with recent annual growth rates of between 10 and 15 percent and a geographical presence that now reaches several Western countries. Future prospects, however, could be hampered by problems concerning the standardization of products, governance structure, supervisory regulation, monetary policy instruments, and liquidity management. Islamic intermediaries are not necessarily riskier than traditional counterparts but their operational structure tends to be more complex. Key issues in supervision include the treatment of investment accounts and transparency. It has been seen that there are limits to the efficiency of the monetary policy instruments developed so far to remedy the prohibition of interest; moreover, the growth of interbank and money markets is hindered by a shortage of "Shari'ah-compliant" products. Problems arising from the participation of Islamic banks in payment systems are also discussed.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Questioni di Economia e Finanza (Occasional Papers) with number 73.

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Date of creation: Oct 2010
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Handle: RePEc:bdi:opques:qef_73_10

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Keywords: Islamic finance; Islamic financial institutions; supervision; monetary policy instrments; payment systems;

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  1. Luca Errico & Mitra Farahbaksh, 1998. "Islamic Banking - Issues in Prudential Regulations and Supervision," IMF Working Papers 98/30, International Monetary Fund.
  2. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2003. "People's opium? Religion and economic attitudes," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 225-282, January.
  3. Andreas Jobst & Peter Kunzel & Paul Mills & Amadou Sy, 2008. "Islamic bond issuance: what sovereign debt managers need to know," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 1(4), pages 330-344, November.
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  5. Jemma Dridi & Maher Hasan, 2010. "The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study," IMF Working Papers 10/201, International Monetary Fund.
  6. Pauletto Livio, 2005. "Lo sviluppo della pratica finanziaria islamica nel contesto delle istituzioni occidentali," Banca Impresa Società, Società editrice il Mulino, issue 1, pages 141.
  7. Mohsin S. Khan, 1986. "Islamic Interest-Free Banking: A Theoretical Analysis (Le système bancaire islamique: analyse théorique d'un système qui ne fait pas appel à l'intérêt) (La prohibición islámica d," IMF Staff Papers, Palgrave Macmillan, vol. 33(1), pages 1-27, March.
  8. Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 07/117, International Monetary Fund.
  9. International Monetary Fund, 1998. "Monetary Operations and Government Debt Management Under Islamic Banking," IMF Working Papers 98/144, International Monetary Fund.
  10. Faezeh Raei & Selim Cakir, 2007. "Sukuk vs. Eurobonds: Is There a Difference in Value-at-Risk?," IMF Working Papers 07/237, International Monetary Fund.
  11. Hasan, Zubair, 1985. "Determination of Profit and Loss Sharing Ratios in Interest-Free Business Finance," MPRA Paper 3013, University Library of Munich, Germany.
  12. Patrick A. Imam & Kangni Kpodar, 2010. "Islamic Banking: How Has it Diffused?," IMF Working Papers 10/195, International Monetary Fund.
  13. International Monetary Fund, 1998. "The Design of Instruments for Government Finance in an Islamic Economy," IMF Working Papers 98/54, International Monetary Fund.
  14. International Monetary Fund, 2002. "Islamic Financial Institutions and Products in the Global Financial System: Key Issues in Risk Management and Challenges Ahead," IMF Working Papers 02/192, International Monetary Fund.
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