project of 416 - Education

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Can you summarize the project you did for me in 200 words, Imean ,write only the useful and important thing..‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
College of Administrative and Financial Sciences
Assignment
FIN416 (1st Term 2022-2023)
Deadline: 10/11/2022 @ 23:59
Course Name: Islamic Finance
Course Code: FIN416
Student’s
Semester: II
CRN: 12325
Academic Year: 1442/1443 H, 2st Term
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/ 30
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
•
This assignment is an individual assignment.
The Assignment must be submitted only in WORD format via allocated folder.
•
Assignments submitted through email will not be accepted.
•
Students are advised to make their work clear and well presented; marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
•
Students must mention question number clearly in their answer.
•
Late submission will NOT be accepted.
•
Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
•
All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
Submissions without this cover page will NOT be accepted.
1|Page
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
You are to write between a 3,000-to-5,000-word assignment in the form of a scholarly
article for publication in a major law review journal on any one of the following topics:
• The international regulatory bodies and standards for Islamic financial institutions (IFIs).
• Financial technologies (FinTech) in Islamic finance sector.
• An analysis of the structuring of Islamic securities; namely sukuk.
• The Shariah governance of IFIs: Operation and Challenges
• The distinctions between Islamic insurance—takaful—and conventional insurance.
• The contemporary applications of the classical contracts in Islamic finance (choose one
or two contracts; for example: murabahah and/or mudarabah).
• Other areas related to Islamic finance sector.
2|Page
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
THE INTERNATIONAL REGULATORY BODIES AND
STANDARDS FOR ISLAMIC FINANCIAL INSTITUTIONS (IFIS)
3|Page
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Acknowledgement:
All praise and gratitude go to the Saudi Electronic University’s scientific research
department for giving us this beneficial opportunity and for their work on the submission,
which raised awareness of the value of research and taught many details that are
necessary for conducting research and offering courses. I appreciate having the
opportunity to work on this and other relevant projects with everyone. I want to thank My
teacher in particular. He has taught me more than I could ever credit him with here as my
mentor and instructor. He has exemplified for me what a good scientist (and person)
ought to be. The people in my family have been more significant to me in the pursuit of
this mission than anyone else. I want to thank my parents for their support and affection
in whatever I do. They are the ideal examples to follow.
4|Page
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Declaration:
I also declare that this submission represents my own work which has not been done
or written by another person, nor work that has been in large part accepted for credit
toward another degree at Saudi Electronic University or another academic institution,
unless appropriate credit is given in the project. I certify that the submission was written
by me and that it was not submitted for any other academic or professional credential. I
certify that the work I’ve provided is original to the extent that it hasn’t been combined
with other people’s work for publishing. The following explicitly acknowledges both my
contribution to this work as well as those of the other authors.
Student’s sign
Badriah Almalki
Superviser’s sign
Dr. Yasmeen Ansari
Date:
08/11/2022
5|Page
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Table Of Contents
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
1.1 Introduction: The international regulatory bodies and standards for Islamic
financial institutions (IFIs)
The financial rules that apply to standard finance market players also apply to the
monetary underpinnings of Islam because they are an essential component of today’s
global economy. Traditional financial organizations and many people are now
recognizing the enormous business possibilities in Islamic banking and commerce.
According to Statistics by Puri-Mirza (2021), the number of commercial Islamic
Financial Institutions (IFIs) has steadily increased over the last few decades. 428 Islamic
commercial banks are anticipated to be operational worldwide in 2019. Whatever the
cause, the aggregate holdings of all Islamic financial institutions worldwide in that year
came to about $1.99 trillion. This represents around 6% of all assets held by Islamic
financial institutions globally (Puri-Mirza, 2021). The function of international financial
systems is different from the function of domestic financial institutions. The primary goal
of this paper will be on the international administrative organizations, procedures, and
benchmarks for regulating Islamic financial institutions.
1.2 Monetary Intermediation in IFIs
1.2.1 The Islamic Banking Regulation and Supervision
Islamic banking has developed significantly over several decades. It is currently
widely recognized in several nations as a potentially significant element of the world’s
monetary system due to the small base, low starting, substantial market possibilities, and
strong vitality in numerous Islamic countries for Sharia-compliant products. Islamic
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
finance has a substantial potential for development and augmentation in the international
economy, which might require additional rules attempting to control the sector (Song et
al., 2021). Since the definition of this industry differs from country to country, the
International Monetary Fund (IMF) has to deal with a diverse range of banking-related
concerns. As a result, the IMF must locate, access, analyze, and disclose any intentional
problems resulting from the Islamic financial system.
The nations which make up the IMF’s participation have given the group the
responsibility of promoting greater global monetary coordination, guaranteeing the
financial stability of member nations, and promoting sustainable economic development.
Islamic banking and Islamic money are preferable to traditional banking because Shariah
Law protects them. Significant differences exist between these approaches and
conventional banking (Song et al., 2021). This institution’s application of Islamic law
ranges from a unique and tightly focused understanding of Islamic law to a specific rule
in a particular field geared to Islamic finance. Furthermore, Islamic banking is managed
by a limited legal administrative structure everywhere. Nevertheless, the low base, low
admission degree, huge market possibilities, and strong enthusiasm in several Islamic
countries for the transformation were Shariah-consistent products.
1.3 Administrative Framework of Islamic Banking
Since Islamic banking is subject to the same hazards as traditional banking, it needs
guidelines in the same way that commercial bank does. Islamic financial principles,
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
therefore, attempt to ensure monetary stability by safeguarding customers’ funds and
guaranteeing the effective operation of Islamic institutions (Song et al., 2021). This is
similar to how traditional banking works in many ways. In a similar vein, it is critical to
keep in mind that the administration of an Islamic bank should prioritize avoiding any
harm to the sustainability of monetary systems. Understanding Islamic finance is crucial
for professionals and institutions like the International Monetary Fund. A full
understanding of Islamic and conventional banking can indeed be developed as a result,
and the existing legislative frameworks for Islamic banking may be modified. As a result,
the Islamic banking philosophy uses a variety of structures.
1.3.1 Authorizing
The Islamic Banking Regulatory Framework, presented in 2012, may incorporate
Islamic financial activities such as conventional Islamic banking and Islamic financial
storefronts inside conventional banking organizations (IBRF). This committee handles
other key administrative aspects of the sector and makes sure that Islamic banking
conforms with national bank laws and Shariah law (Mohammed et al., 2017). The IBRF
is tasked with advancing the regulations that govern the authorization of banks and
banking systems. Banks and banking windows are controlled and overseen by several
national banks. The Sharia administration organization monitors Islamic banks’
compliance with Islamic law, particularly in Oman. Approval procedures are essential,
very similar to those used in conventional banking, to maintain administration in good
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
order and promote the establishment of new Islamic financial institutions (Song et al.,
2021). In nations or regions where Shariah law is a component of the primary legislation,
compliance with the Shariah regulations is a significant factor in determining the decision
to accept the intended requirement. Other aspects were Islamic banks’ economic
declaration of investment accounts’ transparency and openness, as well as the liberty of
holders of investment accounts to view such an exhibition.
Moreover, because of the various regulatory frameworks established by various
governments, Islamic banks enjoy access to a broad range of licensing alternatives.
Whenever Islamic banking and monetary underpinnings are recognized, the higher
degree of consistency and accepted standards exclusive to the Islamic financial system is
also approved. The administrative structure is a standardized set of guidelines that can be
applied to any financial institution, not just Islamic banks (Bank for international
settlement, 2006). Because of this, Islamic banks need to hire knowledgeable personnel
about every aspect of Islamic banking. This is due to the Islamic finance sector’s highly
progressive tax policy. The internal assessors, specifically the Chief Financial Officer
(CFO), ought to know Islamic accountancy requirements, including those created by the
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).
1.3.2 The convenience of Islamic Banking
There are numerous ways that Islamic banking can be included in the current
regulatory system. Introduce the Basel Committee on Banking Supervision’s rules if you
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
want to (BCBS). The BCBS is a body that frequently meets to assess shared opinions on
matters about banking regulations. Additionally, it has a big impact on creating rules for
international banking (Mohammed et al., 2017). Practically speaking, Islamic financial
institutions’ administration and management systems are conducted according to the
BCBS structure technique. The BCBS foundation supports this opinion was created in the
United Kingdom. There is no important difference between the organizational
architecture of conventional and Islamic banks in light of this paradigm.
Another crucial element of any bank’s organizational apparatus is the BCBS element,
which is not specific to Islamic banking. The Islamic Financial Services Board (IFSB)
uses the BCBS computed system to develop norms and criteria for Islamic banking. This
would be done in particular to put consistent Shariah laws into effect. The Islamic
Financial Services Board (IFSB) is a multinational company with the mandate to enhance
the efficiency and reliability of the Islamic financial industry (Song et al., 2021). The
International Financial Stability Board (IFSB), particularly in the financial, investment,
and conservation areas businesses, develops industry-wide standards and guidelines
which help it accomplish its purpose. Utilizing unique management especially suited to
Islamic banking’s obligatory character is another crucial strategy. Many nations’ financial
institutions also play a significant part in monitoring and managing the entire system of
financial and ﬁnancial institutions, especially Islamic banking.
1.3.3 Corporate Governance and Sharia Law Compliance
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Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
IFS providers have identified whether their business practices comply with Shariah
Law. However, these strides are solely attributed to the distinctive approaches taken by
each organization. The Shariah Supervisory Board (SSB) gains credibility and economic
relevance by integrating the Islamic Financial System into the organizational framework.
According to Islamic Markets, a key component of the Islamic banking system is
Shariah-compliant securities trading (SSB (Grais et al., 2006)). According to Islamic
Markets (2021), it is claimed that this agency is in charge of various duties, including
computing zakat obligations, evaluating localities to ensure that laws are being upheld,
and issuing fatwas approving certain monetary operations. Due to its objectivity and
expertise in the subject, the Shariah Supervision Bureau (SSB) can confirm the
compliance of previously established legal documentation with Shariah Law. As a result,
improvements in financial regulation that are beneficial to Islamic banking can occur.
Similarly, in some areas or nations, particularly Islamic ones, the central bank employs a
significant portion of the Shariah Supervisory board, whose primary responsibility is to
guarantee Shariah law is implemented. The bank’s top management, which also confirms
that the bank’s operations comply with the criteria established by the Shariah board, is
responsible for the day-to-day preservation of Shariah compliance (Wardhany & Arshad,
2012). No matter what, depending on the region, the national bank might or might not
have full control over Shariah issues about banks. In any instance, whenever it concerns
problems regarding the modification of the judicial and administrative structure that
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
impacts Shariah supervision, the assistance of a nation’s central bank is required
everywhere in the globe.
Proponents of Islamic banking’s legal structure also stand to gain significantly from
deploying impartial auditors to bolster Shariah Compliance. The evaluation committee
must determine and attest to the compliance of Islamic financial institutions with Shariah
Legislation. This is especially essential in regions or countries where Shariah Law is the
primary source of law. In nations or regions in the centre of the globe wherein Shariah
law somehow doesn’t form part of the impetuses of legislation, the independent assessor
is not personally accountable for examining and verifying the conformity of the Islamic
bank with Shariah Law.
1.3.4 Capital Requirements
The BCBS tends to lay the bare minimum of the base finances that all banking
institutions, whether conventional or Islamic, must have to work fully. As a consequence,
all the jurisdictions need to comply with all the Base I, II, and III capital frameworks to
take part in the BCBS (Shakdwipee & Mehta, 2017). To be able to qualify when it comes
to the BCBS, the requirements must be met. Testing different strategies help to establish
the best potential quantity of capital, which may change based on how well the national
economy is doing. Examples of nations with a BCBS financial performance that extends
to all institutions, irrespective of whether they follow Islamic or customary international
law, are Turkey and the United Arab Emirates. To achieve this, it is typical for these
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
nations’ administrative frameworks to incorporate a single set of financial sufficiency
requirements that apply to all banks, particularly Islamic banking. Islamic banking has to
abide by particular rules as a result. It follows that neither conventional nor Islamic banks
allow account registrants to fulfil any requirements before opening a bank account.
However, the IFSB standards, guidelines, and rules that call for modifications to the
BCBS framework to handle different aspects of Islamic banking are typically rooted in
the requirements for administrative capital adequacy of particular countries and regions.
This is true in some areas and countries (Posner, 2015). Given this, it is not surprising
that there are similarities among banks in various nations, particularly capital ratios. Even
if these organizations often select various BCBS relationships between the capital
structure that are best suited to each bank’s unique issues in terms of Islamic finance. The
IFSB intends to encourage variation measurements generally, focusing on the alpha
element for assessing how open to risk a traditional finance item is compared to a risksharing item utilized by Islamic banks (Posner, 2015). This is going to be adopted in a lot
of functional departments. Remember that these are only estimations of the dangers
associated with any given deal, so anyone watching from an outside perspective is either
sharing all of the risk or a fraction of it.
1.3.5 Influence
Nevertheless, some regions emerge to impose influence proportions when it comes
to the Islamic banks to remember the unlimited venture resources and call reserves in the
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Islamic banks. Despite having minimal requirements for Islamic institutions regarding the
amount of call or input reserves expected by the Islamic banks in the acceptance of the
stores. The aim is to make sure that Islamic Banks in such locations might operate
successfully and legally (Bukair, 2019). Pure finances, which don’t entail the utilization
of genuine assets, also limits the involvement of Islamic organizations. Through adhering
to such a guiding aspect, clients of both Islamic and conventional banks have a
significant chance of feeling secure with their assets.
1.4 Straightforwardness, Disclosure and Market Discipline in Islamic Banking.
The significance of transparency and dependability must be considered in any
requirements for a nation’s financial system or accounting methods. Different nations and
localities approach accessibility and transparency requirements differently regarding the
technicalities of the amount of financial data banking institutions like banks are obligated
to make public (Khomsatun et al., 2021). These strategies and methods are called
“openness and transparency requirements.” Clients of both conventional and Islamic
financial organizations call for greater openness and the revelation of previously
classified information to protect their customers and develop financial discipline,
particularly in banks.
Nevertheless, Islamic banks are subjected to additional disclosure obligations under
Shariah Law Compliance with Islamic characteristics, such as the banks’ adherence to
Shariah Law, ex-risk and ex-post rates of profit on specific Islamic financial goods, and
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
the Fatwas supplied by the Shariah board (Khomsatun et al., 2021). Additionally, Islamic
financial institutions in some countries or jurisdictions are free from this obligation until
the Shariah board certifies financial statements compliant with Islamic law. However, all
banks in the United States must adhere to the same disclosure rules. Nevertheless, all
banks must comply with the same disclosure laws in conventional locations. Therefore,
none of these limitations applies.
1.5 Bank Resolution and Deposit Protection
Any amount that is stored at the request of the Islamic banks ought to be reclaimed
at the rate which was agreed upon. Due to this, it is clear that the Islamic institutions
might be relied on to offer their clients complete access to their funds wherever they
come up and make a request or come up with new development. Thus, Islamic Financial
organizations consider such phone calls or inquiries a traditional store for commerce or
security reasons (Kammer et al., 2015). Despite this, there is typically a wide variety of
how many different regions and nations. Islamic institutions tend to protect their client’s
investments and funds.
Nevertheless, this is imperative since the security status of the Islamic banking shops and
speculations tend to vary widely, from completely unprotected to fully protected through
fractional assurance. This depends on the region or nation. Additionally, the policies for
insurance when it comes to stocks and speculative investments in certain countries tend
to feature a single-store plan applicable to all the policies for insurance in the Islamic
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
banking sector and the regular banking sector (Kammer et al., 2015). Moreover, if the
Islamic institutions offer different security plans for their financial investors and
supporters, such plans would only use the resources produced by the ex-bet commitments
done in Shariah-consistent speculation for the simple reason that Shariah is followed
strictly by the Islamic Banks.
Additionally, bank security’s flip side emerges as the bank’s aims. Despite such, there are
a lot of similarities when it comes to conventional and Islamic banking approaches to
issue solving, particularly in the locations of required and corrective procedures and
system procedures. Islamic financial institutions tend to frequently go through an aspect
known as “bank take over”, in which the management temporarily takes control of a
financial institution that is troubled to monitor the essential aim processes like guiding
businesses via the receivership face (Archer & Karim, 2012). In addition, the procedure
of financial organization liquidation entails a wide variety of cash arrangements. An
instance entails a discreet and transparent administrative and legal framework tailored to
Islamic banking institutions. Liquidation may also entail mixing the administrative and
legal structures applicable to conventional and Islamic banking with several aspects that
emerge to be unique to Islamic banking (Archer & Karim, 2012). The coordination of
administrative and legal processes associated with the cycle of liquidation is applicable to
conventional and Islamic banking. Consequently, the processes for liquidating financial
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
institutions, especially Islamic banks, tend to differ significantly from one country to the
other.
1.6 Management Framework of IFIs
The Islamic financial system, like conventional banking, sees strong regulation as
essential to reducing exposure to sovereign risk. Notwithstanding this, Islamic finance’s
original concept necessitates advancements in financial management suited to the
industry’s particular characteristics. To do this, Islamic financial institutions may employ
the risk assessment guidelines established by the IFSB as a benchmark (Podpiera, 2006).
The Basel Central Tenets are a crucial administrative instrument for maintaining the
long-term survival of Islamic institutions. To get a full sense of the administration task
that goes into IFS, one must also take into account the numerous challenges faced by
Islamic banks, the financial burdens placed on Islamic banks, and the anticipated effects
of collaborations among conventional and Islamic banks. This is an essential
consideration.
The administrative structure may look extremely different from one organization to the
next, particularly in the case of Islamic banks. For instance, under two highly advanced
organizational frameworks, the same authority oversees both conventional and Islamic
banking. A single institutional framework pertinent to an administrative authority and an
executive power appears to offer a unique institutional structure positioned in different
government agencies of power, even though various administrative units or experts can
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
apply different management procedures. Furthermore, an effective administrative
framework inside IFS regulates Islamic financial institutions following their risk
categories. Using the Capital-Assets-Management-Earnings-and-Sensitivity (CAMELS)
rating is essential, especially when aggregated in the risk category of the institutions
(Karapinar & Dogan, 2015).
The type and extent of the data accommodations demands of administrative professionals
who work in banks are evaluated in various manners by various areas. This could be
categorized as an administrative role. When trying to do business beyond international
boundaries with nations that don’t observe the same legislation, all banks, such as those
founded on the Shariah, must adhere to the same strict regulations. However, in nations
or jurisdictions that follow Shariah law and use conventional and Islamic banking, the
transactions that are particular to Islamic economic position constitute an additional type
of data transmission. The degree to which Islamic banks’ procedures comply with Shariah
law is yet another kind of information about Islamic banking which may be publicly
disclosed.
The amount of force used in management also depends on how strictly Shariah Law is
adhered to in a particular environment. The “realness” of the hidden monies significantly
impacts the amount of influence one has over institutions and other IFIs. Greater
operational hazards are conscious of this position since, for instance, local regulators in
non-Shariah nations are looking into theories to confirm that covert operations are actual
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
resource transfers (Karapinar & Dogan, 2015). Only Islamic banks can maintain up to
80% of the assets inwards under Shariah law in different accounts. Thus, financial
companies will continue to operate in conformity with Shariah Law. Furthermore, it’s
important to remember that the institutional framework includes solutions that are often
appropriate to all institutions and are typically focused on completely staffing and
preparing the directors for emergencies as feasible. Islamic banks are therefore obligated
to prepare for emergency executives by modelling various scenarios, carrying out stress
tests, and performing situation analysis.
1.7 Risk Management
Based on how well they deal with the risks, financial institutions and Islamic
financial institutions (IFIs) specifically, five categories are used to categorize CEO risk
tolerance: general dangers, credit gambles, value venture chances, liquidity dangers, and
Sharia dangers. The whole degree of the risk assumed by the CEO is communicated
similarly by conventional and international banking institutions. Using both more
contemporary cycle-based methodologies and time-tested management techniques (Zins
& Weill, 2017). The several gaming choices available towards the board are first and
foremost taken into consideration in BCBS’s intended organizational architecture. A
recognized gambling board is essential if you work in the Islamic banking sector because
their abilities, management, procedures, and methods play a role in achieving the sector’s
objectives.
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Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
While banks have the same legal and administrative structures as casinos, an Islamic
bank or other financial institution may offer different real-world gaming options than
normal banks. This is because certain forms of gambling are prohibited under Sharia law.
This tendency is mostly due to the requirement that Islamic banks adhere to Shariah law.
Instances of such extraordinary conditions include the quantity and type of hazards that
need to be undertaken and the pace during which they must be done. To put it another
way, Islamic financial institutions must apply mechanisms like the second pillar of the
Basel II framework to manage their risk exposures. This is very similar to how
conventional banks work.
1.8 Bodies and Standards for IFIs
Islamic financial institutions must adhere to different bookkeeping and monetary
regulations, just as regular partnerships and records must. For example, regulations
established by the Accounting and Auditing Organization for Islamic Financial
Institutions restrict most IFIs’ ability to conduct business (AAOIFI). The AAOIFI, an
Islamic international autonomous non-profit corporate entity, has been charged with
overseeing accounting, auditing, management, Shariah standards, and morality for
Islamic businesses and IFIs (Syariah, 2003). Furthermore, AAOIFI offers expert
proficiency programs including CIPA, Shariah advisors and inspectors, and the
corporation coherence program to improve the management structure and the personnel
management base.
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
The AAOIFI recommendations include standards for data breadth and transparency.
Islamic banking, specifically, and financial inclusion institutions (IFIs) in general, rely on
a broad range of accounting regulations, particularly those relating to disclosure and
transparency, which are meant to boost public or personal trust in the organization and
promote more competence in the field. That is extremely similar to how traditional banks
operate. In any event, how the transparency and openness concept is applied will depend
on the ward of a nation I see. Instances of public bookkeeping guidelines that apply in
nations where Shariah Legislation is not recognized as a protected law or as the norm that
all people are required to abide by Generally Accepted Accounting Principles (GAAP)
and the International Financial Reporting Standards (IFRS) (Syariah, 2003). While in
nations or regions where Shariah Law is the primary legislation that all residents must
respect, the Accounting and Auditing Organization for Islamic Financial Institutions
oversees compliance with IFRS and other international accounting principles. Islamic
financial institutions must follow the guidelines established by AAOIFI. The AAOIFI
recommendations include a system supported by Shariah coaches, accountants, scholars,
and auditors. According to AAOIFI, IFIs would be entirely transparent about how
Shariah Law influences their business practices and financial activities.
The International Islamic Financial Market (IIFM) ensures normality in capital and
currency fluctuations, corporate funding, and IFSI lifelong partner sectors. Its main
objective is to guarantee that Islamic financial contracts and commodities are accepted.
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
The Islamic International Financial Market (IIFM) investigates the viability of creating
an international financial market that adheres to Shariah law, utilizes the best methods
around the globe, and prioritizes openness and effectiveness. To accomplish these goals, I
have offered standards of behavior that emphasize the validity, precision, and
effectiveness of Sharia law.
Furthermore, according to Parashar (2012), another crucial organization for deriving IFI
standards is the Liquidity Management Center (LMC) (2017). LMC is an Islamic
investment bank controlled by the government of Bahrain. Its goal is to promote the
growth of the Islamic capital market by providing viable business and financing
solutions. LMC is specifically responsible for supporting financial activities, project
finance, and structured finance relating to Islamic Sharia. To address and resolve
financial difficulties, the LMC provides guidelines. These guidelines highlight the
advantages of using Shariah-compliant products at these organizations.
Moreover, the Islamic International Rating Agency (IIRA) is the only rating agency that
provides the capital economic sectors and financial areas of Islamic countries with a
rating range that reflects the range of capital products and financial items specific to
Islamic currency. This rating system is available on the website of the Islamic
International Rating Agency. IIRA rating takes the fascinating concept of Islamic
financing into account, which raises its value and enables it to achieve its main objective
(Hassan & Mollah, 2018). Having IIRA as a part of an Islamic financial institution (IFI)
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
increases responsibility in the market because it is one of the preferred credit agencies of
the Islamic Development Bank. The fact that it provides transparency and information on
the laws that govern a broad range of industry sectors makes it especially pertinent.
IIRA’s formation can be advantageous to the public and private financial and economic
sectors because it assesses the danger presented by Islamic financial instruments and
materials and then outlines the best practices for business operations in this area.
To regulate the Islamic banking industry within the greater context of the international
financial system, the Islamic Financial Service Board (IFSB) was established. Help in
improving the quality of Islamic financial institutions that function in concert with the
current structure for banking, the stock markets, and special economic zones will help
achieve this goal (Abdul Rahman, 2010). This organization creates guidelines for using
Islamic currency, enabling a structure to be maintained regarding capital adequacy,
executive risk management, administration quality, and administrative audits.
In a similar vein, client security is of utmost importance. Hence Islamic finance has its
own particular set of regulations and standards. The buyer protection offered by IFIs is
founded on Shariah law, the body of law that serves as the foundation for Islamic finance.
The notion that it is against Islamic law to participate in agreements that include Gharar
and Mayer is one of the main grounds for IFIs to offer a money-back guarantee. Betting
is conducted on the outcomes of financial transactions that are believed to be complicated
theoretically or to have unpredictable outcomes. Because shared financial stability is
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
essential to Islamic financial institutions, such transactions are prohibited. Riba, or profit,
is also prohibited in Islamic banking. Putting these standards into practice in Islamic
financial institutions like banks.
1.9 Conclusion
The ideas and practices of Islamic finance are becoming increasingly important to
the efficient running of the global monetary system. The International Monetary Fund
(IMF) and the Islamic Banking Regulatory Framework should provide a framework for
managing and scrutinizing Islamic monetary foundations as the best way to address the
global development of Islamic money (IBRF). Islamic financial institutions, particularly
banks, are essential in ensuring the stability of the global economy and many various
regions’ currencies. The creation of internationally recognized standards for Islamic
money, like AAOIFI, is crucial in the context of accepting the expanding Islamic money
business. This is especially true when considering the vast and unique Islamic monetary
component.
2.1 References
Abdul Rahman, A. R. (2010). Shariah audit for Islamic financial services: The needs and
challenges. The Journal of Muamalat and Islamic Finance Research.
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Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Archer, S., & Karim, R. A. A. (2012). The structure, regulation and supervision of Islamic banks.
Journal of Banking Regulation, 13(3), 228-240.
Bank for International Settlements. (2006). Basel committee on banking supervision (BCBS).
International convergence of capital measurement and capital standards: a revised
framework. Bukair, A. A. A. (2019). Factors influencing Islamic banks’ capital structure
in developing economies. Journal of Islamic Accounting and Business Research.
Grais, W., & Pellegrini, M. (2006). Corporate governance and Shariah compliance in institutions
offering Islamic financial services (Vol. 4054). World Bank Publications.
Hassan, A., & Mollah, S. (2018). International Islamic Financial Infrastructure Institution: IIRA.
In Islamic Finance (pp. 309-313). Palgrave Macmillan, Cham.
Islamic Markets, 2. (2021). Shariah Supervisory Board. Islamic Market. Retrieved 13 October,
2022, from https://islamicmarkets.com/education/shariah-supervisory-board.
Kammer, M. A., Norat, M. M., Pinon, M. M., Prasad, A., Towe, M. C. M., & Zeidane, M. Z.
(2015). Islamic finance: Opportunities, challenges, and policy options. International
Monetary Fund.
Karapinar, A., & Dogan, I. C. (2015). An Analysis on the Performance of the Participation
Banks in Turkey. Accounting and Finance Research, 4(2), 24-33.
Khomsatun, S., Rossieta, H., Fitriany, F., & Nasution, M. E. (2021, March). Sharia Disclosure,
Sharia Supervisory Board and the Moderating Effect of Regulatory Framework: The
Impact on Soundness of Islamic Banking. In Recent Developments in Asian Economics
26 | P a g e
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
International Symposia in Economic Theory and Econometrics. Emerald Publishing
Limited.
Mohammed, S., Sha, N., & Uddin, M. A. (2017). Determinants of Islamic banks acceptance in
Oman. International Review of Management and Marketing, 7(1), 398-402.
Parashar, S. P. (2012). Sukuk Industry Development in the Bahrain Capital Market. In The
Islamic Debt Market for Sukuk Securities. Edward Elgar Publishing.
Podpiera, R. (2006). Does compliance with Basel Core Principles;2es bring any measurable
benefits? IMF staff papers, 53(2), 306-326.
Posner, E. A. (2015). How Do Bank Regulators Determine Capital-Adequacy Requirements?
The University of Chicago Law Review, 1853-1895.
Puri-Mirza, A. (2021). Worldwide: number of Islamic banks by type 2019 | Statista. Statista.
Retrieved from https://www.statista.com/statistics/1090895/worldwide-numberofislamic-banks-by-type/.
Shakdwipee, P., & Mehta, M. (2017). From Basel I to Basel II to Basel III. International Journal
of New Technology and Research (IJNTR), 3(1), 66-70.
Song, I., Oosthuizen, C., & Erbenova, M. (2021). Islamic Banking Regulation and Supervision:
Survey Results and Challenges. imfsg. Retrieved 27 December 2021, from
https://www.elibrary.imf.org/view/journals/001/2014/220/article-A001-en.xml.
Syariah, F. D. Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) Standar ;8Syariah No. 9 Tahun 2003. Pasal, 4(1), 7.
27 | P a g e
Kingdom of Saudi
Arabia
Ministry of Education
Saudi Electronic
University
‫المملكة العربية السعودية‬
‫وزارة التعليم‬
‫الجامعة السعودية‬
‫اإللكترونية‬
College of Administrative and Financial Sciences
Wardhany, N., & Arshad, S. (2012, November). The role of Shariah board in Islamic banks: A
case study of Malaysia, Indonesia, and Brunei Darussalam. In 2nd ISRA Colloquium.
Zins, A., & Weill, L. (2017). Islamic banking and risk: The impact of Basel II. Economic
Modelling, 64, 626-637.
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