A credible, consistent and accurate database for Islamic finance is important for the purpose of micro- and macro-prudential oversight of the Islamic financial services industry (IFSI).
Background and Objectives
The underlying purpose of the Prudential and Structural Islamic Financial Indicators (PSIFIs) project is to facilitate macroprudential analysis and to help assess the structure and state of development of the IFSI. While macroprudential analysis deals with the macroeconomic and institutional determinants of the soundness of the financial system, the analysis of the structure and development of the IFSI should help gauge its contribution to economic growth and the overall development of the financial sector. With these two purposes in mind, the there are five key objectives of the PSIFIs project :
- a. to facilitate the monitoring and analysis of the soundness and stability of the IFSI through a set of prudential, structural and financial strength indicators, as well as by fostering cooperation among central banks/monetary authorities and other relevant supervisory authorities;
- b. to support and help coordinate the formulation, development and enhancement of appropriate international prudential standards by the IFSB;
- c. to help promote the development of the IFSI as a vehicle for stimulating economic development and reducing disparities in economic progress between nations;
- d. to help strengthen transparency and international comparability of domestic IFSI in order to facilitate their integration into the international financial system through public accessibility to the PSIFIs and other published cross-country industry data in IFSB research reports; and
- e. to help ascertain the market shares of Shari`ah-compliant financial transactions, products and services as a percentage of the entire financial system, at both the national and global levels, so as to gauge the performance of the IFSI at any given time.
The importance of PSIFIs has increased in recent years with both the steady growth in Islamic finance and steps taken by the IMF to formally monitor Islamic finance in terms of surveillance and the application of core principles in the banking supervision of Islamic banks. Simultaneously, the United Nations (UN) has undertaken a review of how to best cover Islamic finance within its System of National Accounts. The broad scope of data compiled by the IFSB on the IFSI contributes to a better understanding of the role of Islamic finance in all the aspects mentioned above.
The aggregated data are compiled by the respective regulatory and supervisory authorities (RSAs) across different jurisdictions for Islamic banking, Takāful and Islamic Capital Market. Data are collected on a quarterly frequency. However, member countries have the flexibility to submit their data with lesser frequency, depending upon its availability in respective jurisdictions.
History of the PSIFIs Project
The Prudential and Structural Islamic Financial Indicators (PSIFIs) were created as a parallel system to the IMF Financial Soundness Indicators (FSIs) with appropriate adaptions for Islamic finance. Following the Asian Financial Crisis in the mid-1990s, the IMF began developing a set of indicators of the soundness of financial systems, called Financial Soundness Indicators, or FSIs. These indicators were intended to measure the strengths or vulnerabilities of financial systems as a whole as opposed to looking at the condition of individual banks. Two sets of FSIs were developed after an extensive period of consultation and development. The IFSB sought to compile a parallel set of indicators – Prudential and Structural Islamic Financial Indicators (PSIFIs) – to facilitate the monitoring and analysis of the soundness and stability of the IFSI in member countries while capturing information on the unique characteristics of Islamic finance. The IFSB reviewed the FSIs and developed its own indicators, drafted a Compilation Guide in 2007 that defined the methodology to compile the indicators, and carried out a pilot project with four countries. Later, the IFSB issued its Revised Compilation Guide in 2011 to incorporate the Basel II developments and corresponding IFSB standards.
In 2014, the IFSB moved into phase III of this project to start the collection and dissemination of data from a wider set of member countries on a regular basis. Accordingly, after the approval of the IFSB Council in March 2014, a Task Force for PSIFIs was established that comprises at least two country compilers from each participating jurisdiction, including multilateral institutions such as the IMF, ADB and IsDB. The Task Force on PSIFIs has updated the list of indicators for the Islamic banking sector included in the supplement to the IFSB Revised Compilation Guide 2011 after thorough deliberations to incorporate newly issued IFSB standards and global regulatory developments. Phase III also started compiling corresponding ‘metadata’ that describe the methodology and procedures used in each country to compile the indicators. A significant step of this phase was to initiate ‘capacity building’ for the task force member that aims at organising workshops for the country compilers to provide insight into the methodology and compilation practices of PSIFIs. These workshops facilitate a consistent understanding of the project’s data requirements and compilation procedures as well as help the participating countries improve their data collection and dissemination platforms for the Islamic banking industry.
In preparation for the regular compilation of PSIFIs, a Coordinated Compilation Exercise (CCE) was undertaken in each cycle, in which each country compiles a set of indicators for the same period (s) so that the data could be compared and analysed for consistency and reliability. The CCE permits countries and the IFSB Secretariat to test their procedures, evaluate results, and update data collection and dissemination methodologies, where needed.
Kicked off in 2017, Phase IV focused on the extension of the PSIFIs banking database to new reporting countries, as well as the continuation of the capacity-building activities with the PSIFIs Task Force. It also embarked on preliminary work on extending the coverage of the PSIFIs project to the Takāful and Islamic capital market (ICM) sectors and the revision of the PSIFIs Compilation Guide 2011 to include the Islamic capital market (ICM) and Takāful sectors. At the end of the phase, the compilation guide was revised adding guidance for Takāful and ICM sectors and a detailed financial statement (DFS) for the Islamic banking sector. The compilation guide was approved by the IFSB Council in its 35th meeting.
The IFSB commenced the Phase V of the project in 2020, which spanned until 2022. Under this phase, data collection on Islamic banking increased from 24 jurisdictions to 26 jurisdictions. In this phase, a total of 9 Takāful and 7 ICM sector regulatory and supervisory authorities (RSA) joined the PSIFIs project. Further, the secretariat initiated and continued collecting and disseminating the detailed financial statements (DFS) on Islamic banking and PSIFIs data on Takaful and Islamic Capital Market from the member countries.
The ongoing phase VI came into effect in January 2023 aiming at achieving a more comprehensive database by increasing its reach to more jurisdictions across Islamic banking, Takāful and ICM sectors. So far, 3 new RSAs from the Islamic banking sector, 2 RSAs from ICM and 1 RSA from the Takāful sector joined the PSIFIs project in this phase.
