The IFSB Releases the Islamic Financial Services Industry Stability Report 2017

Kuala Lumpur, 16 May 2017 – The Islamic Financial Services Board (IFSB) has released today the fifth edition of its annual Islamic Financial Services Industry Stability Report 2017 highlighting important developments in the growth, stability and other aspects of the Islamic financial services industry (IFSI).

The Report finds that despite subdued economic growth conditions and impact of new geopolitical developments, the global IFSI has been able to sustain its total assets value at approximately USD1.9 trillion in 2016. While the overall performance of Islamic finance in 2016 has been satisfactory, the industry needs to build long-term resilience amidst the prevailing era of weak growth and uncertainties. The Report illustrates areas that could be further strengthened across the broad sectors of the IFSI (banking, capital markets and takāful), many of which will require measured efforts by the national authorities to address the emerging risks.

Commenting on the release of the IFSI Stability Report 2017, Acting Secretary-General of the IFSB, Zahid ur Rehman Khokher, stated that “The issuance of the Islamic Financial Services Industry Stability Report 2017 comes during a time of growing external challenges for the financial system, including lower economic growth outlooks and global political uncertainties. While the Islamic financial services industry has, in many respects, withstood the challenging operating environment, it has however moved away from the double digit growth trajectory witnessed in previous years. This slowdown underscores the importance, more than ever, of strengthening the resilience of the Islamic financial system and addressing internal weaknesses and vulnerabilities through appropriate policy responses.”

The IFSI Stability Report 2017 covers a number of topics including:

• An overview of the IFSI, providing updates on trends and developments in the three main sectors of the Islamic financial services industry – the Islamic banking, Islamic capital market and takāful sectors.
• Assessment of the resilience of the Islamic financial system, which provides a technical analysis of selected soundness indicators for the three sectors, which allows the identification of main risk factors and vulnerabilities facing the Islamic financial services industry in the context of current global economic conditions, and highlights the relevant issues for policy planning and remedial initiatives by the industry stakeholders.
• Initiatives undertaken by international standard-setting bodies, highlights the initiatives and outcomes of work programmes undertaken by standard setters in the past year, as well as the implications of such reforms on the Islamic finance sector. It also reviews the progress of Prudential Standards, Working Papers and the Standards Implementation Survey 2016 undertaken by the IFSB to enhance the supervisory framework in facilitating the stability and soundness of the IFSI.
• Emerging issues in Islamic finance: The Report discusses two highly relevant issues that have attracted regulatory attention: (a) Stress testing for Islamic Banks: Essential Perspectives and Preliminary Empirical Insights, and; (b) Fintech and Islamic Finance, which focus on two areas that have attracted much attention – cryptocurrencies and crowdfunding.
• Box Article Contributions: The Report also features box articles contributed by (a) Bank Indonesia, on its financial sector development; (b) the International Monetary Fund (IMF), on bank stress testing, evolving practices and work in progress; and (c) the World Bank, on Financial Inclusion and Fintech, providing insights on the potential of financial technology in achieving the goal of universal financial access.

A key feature of this 2017 Report is that data from the IFSB’s Prudential and Structural Islamic Financial Indicators (PSIFIs) database is, for the first time, utilised for the Report’s Islamic banking sector analysis. The use of this data has enriched the Report by providing:

• strengthened reliability of data as it is sourced directly from regulatory and supervisory authorities;
• wider geographical coverage, with data covering 18 countries in comparison to 10 countries analysed in the 2016 Report;
• holistic coverage of each jurisdiction as the PSIFIs data covers the aggregated domestic Islamic banking sector including data of Islamic banking windows. Previous Reports had used sample data from selected full-fledged Islamic banks; and
• additional set of financial indicators, e.g. value of Sharīʻah-compliant financing by economic sectors, that are included in the PSIFIs database.

The IFSB’s IFSI Stability Report series, which was first launched in 2013, has become an important benchmark publication, providing an assessment of the growth, development and stability of the IFSI. The objectives of this flagship Report is anchored in the IFSB’s mandate to promote the development of a prudent and transparent Islamic financial services industry. Earlier IFSI Stability Reports have addressed, in addition to the growth, stability and resilience of the industry, a number of other key areas relevant to the IFSB’s mandate, including consumer protection; financial inclusion; responsible investment; the prospects and role of Islamic finance in Africa; cross-sectoral linkages and its implications for systemic stability; AML/CFT, and; the assessment of regulatory consistency in implementation of global prudential standards, among others.

The IFSI Stability Report 2017 is available for download from the IFSB website, www.ifsb.org.