The International Monetary Fund will include Islamic finance in its monitoring of financial sectors around the world, IMF Managing Director Christine Lagarde said on Wednesday, in a sign of the industry’s growing economic weight.
“We are keen to pursue this agenda and to further strengthen our policy advice by incorporating best practices for Islamic banking and finance into our surveillance work,” Lagarde told a conference on Islamic finance in Kuwait.
The IMF has traditionally focused on conventional banking. But last year it launched discussions with an external advisory group of Islamic finance experts and industry bodies, and this month it published a report on the impact of monetary policies on Islamic banking in Gulf countries.
Islamic finance, which bans interest payments and pure monetary speculation, has been growing faster than conventional finance and is estimated to have over $2 trillion of assets globally.
It has become important for financial systems in more than 10 countries, accounting for over 15 percent of total financial assets there, Lagarde said. Non-Muslim countries such as Britain and Luxembourg have begun to issue Islamic bonds.
She called on governments in the Gulf and southeast Asia to increase their issues of Islamic bonds in various maturities and to incorporate them into their debt management strategies, in order to provide better pricing benchmarks for a much wider range of issuers.
The IMF wants to encourage more consistency among countries in applying Islamic finance rules, fearing that conflicts among jurisdictions could stifle growth and create instability.
Lagarde said that to maintain a level playing field with conventional banks, Islamic lenders needed to adapt their capital requirements to account for their profit-and-loss- sharing models.
Countries with Islamic finance industries should harmonise tax treatment across jurisdictions and incorporate Islamic finance into international tax treaties, she told the conference, which was organised by institutions including the IMF and Kuwait’s central bank.