Supporting institutions, Organizations, Central banking

Supporting institutions

The Islamic Interbank Money Market was established by Bank Negara Malaysia on 3 January 1994, and has developed instruments to manage the liquidity needs of the Islamic financial institutions -- "funding and adjusting portfolios over the short term".^[222] The Islamic Financial Services Board was founded on 3 November 2002 at Kuala Lumpur by central banks of Bahrain, Iran, Kuwait, Malaysia, Pakistan, Saudi Arabia, Sudan along with the Islamic Development Bank, AAOIFI, and IMF.^[222] As of April 2015, the 188 members of the IFSB comprise 61 regulatory and supervisory authorities, eight international inter-governmental organisations, and 119 market players (financial institutions, professional firms and industry associations) operating in 45 jurisdictions.^[224] From 2002 to 2012 it issued 17 standards, guiding principles and notes.^[225] Its objective is to standardize and harmonize the operation and supervision of Islamic financial institutions, standards and capital adequacy, risk management and corporate governance in consultation with a wide array of stakeholders and after following a lengthy process. It complements the task of the Basel Committee on Banking Supervision.^[222] As of 2015 it had published 17 standards and six guidance notes.^[226] Islamic International Rating Agency started operations in July 2005 in Bahrain. It is sponsored by 17 multilateral development institutions, banks and other rating agencies.^[227][228] The Dow Jones Islamic Market Index (DJIMI) was established in 1996.^[229] The Index has been approved by Fiqh Academy of the OIC.^[230] It uses three levels of screening—eliminating businesses involved in activities not allowed by Islamic law (alcohol, pork, gambling, prostitution, pornography, etc.); eliminating companies whose total debts divided by their 12-month average market capitalization are 33% or more of their total sources of funds; eliminating companies that have `impure income or expenditure` (including, of course, interest) of more than 5-10 per cent of their income or expenditure (eliminating businesses with any `impure income` being considered impractical).^[228] In 2006, Citigroup launched the Dow Jones Citigroup Sukuk Index. The sukuk making up the Index must be at least $250 million in size, have a maturity of at least one year and a minimum rating of BBB-/Baaa3.^[228] In 1998, the FTSE Global Islamic Index was launched. It has 15 Islamic indices for various regions.^[228] In 2007, the MSCI Islamic Index series was launched, one of the "MSCI ‘Faith-Based’ Indexes". It is constructed from the conventional MSCI country indices and covers 69 developed, emerging and frontier markets, including regions such as the Gulf Cooperation Council and Arabian markets.^[228]

Organizations

The "most prominent" research and training institutions listed in alphabetical order, "exclusively devoted to Islamic economics and finance", according to Muhammad Akram Khan are:^[231][232]

• Islamic Economic Institute, previously Islamic Economics Research Centre, and before that International Centre for Research in Islamic Economics, King Abdulaziz University, Jeddah, (Saudi Arabia)
• Islamic Research and Training Institute (IRTI), Islamic Development Bank (IDB) Jeddah, (Saudi Arabia)
• School of Islamic Islamic Banking and Finance, previously International Institute of Islamic Economics, Islamabad, (Pakistan) (IIUI),
• Institute of Islamic Banking and Insurance, London (UK)
• International Centre for Education in Islamic Finance (INCEIF), Malaysia
• Islamic Finance Training, Kuala Lumpur
• Ethica Institute of Islamic Finance, Dubai
• Islamic Finance Academy, Dubai
• Centre for Islamic banking and Finance Training, Kuala Lumpur
• Institute of Islamic Finance, London (UK)
• Islamic Finance Advisory and Assurance Services, Birmingham (UK)
• Islamic Finance Institute of South Africa
• Centre for Islamic Finance of Bahrain, Institute of Banking and Finance (BIBF)
• Centre for Banking and Financial Studies, Qatar

Central banking

Although no Muslim country has yet banned interest on loans completely, suggestions have been made as to how to deal with monetary policy when central banks operate in an interest-free environment and there are no longer any interest rates to lower or raise. Economist Mohammad N. Siddiqi has proposed that central banks offer "refinance facilities" to expand or contract credit as needed to deal with inflation or deflation.^[233][234] He also proposes that short term credit for the production sector of the economy, be estimated by the central banks and the provided by them by manipulating the “refinance ratio” and the “lending ratio”.^[235][236] According to economist and Islamic finance critic Feisal Khan, a "true" or strict Islamic banking and finance system of profit and loss sharing (the type supported by Taqi Usmani and the Shariah Appellate Bench of the Supreme Court of Pakistan) would severely cripple central banks' ability to fight a credit crunch or liquidity crisis that leads to a severe recession (such as happened in 2007-8). This is because if credit was provided by taking "a direct equity stake in every enterprise" (the PLS approach) it would contract in a credit crunch. But situations like this — when financiers are "less and less sure of the creditworthiness of their financial sector counterparties" and essentially stop lending to even the biggest and most stable borrowers or even other banks — is exactly the time when credit expansion and "flooding" the economy with liquidity is needed to prevent widespread business bankruptcy and unemployment.^[237]