The International Monetary Fund (IMF) taking stock of the growing Islamic Finance market has already acknowledged the growth of Islamic Banking Industry on sound footings in Pakistan.
The recent IMF report on Islamic finance said that Islamic banking emerging as the most developed component of the industry.
Commenting on Kuwait’s Islamic banking industry the IMF said it has grown rapidly to become an important part of the domestic and global Islamic financial system. The country operates a dual system where Islamic and conventional financial institutions co-exist. The banking sector is the most developed part of the Islamic financial service industry and consists of full-fledged Islamic banks only, whereas Islamic windows are not permitted.
Other segments of the industry include investment companies, investment funds, insurance (Takaful), and reinsurance (ReTakaful) companies. The sukuk market has remained small and has been dominated by corporates issuing outside the country.
On the Sukuk segment of Islamic Finance IMF was of the opinion that the underdevelopment of Sharia-compliant financial markets and sukuk instruments continue to pose liquidity management challenges to Islamic banks.
Even with strong supervision, the scale and complexity of corporate structures of the larger Islamic banks could present challenges for risk management, supervision and resolution, because of the presence of non-financial corporations and cross border operations in countries with diverse legal and regulatory frameworks. Such corporate structures, though central to the business model of Islamic banks, can create potential for related-party lending as well as contagion from other parts of the group.