MANILA, PHILIPPINES - The Asian Development Bank (ADB) will help grow access to Islamic finance in Afghanistan, Bangladesh, Indonesia, and Pakistan with a $750,000 technical assistance (TA) grant to help implement prudential standards developed by the Islamic Finances Services Board (IFSB).
"Islamic finance can provide access to the unbanked and promote financial stability through development of an alternative asset class. This can help diversify the finance sector in developing Asia," said Sani Ismail, Financial Sector Economist at ADB.
Islamic finance refers to financial transactions that are consistent with sharia (Islamic law), resting on principles such as the materiality of transactions and mutual risk sharing. It includes banking, takaful (Islamic insurance) and sukuk (Islamic financial certificate). Interest in Islamic finance has grown steadily, despite the downturn in the global financial crisis, with estimates that Islamic banking assets globally will reach $1.1 trillion in 2012.
In response to requests for assistance from the governments of Afghanistan, Bangladesh, Indonesia, and Pakistan, the TA grant will be used, amongst others, to develop an e-module platform to build capacities of officials in those countries on prudential standards developed by IFSB. Bank Negara Malaysia has agreed to share their experience in implementing standards to assist their regional peers.
An action plan will also be drawn up to develop Islamic capital markets in participating developing countries. The plan will focus on harmonizing disclosure requirements of Islamic capital markets products; developing Islamic collective investment schemes; and recommending tax treatment of Islamic capital market products.
ADB and IFSB have successfully implemented two regional technical assistance grants. However, this is the first technical assistance provided to support Islamic finance following the recent signing of a Memorandum of Understanding between ADB and the IFSB. This TA grant is funded by the Government of Luxembourg's Financial Sector Development Partnership Fund and the Republic of Korea e-Asia and Knowledge Partnership Fund, both to be administered by ADB.