Islamic finance has potential to increase financial inclusion and spur inclusive growth, according to the International Monetary Fund (IMF).
"Islamic financial institutions sustained little damage in the global financial crisis, in contrast to conventional financial institutions," said an IMF survey report made available on its website on Sunday, Arab News reported.
"Because of the risk-sharing feature of Islamic finance, it is a less risky type of investment, which has potential to increase financial inclusion and spur growth," it added.
Commenting on it, IMF Deputy Managing Director Min Zhu stated: “We see Islamic finance as a potential engine for financial stability and growth.” He, however, suggested that regulation and supervision of Islamic financial products need to be developed properly.
Notably, the IMF recently released a paper on Islamic finance and plans to deepen its work in this area over the coming months.
The IMF survey also stressed the importance of job creation and inclusive growth in the Middle East region.
Rapid Growth, Benefits
Moreover, the international organization headquartered in Washington, DC, also organized a seminar on "Islamic finance: Unlocking its potential and supporting stability" during the IMF-World Bank spring meetings in the US capital, in which a panel of prominent officials discussed the rapid growth and benefits of Islamic finance and its considerable potential for further growth.
The panelists noted that Islamic financial institutions were largely unaffected by the global financial crisis because of the risk-sharing feature of Islamic finance and since Islam bans speculation, there must be a tangible asset underlying every transaction.
Addressing the seminar, Zeti Akhtar Aziz, Malaysia’s central bank governor and one of the panelists, underscored that Islamic finance is a form of financial intermediation that is highly attractive in an environment where investors are averse to risk.
Significantly, while Islamic finance is growing rapidly in Muslim countries, it is also attracting attention elsewhere, including many European countries.
Addressing the panel, Luxembourg Finance Minister Pierre Gramegna pointed that his country recently issued the first sovereign euro-denominated sukuk (Islamic bond). “We wanted to diversify and innovate our activities,” he noted.
Islamic finance has the potential to help meet the demand for infrastructure financing, particularly in debt-strapped countries where public financing for this type of development is not always available, and sukuk with its public-private partnership type features is well suited, observed panelist Ali Babacan, deputy prime minister of Turkey.
It also has the potential to narrow the financial inclusion gap in regions like the Middle East and North Africa.
Pledge Cooperation
Significantly, on the final day of the spring meetings, the IMF and the Arab Monetary Fund (AMF) signed a pledge to enhance their cooperation.
Under the agreement, the two institutions will continue to provide training opportunities to Arab officials, support the development of domestic capital markets in the Arab countries, and strengthen their collaboration on the Arabstat initiative, which aims to develop efficient statistical systems in the region.
The two institutions also plan to carry out joint analytical work and organize events on high-priority topics of mutual interest.
