Ifsb

Key Takeaways

• The IFSB promotes stability in Islamic banking with global standards and Shariah compliance.
• Established in 2003, the IFSB is based in Malaysia and supported by central banks.
• It has 188 members, including regulatory authorities and financial institutions worldwide.
• The IFSB prohibits interest, speculative investments, and activities against Shariah law.
• Membership benefits include technical support, voting rights, and event participation.

What Is the Islamic Financial Services Board (IFSB)?

The Islamic Financial Services Board (IFSB) is an international standard-setting organization that promotes the soundness and stability of Islamic banking. It issues global prudential standards and guiding principles for capital adequacy, corporate governance, risk management, and transparency, and more. Islamic banking doesn't allow interest. Furthermore, it avoids speculative ventures and businesses that conflict with Shariah law.

The IFSB was established in Malaysia in 2003 by central banks and the Islamic Development Bank. It has 188 members, including regulatory authorities and financial institutions. Membership benefits include technical assistance, voting rights in the General Assembly, and access to events and meetings.

Understanding the IFSB's Structure and Roles

The Islamic Financial Services Board (IFSB) is based in Kuala Lumpur, Malaysia, and began operations in early 2003. It was founded by a consortium of central banks and the Islamic Development Bank, with the goal of promoting the awareness of issues that could have an impact on the Islamic financial services industry. It issues Sharia-compliant standards, holds conferences and seminars, and provides guidance and supervision, among other initiatives.

While IFSB standards are mainly concerned with the identification, management, and disclosure of risk related to Islamic financial products, another Islamic financial standards organ, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), sets best practices for handling the financial reporting requirements of Islamic financial institutions.

The ISFB consists of:

The general assembly, which includes all members of the ISFB

The council, which acts as the policy-making body of the IFSB and includes the senior executive of each full member of the organization

The executive committee that advises the council on operational and administrative matters

The technical committee, which advises the council on issues and consists of up to 30 persons appointed by the council

The working group, which drafts standards and guidelines and reports to the technical committee

The task force that manages ad-hoc activities.

The Arabic Editing committee that translates ISFB documents from Arabic into English

The secretariat, which acts as the permanent administrative body and is headed by a secretary-general appointed by the council1

Types of IFSB Memberships and Their Benefits

As of June 2022, the IFSB has 188 members, which consists of 81 regulatory and supervisory authorities, 10 international inter-governmental organizations, and 97 market players that consist of financial institutions, professional firms, industry associations, and stock exchanges.2

There are three types of memberships that an entity can apply for: full membership, associate membership, or observer membership. Benefits to membership include receiving technical assistance, voting in the General Assembly, participating in workshops, roundtables, seminars, and conferences, and access to events and meetings.3

How Islamic Banking Shapes the IFSB’s Mission

The need for the Islamic Financial Services Board (IFSB) arises from Islamic banking, which is banking and other financial services that adhere to the religion of Islam. This is known as prescribing to shariah law. There are certain tenets to shariah law that make Islamic banking vastly different from the traditional ways of banking; those that are commonly associated with the west.

These differences create the need for a body such as the IFSB to implement, update, and monitor Islamic banking standards around the globe, particularly in a time when Islamic banking, mainly from the Middle East, has become so prominent. Wealthy Islamic countries, such as the United Arab Emirates and Qatar, conduct significant business with western countries and must adhere to shariah law and this needs to be conveyed and complied by with western firms as well.

The main aspects in Islamic law that require attention are the prohibition of charging interest on borrowed money, involvement in businesses that go against Islamic law, such as gambling and alcohol, and business practices that are uncertain. Therefore, uncertainty, and gambling for that matter, would prohibit any speculative trading, where the future outcome is not known.

Islamic banking has found ways around shariah law, for example, interest is included as part of the overall price of a transaction or is conducted through equity sharing plans.