By Dr Mohammed Ghiyath Sheikhah
Islamic finance was evolved over the years to become the fastest growing industry in the world. A number of institutions have been established to set up rules, standard and regulation to govern all aspects of the industry.
The Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI), the International Islamic Rating Agency (IIRA), the Islamic Financial Services Board (IFSB) and the International Islamic Liquidity Management Corporation (IILM) are the major institutions among them.
In this article, I will shed a light on objectives and the duties of these organisations.
AAOIFI: The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is an Islamic international independent not-for-profit corporate frame that prepares accounting, auditing, governance, ethics and Shariah standards for Islamic financial institutions and the industry. It was established in 1990 and has created some 48 Shariah standards, 26 accounting standards, five auditing standards, seven governance standards, and two ethical standards.
IFSB: The Islamic Financial Services Board (IFSB) is an international organisation that issues guiding principles and standards within the banking, insurance and capital market sectors in order to promote stability in the Islamic financial services industry. The IFSB also conducts research and coordinates initiatives on industry related issues, as well as organises roundtables, seminars and conferences for regulators and industry stakeholders.
IFSB is based in Kuala Lumpur, and started its operations in early 2003. It has published some 16 standards, five guidance notes and one technical note.
IIFM: The International Islamic Financial Services Industry’s standard setting organisation focused on the Islamic Capital & Money Market (ICMM) segment of the industry. Its primary focus lies in the standardisation of Islamic financial products, documentation and related processes at the global level.
Existence of IIFM is solely to work with the industry for the Islamic finance industry, by standardising documents and providing guidance notes to creating a transparent and level playing field that the regulators and legal and risk managers can take comfort. IIFM standards provide full package that includes legal document/guidance notes.
IILM: The International Islamic Liquidity Management Corporation (IILM) is an international institution established in 2010 by central banks, monetary authorities and multilateral organisations to create and issue short-term Shariah-compliant financial instruments to facilitate effective cross-border Islamic liquidity management.
By creating more liquid Shariah-compliant financial markets for institutions offering Islamic financial services (IIFS), the IILM aims to enhance cross-border investment flows, international linkages and financial stability.
The current shareholders are from the central banks and monetary agency of Indonesia, Kuwait, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Turkey, the United Arab Emirates and the Islamic Development Bank. IILM has issued $1.5bn sukuk for short term (three months).
IIRA: The Islamic International Rating Agency (IIRA) is the sole rating agency established to provide capital markets and the banking sector in predominantly Islamic countries with a rating spectrum that encompasses the full array of capital instruments and specialty Islamic financial products.
IIRA is a unique rating agency in that it provides a Shariah quality rating, credit rating, corporate governance rating and sovereign rating services.
IIRA started operations in July 2005 to facilitate development of the regional and national financial markets by delineating relative investment or credit risk, providing an assessment of the risk profile of entities and instruments.
This should be an integral part of the decision process employed by institutional investors.
Dr Mohammed Ghiyath Sheikhah is head of Investments at International Islamic. The views expressed are his own.
