Islamic Finance and Conventional Financial Systems - Market Trends, Supervisory Perspectives and Implications for Central Banking Activity

77 Pages Posted: 8 Dec 2010

See all articles by Giorgio Gomel

Giorgio Gomel

Bank of Italy

Angelo Cicogna

Bank of Italy

Domenico De Falco

Bank of Italy

Marco Valerio Della Penna

Bank of Italy

Lorenzo Di Bona De Sarzana

Bank of Italy

Angela Di Maria

Bank of Italy

Patrizia Di Natale

Bank of Italy

Alessandra Freni

Bank of Italy

Sergio Masciantonio

European Union - European Commission

Giacomo Oddo

Bank of Italy

Emilio Vadalà

Bank of Italy

Date Written: October 12, 2010

Abstract

The paper analyses Islamic finance from the central bank and supervisory authority’s perspective, focusing on the European and Italian context. It depicts a rapidly expanding sector, with recent annual growth rates of between 10 and 15 percent and a geographical presence that now reaches several Western countries. Future prospects, however, could be hampered by problems concerning the standardization of products, governance structure, supervisory regulation, monetary policy instruments, and liquidity management. Islamic intermediaries are not necessarily riskier than traditional counterparts but their operational structure tends to be more complex. Key issues in supervision include the treatment of investment accounts and transparency. It has been seen that there are limits to the efficiency of the monetary policy instruments developed so far to remedy the prohibition of interest; moreover, the growth of interbank and money markets is hindered by a shortage of "Shari'ah-compliant" products. Problems arising from the participation of Islamic banks in payment systems are also discussed.

Note: Downloadable document is in Italian.

Keywords: Islamic finance, Islamic financial institutions, supervision, monetary policy instrments, payment systems

JEL Classification: G20, F39, Z12

Suggested Citation

Gomel, Giorgio and Cicogna, Angelo and De Falco, Domenico and Della Penna, Marco Valerio and Di Bona De Sarzana, Lorenzo and Di Maria, Angela and Di Natale, Patrizia and Freni, Alessandra and Masciantonio, Sergio and Oddo, Giacomo and Vadalà, Emilio, Islamic Finance and Conventional Financial Systems - Market Trends, Supervisory Perspectives and Implications for Central Banking Activity (October 12, 2010). Bank of Italy Occasional Paper No. 73. Available at SSRN: https://ssrn.com/abstract=1721518 or http://dx.doi.org/10.2139/ssrn.1721518

Giorgio Gomel (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy
+ 39 06 4792 2197 (Phone)
+39 06 4792 5521 (Fax)

Angelo Cicogna

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Domenico De Falco

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marco Valerio Della Penna

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Lorenzo Di Bona De Sarzana

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Angela Di Maria

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Patrizia Di Natale

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Alessandra Freni

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Sergio Masciantonio

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Giacomo Oddo

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Emilio Vadalà

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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