Monetary and Banking Research Institute
Date:3/6/2019 8:59:43 AM   |   Code : 294277   |   View: 287

Sharia Supervision of Banks and Financial Institutions: Designing a Supervisory Model for Iranian Banks Based on the Views of Experts (2014)


Executive Summary

According to the  Article 1 of the Usury-Free Banking Act of Iran (1983), the first objective of the banking system is "the establishment of a monetary and credit system based on the rights and justice (with Islamic rules) in order to regulate the correct circulation of money and credit for the wellbeing and growth of the economy". Certainly, the grounds for the realization of such a goal are primarily the responsibility of the Central Bank, and thus it is necessary for the bank to provide monitoring grounds for the correct implementation of this law. But the study of the experience of the banking system of the country over the past three decades shows that supervision over the implementation of usury-free banking has not been well-suited, and despite all the progress made, there are still many challenges that necessitate the reform of the status quo.

The importance of this issue is better understood when paying attention to the fact that although the Islamic Republic of Iran is one of the few countries in which the law of usury-free banking (sooner than many countries) has been ratified and, unlike many countries, the Islamic banking system is implemented throughout the country, and the largest Islamic banks in the world are also active in Iran, the issue of monitoring the Islamic banking operations is not, as expected, supported. Therefore, it is a fact that after about three decades of passage of the law of Usury-Free Banking, some scholars, elites and the general public are still skeptical about the adaptation of banking activities according to the religious teachings. Regarding this, it seems to be necessary to use the experiences of Islamic banks in other countries in setting up and using different models of "Shari'a supervision", and present an appropriate regulatory model to monitor the Islamic performance of the banks of Iran, and then make it available to the Central Bank to be executed.

In this regard, the present research tries to elaborate a proper model and its necessary features for the banking system of Iran based on experts' views, while defining the Shari’a supervision and identifying its implemented patterns in other Islamic and non-Islamic countries. Furthermore, while examining the standards prepared by active international institutions such as the Islamic Financial Services Board (IFSB) and the Accounting and Auditing Organization of Islamic Finance Institutions (AAOIFI) in the field of Shari’a supervision, the prerequisites and requirements for the implementation of Shari’a supervision in the banking system of Iran are discussed, and draft of instructions, checklists and other required regulations are presented.

The findings of the present study provide the basis for a better implementation of the law of Usury-Free Banking through “Shari’a Risk Minimization” in the banking system and improving the level of "Compliance with the Shari'a" in banks’ performance.

The content of the research is that chapter 1 presents the general principles of the study and the 2nd chapter examines the characteristics of Islamic banking and the necessity of Shari’a supervision over the activities of Islamic financial institutions. Assessing the experience of Shari’a supervision on Islamic banks and Islamic financial institutions in different countries and comparing the patterns of Shari’a supervision are done in the 3rd and 4th chapters, respectively. Finally, in chapter 5, the desirable pattern of Shari’a supervision over the banking system in Iran, according to the views of experts, is extracted. In chapter 6, the prerequisites and requirements for the implementation of the Shari'a supervision model in the banking system of the country are examined and an example of the regulations necessary for the implementation of Shari'a supervision is presented. The final chapter provides discussion, conclusion and policy recommendations for the implementation of Shari'a supervision in the banking system of Iran. In this chapter, some questions are also offered for future research in this area.

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