Saudi Arabia’s central bank has joined an international standard-setting body for Islamic finance, a move that could help standardise industry practices and ease cross-border transactions in the Kingdom. The Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) said in a statement late on Sunday it had admitted the Saudi Arabian Monetary Agency (SAMA) as an institutional member.
Islamic products represent around half of banking system assets in the Kingdom, but the regulator doesn’t distinguish between Islamic or conventional banks and applies the same prudential standards to all of them.
Islamic finance follows religious principles such as bans on gambling and outright speculation, with interest-bearing products deemed off-limits. SAMA confirmed the move in a separate statement, without specifying whether it planned to make AAOIFI standards enforceable or if it would adopt all or some of them.
Saudi-based Islamic banks include Al Rajhi Bank and Alinma Bank, while National Commercial Bank is in the process of converting into a full-fledged Islamic lender. Saudi lenders remain domestically focused, but adopting AAOIFI standards could help them venture into other majority-Muslim countries. The Saudi government has also taken steps to tap into Islamic finance, issuing debut Islamic bonds earlier this year denominated in both riyals and U.S. dollars.