How Does Islamic Banking Fit into IFRS Regulations?

Abstract

Current debates around Islamic Banking and necessary regulatory reforms as a result of the financial crisis take place on both ends of the complexity scale. On the one hand, high level statements are shared by the media, or through political speeches. On the other hand, technical papers are published, and brought to public’s knowledge through the web, where real expertise is required.The purpose of this research is to draw a landscape of the current Islamic Banking Capital Markets, how they cope with regulations which, to start with, were designed for conventional banking, and how the evolving Accounting Standards may constitute in fact for them an opportunity to be better understood and taken care of.When specialization is ever more acute, and the goal a moving target, we are trying to bridge the gap between several problems, detect possible pain points and quick wins on the road to universally understood concepts such as credit risk, or valuation of structured instruments.By choosing a multiform, transversal approach, and illustrating the concepts and issues through the precise example of the Nakheel ‘Sukuk’ issued in 2006, we are hoping that, humbly, we will contribute to answer the question that IASB raised in notes of the Standards Advisory Council June 2009: "Accounting for Islamic banking transactions: how do these transactions interact with IFRSs and should standards be developed based on a specific industry?"