As of the end of last year, Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has issued 45 Shari’ah standards, 26 accounting standards, seven governance standards, five auditing standards, and two codes of ethics. IPA interviews Khairul Nizam, deputy secretary general, about what happens next.

What trends are most exciting in Islamic finance at the moment?

KN: One thing we have found quite interesting is the possibility of REITs in Islamic finance. REITs have been done quite substantially in the conventional space, and there are some pockets of Islamic finance REITs around the world, but we are seeing more and more interest from investment banks and asset managers who are trying to structure the Islamic REIT.

What new developments are taking place at AAOIFI?

KN: One development last year was the establishment of the Islamic Inter-Bank Benchmark Rate, which is essentially similar to Libor for the conventional banks. We get the risk contribution from 16 of the largest Islamic banks in the world, to tell us what the cost of funding is, and based on that we come up with the benchmark rate and indicate to the industry what the cost of funding really is. We’ve been working with Thomson Reuters and the Islamic Development Bank.

What about standards?

We are doing the revision on the accounting standards of investment funds. We will be releasing a consultation note on the revision in the next few weeks. We want information to be made quite transparent, because in the case of off balance sheet investment funds, the investment risk is taken by the investment fund holders.

What about concerns about harmonisation and standardisation?

Throughout the world there are various ways of adopting the standards. There are a handful of jurisdictions that have made it a regulatory requirement. In other cases Shari’ah standards have not been incorporated into any financial jurisdiction. Despite this, AAOIFI has actually been followed by almost all the leading Islamic banks in the world. We work with Shari’ah departments and scholars. We are trying to do a lot more engagement with the investment management part of Islamic finance to make sure our standards can be adopted by them too. Hopefully that can be done and hopefully we can come up with a lot more standards to guide investment management.