AAOIFI 24th Annual Shari’ah Boards Conference

Executive summary

The conference focused on how Islamic finance can move from growth in assets and geographic reach toward stronger real-economy impact. The main business themes were building an asset-backed, risk-sharing model; integrating AAOIFI standards into national rules and operations; developing professional capacity; and clarifying how Islamic financial institutions can participate in complex financing arrangements.

Industry strategy and operating model

• Scale is growing, but the current model has structural limits. The keynote estimated Islamic finance assets at about US$5 trillion in Q3 2025, growing at roughly 13.5% annually. Banking represented about 70% of assets, while capital markets—particularly sukuk—accounted for roughly 21.8%.
• The industry operates in more than 80 countries. In 16 regulatory jurisdictions, Islamic banks hold more than 15% of banking-sector assets. The keynote projected assets could approach US$10 trillion by 2029, assuming annual growth of at least 10%.
• Strategic diagnosis: Growth has been concentrated in banking, with substantial use of debt-based structures such as murabaha and tawarruq. Funding is often directed toward lower-risk sovereign instruments, real estate, and consumer finance, while productive sectors such as industry and agriculture receive less.
• Proposed shift toward an integrated, asset-based system:
  1. Banks originate financing tied to real economic assets and activity.
  2. Islamic capital markets and investment vehicles price, distribute, and diversify the resulting risks.
  3. Long-term institutional investors—including pension, takaful, and sovereign wealth funds—hold assets and provide more stable capital across economic cycles.
• The keynote also identified zakat and endowment assets as potential sources of broader social and economic capital, estimating annual zakat cash flows at about US$600 million globally and endowment assets at more than US$1 trillion. The emphasis was on giving these pools a stronger institutional role.
• Management implication: Increasing balance-sheet size alone is unlikely to produce substantial economic transformation. The proposed next stage requires changes to market structures, regulation, capital and liquidity frameworks, and the allocation of risk.

National implementation examples

Somalia: Building the legal, supervisory, and operational foundations

• Somalia’s 2025 financial-institutions law strengthened the Central Bank’s licensing and supervisory authority. Article 55 requires an accounting framework for Islamic financial institutions aligned with AAOIFI and provides for a Sharia-board framework aligned with relevant principles.
• A 2025 takaful law established a basis for licensing and supervising operators. The Central Bank reported work on capital, solvency, financial reporting, governance, and supervisory arrangements.
• Non-deposit-taking microfinance providers were brought into a formal licensing framework, with the aim of expanding Sharia-compliant finance for small traders, women-owned enterprises, entrepreneurs, and underserved customers.
• Reported financial-sector metrics:
  • Commercial-bank assets were about US$2.4 billion as of June 2026, up approximately 14% year over year.
  • Private-sector credit grew about 20% in the first half of 2026.
  • The sector’s aggregate capital-adequacy ratio was approximately 16.2%.
  • Mobile-money transaction value rose from US$7.1 billion in 2021 to US$13.4 billion in 2025.
  • Transactions through national payment systems reached about US$2.5 billion in 2025.
• Implementation playbook: The Central Bank described a phased approach combining clear regulatory expectations with staff training, institutional readiness, and supervisory follow-up. Implementation will require changes to charts of accounts, reporting templates, banking systems, and contract-level information.
• Other operational priorities include a financial-sector data warehouse, credit-information and collateral-registration systems, electronic customer verification, cybersecurity, and fit-and-proper assessments.
• Key lesson: Sharia approval needs to remain consistent through the full operating chain—contracting, execution, accounting, review, and audit—not just at the product-approval stage. Somalia also highlighted the need for technical expertise, support for smaller providers, and guidance in local languages.

Nigeria: Standard integration, skills, and institutional partnership

• Nigeria’s Financial Reporting Council described a national framework for integrating relevant AAOIFI standards into its financial-reporting architecture. A technical working group includes the Central Bank, securities regulator, and insurance regulator.
• The stated approach is to adopt, adapt, or supplement standards in coordination with existing laws and sectoral rules, rather than importing them wholesale.
• The Council emphasized that Islamic contracts—including murabaha, mudaraba, musharaka, ijara, and sukuk—have distinct contractual and reporting characteristics. Standards therefore need to match the transactions and support appropriate disclosure, governance, and assurance.
• An MOU with AAOIFI is intended to support technical cooperation, professional development, research, and education. Proposed activities include training, certification, train-the-trainer programs, technical assistance, and university curricula.
• Nigeria proposed a Center of Excellence for Islamic Financial Reporting to support training, research, certification, policy development, and regulatory capacity, with the ambition of becoming a knowledge hub for Africa.
• Success measure: The speaker said progress should be judged by implementation quality and credible financial reporting—not simply by the number of standards adopted. The MOU is intended to be translated into a plan with measurable deliverables, institutional engagement, monitoring, and technical and financial support.

AAOIFI’s organizational priorities

AAOIFI’s Secretary General reported that:

• AAOIFI had issued 131 standards, including 60 Sharia standards.
• Standards had been adopted, adapted, or used as guidance in more than 50 regulatory jurisdictions across more than 40 countries.
• The organization had a core team of about 25 full-time employees, supported by more than 450 volunteer experts.
• Its capacity-building programs had nearly 4,700 fellows; the subtitle’s country-count figure is unclear.
• AAOIFI had revamped its capacity-building programs and was expanding e-learning and hybrid training, with 20-plus workshops planned. Some workshops and forums are aimed specifically at regulators.
• A beta digital platform for accessing and researching standards had been launched for selected users. AAOIFI said it planned to add AI capabilities to help users understand and implement standards.
• The Secretary General stressed that standards do not become effective through publication alone: regulators, market discipline, voluntary adoption, and professional capability all contribute to implementation. AAOIFI also described expanding its global presence beyond Bahrain.

Conference frameworks and practical playbooks

Phased standards implementation

1. Set clear regulatory requirements.
2. Assess each institution’s readiness.
3. Update systems, accounts, and reporting processes.
4. Train supervisors, Sharia-board members, accountants, auditors, and internal teams.
5. Monitor application through supervision and audit.

Legal harmonization

• Speakers discussed several routes: changing laws, making standards legally binding, drafting compatible contracts, or using arbitration with agreed Sharia references.
• Bahrain was cited as an example where a legal framework directs disputes involving Islamic financial institutions toward Sharia standards.
• The discussion favored clearer legal drafting and standardized model contracts. Participants differed on how reliably arbitration alone resolves conflicts with mandatory local law.

Direct-cost controls for lending

• The session emphasized that fees on lending should be limited to actual direct costs, not become a source of return on the loan.
• Costs to exclude included the cost of funds, missed investment opportunities, expected credit-loss provisions, and general overhead. The treatment of staff and shared operating costs was debated, especially where institutions allocate costs internally.
• When measuring each loan’s cost individually is impractical, speakers considered a reasonable, evidence-based estimate across comparable loans or a portfolio. They stressed transparent calculations, documentation, and auditability rather than arbitrary percentages.
• A proposed next step was more detailed technical guidance—potentially developed jointly by Sharia and accounting experts—to define eligible cost items, calculation methods, and verification controls.

Two-part syndicated financing: “material-link” test

• Researchers distinguished neutral administrative coordination from direct participation in conventional interest obligations.
• Their proposed test asks whether the Islamic financing remains valid, enforceable, and economically independent if the conventional participant is removed.
• The discussion called for independent Islamic contracts, rights, funds, and cash flows; clear limits on agents’ roles; and ongoing Sharia review through execution and enforcement.
• Researchers raised particular concerns about Islamic institutions arranging, guaranteeing, or administering conventional financing, or allowing Islamic assets and guarantees to support conventional debt. Commentators differed on some agent and collateral scenarios; the transcript ends during this session’s discussion.

Presenters and sources

• Keynote: Sheikh Ibrahim bin Khalifa Al Khalifa, Chairman of the AAOIFI Board of Trustees.
• Opening addresses: Dr. Ali Yassin Sheikh, Deputy Governor of the Central Bank of Somalia; Dr. Rabiu Olu, CEO of Nigeria’s Financial Reporting Council; and Professor Omar Mustafa Ansari, AAOIFI Secretary General.
• Session 1 — Harmonizing Sharia standards and legal systems: Chaired by Dr. Walid Hijazi; speakers included Sheikh Dr. Abdul Latif Mahmoud Al Mahmoud, Sheikh Professor Dr. Sayyid Muhammad bin Abdul Razzaq Al-Tabtabai, and Sheikh Professor Dr. Yusuf bin Abdullah Al-Shubaili. Other contributions included Dr. Ali Al-Sartawi and Dr. Rami.
• Session 2 — Actual direct cost of lending: Papers by Dr. Muhammad Ali Al-Qari, represented by Dr. Othman bin Zahir, and Sheikh Dr. Ayachi Sadek Faddad. Commentators included Sheikh Dr. Nizam Al-Yaqubi and Sheikh Dr. Muhammad Abdul Rahman Al-Dhuwayni.
• Session 3 — Two-part syndicated financing: Chaired by Sheikh Professor Dr. Abdul Rahman bin Muammar Al-Sanusi. Researchers were Sheikh Dr. Ashraf Mohamed Hashem, Professor Dr. Amir bin Shaharuddin, and Dr. Yusuf bin Sultan Al-Hawas; commentators included Sheikh Professor Dr. Yusuf bin Abdullah Al-Shubaili and Sheikh Dr. Asid bin Muhammad Adib Al-Kilani.
• Source: AAOIFI’s 24th Annual Shari’ah Boards Conference. The subtitle transcript contains apparent auto-caption errors, so figures and some names may require verification.