The Iranian Association of Islamic Finance (IAIF) held the 9th Islamic Finance Conference in cooperation with universities and seminaries, banks, insurance companies and the country's capital market on the 4th of March, 2024.
At this conference, researchers presented their latest achievements in the field of Islamic finance from the perspective of banks, insurance and stock exchange, and senior economic officials of the Islamic Republic of Iran will give speeches. Also, the best Islamic finance research/book award in real and legal sections, doctoral thesis, master's thesis, DBA thesis of DBA are appreciated.
The main theme of the conference is the development of the Islamic finance industry with emphasis on inflation control and production growth.

Sub Themes
• Interaction and synergy of Islamic financial markets (money, capital and insurance) to curb inflation and focus on production growth
• The capacity of Islamic financial services in financing entrepreneurship (with emphasis on knowledge-based companies)
• Regulation and supervision in Islamic financial markets for inflation control and production growth
• Islamic financial innovations and technologies and their role in inflation control and production growth
• Obstacles and challenges of the Islamic finance industry in financing production
• Islamic financial instruments and financing of enterprises
• The effects of inflation on the performance of the Islamic financial services industry
• The role of the Islamic finance industry in financial stability
• Islamic finance industry and chain finance
• The function of the money market in creating or curbing inflation
• Global business of Islamic finance
• Islamic financial instruments and inflation

Dr. Ehsan Khandouzi, Minister of Economic Affairs and Finance
He said at the beginning of the 90s (2012-2022), we had little lags with Islamic countries in financial industry issues, but in 2023, we ranked third in Islamic finance indicators, and despite several years of stagnation in developments, instruments and institutions in the field of financial industry, the meetings and conferences of the Iranian Association of Islamic Finance (IAIF) can be untangling.
I believe that the country should use more of this elite capacity (IAIF).
The Minister said that we need the practical proposals of the Iranian Association of Islamic Finance, stressing my specific proposal is to form a joint working group with the presence of representatives such as the Deputy Minister of Economy, the Central Bank, the Stock Exchange and other parties involved in financing, with the presence of the Association's representative to adopt a policy based on the proposals presented in this working group.

Dr. Gholamreza Mesbahi Moghadam, Chairman of Shariah Council of Central Bank of Iran

He said the Islamic financial industry directly affects the growth of production and directs maximum Islamic financial resources towards production.
He mentioned I am pleased that today's Islamic finance is very different from what it was at the beginning of the revolution. Today, Islamic finance has grown and become powerful, which is spreading at the national and international level.

He went on to say that financial resources should be directed towards productive works, underling that if this issue is realized, the leakage of resources to the stock market and speculation will be prevented and it will be effective in curbing inflation. Indeed, Islamic financial instruments work in this direction.
She touched upon that the Islamic financial industry directly affects the growth of production. In this regard, instruments such as GAM bonds can help the production chain, Wadiah bonds can control inflation, Islamic treasury bills can be used for the repayment of the government's registered debts to the non-government sectors and also as an interbank market instrument between banks and the central bank, and the Islamic repurchase agreement (repo) contract is used to apply the open market policy and interbank exchanges and prevent borrowing from the central bank.

At the end he stated that currently, 27 Sharia inspectors are in 27 banks of the country. The presence of Sharia inspectors has led to the expansion of Islamic banking training among bank managers and employees, and has also caused the projects launched by banks to be supervised by them. If there is an unclear issue in terms of Sharia, it is referred to the Shariah Council of the Central Bank to be reviewed and revised.

Dr. Ali Ostad Hashemi, General Manger, Central Insurance of Iran

He said although Iran's insurance industry is more than 85 years old, it has not been able to grow in balance with other markets in these years, stressing unfortunately, Islamic finance is still not accepted among some professors as a scientific field that has the ability to work in the global and domestic financial industry.
He emphasized that the fact that we use Islamic finance in the society's economy today is the result of the efforts of the founders of the Shariah Committee of the Security and Stock Exchange Organization and the Iranian Association of Islamic Finance (IAIF) and other researchers in this field, so it changed the intellectual paradigm.

He stressed that in the current economic conditions of the country, we should finance in a way that we are not so dependent on foreign countries, mentioning the situation is to use localized financing instruments. Our country's economy is more money-oriented, and the more we can eliminate this imbalance and move the economy towards financing from the capital market, the more success will be achieved in curbing inflation.
He said in the insurance industry, we are trying to establish a strong and reliable relationship between the insurance industry and the money and capital markets. The design and development of instruments between "stock exchange and insurance" and "banking and insurance" can definitely contribute to the growth of the real economy.
He added in the insurance industry, we need to do two things at the same time.
The first step is the property insurance and individual credit, in which we try to design different products to meet all the insurance needs of individuals and cover the risk of any type of activity in the market. Usually, insurance companies undertake a part of the risk and leave a part to reinsurance or large international insurance companies. The great thing that has been done in the insurance industry of our country is that by employing the internal capacity, all the major industries of the country have insurance coverage and all the power plants, refineries and large production companies are covered by insurance.
Also, the establishment of Comprehensive Reinsurance Company is in progress. We are considering that all the industries of the country will become shareholders of this reinsurance company, and instead of keeping the risk only in the insurance industry, this Comprehensive Reinsurance Company will collect the risk and distribute it in the capital market and industries as well.

At the end he said the second step is to invest the premiums that are normally received from insurers through certain instruments that are defined.This action will have a significant impact on curbing inflation, because investments can be directed to the productive sector of the economy. We also connected life insurances to gold funds and provided conditions for insurance companies to invest in knowledge based companies.

Domestic Panel on Inflation Control and Production Growth

Dr. Seyed Ali Hosseini, Member of the Board of Directors of the Iranian Association Of Islamic Finance and also the manager of the panel , Dr. Seyed Ali Rohani, Head of Economic Policy Department of the Ministry of Economy, Dr. Hossein Meysami, Secretary of the Shariah Council of the Central Bank, Dr. Rahnama Roudposhti, Secretary General of the Financial Engineering Association, and Dr. Taghi Nataj, Member of the Board of Trustees of the National Development Fund were are the panelists.

Dr. Roudposhti said an important economic instrument in the field of monetary policy is the interest rate, we must know the economic capacities of the country and the real needs of business development. You can't have a zero-one view of this issue and under the pretext of curbing inflation, reduce the access of economic enterprises to financing. The interest rate in our economy is itself a factor in creating inflation.
He added when we intend to determine the interest rate in the monetary policy sector, we must pay attention to several factors including money volume, investment capacity in the economy and conventional business practices.
Dr. Roudposhti stressed that for determining the interest rate in we should also pay attention to the financial policy section. The closer these two parts are, the better the result will be. The consequence of paying attention to the financial sector of the economy is to increase investment and create employment.Moreover, financial prosperity requires financial resources and the increase in financial resources can lead to the escalation of inflation. Capacity building in the economy means investment and production boom.

Taghi Nataj said privatization of the banking industry is one of mistake strategies that should be corrected as soon as possible. The second mistake was imposing the costs of the public sector of the economy on the private sector of the economy.
He mentioned that tax is levied on our non-performing banks, which leads to the aggravation of unhealthy liquidity.

Non-performing banks are fined 34% for overdrafts from the central bank, which is unhealthy liquidity and an unacceptable tax expense.

Dr. Meysami mentioned that very important approvals were approved and implemented by the Shariah council of the central bank in order to support production. Since 2019, our country has found an Islamic monetary policy instrument practically, that is the repo in accordance with Sharia and the tool of depositing.
He added the approvals of the Shariah council of the Central Bank have been directly effective in curbing inflation and production growth, because central banking technology is basically a platform for curbing inflation and production growth.
Dr. Seyed Ali Rohani stated that the Ministry of Economy has a set of tax, insurance and customs instruments to help finance and other project requirements.

We can develop intermediate institutions and help facilitate large knowledge-based projects in cooperation with the Security and Exchange Organization.Furthermore, It is important to develop funds of intermediary institutions that can issue guarantees for the exports of knowledge based companies. Also, the evaluation of the projects must be done by these intermediate institutions and guarantees must be issued and financing must be done.

He added Curbing inflation with any analytical methods depend on controlling the growth of liquidity, in this regard, we have performed well in the last two years, but the existing liquidity must be used appropriately. The creation of new liquidity must be limited and the existing liquidity must be used optimally.
Dr. Rohani emphasized that in the capital market, due to the developments that have taken place, we do not have the problem of instruments, there are all kinds of tools in this market, and if there is coordination in monetary and financial policies, the capital market will help control liquidity well.

He touched upon that the biggest role of the capital market is to oversee the real part of the economy and its most important role is to finance. Relatively, good measures have been taken in this area in the last two years. The issuance of GAM bonds, which helps to finance the production chain and reduces the need to create money in the banking network, is an example in this area.
At the end, he said last year, 40 trillion Tomans were allocated to finance SMEs, which will probably reach 50 trillion Tomans this year.

The Iranian Association of Islamic Finance (IAIF) Held the International Panel on Inflation Control and Production Growth
The international panel of the IAIF’s 9th Islamic Finance Conference was held on the 4th of March. The panelists were Dr. Ali Saleh Abadi, Chairman of IAIF, Omar Mustafa Ansari, Secretary General of AAOIFI, Dr. Abideen Adeyemi Adewale, Acting Assistant Secretary-General of IFSB and Dr. Ashraf Hashim, Chairman of Shariah Advisory Council, Bank Negara Malaysia.

Dr. Ali Saleh Abadi, Chairman of IAIF
My special thank goes to our esteemed sponsors, namely IFSB, AAOIFI, INCEIF and ISRA, Minhaj Lahor Uinversity, COMSATS University, Al-Sadiq Institute, EAIFE (European Academy for Islamic Finance and Economics), among others, for their unwavering support. We are indeed honored to host all of you at this event. I very much indeed hope the discussions and topics to be raised here will lead to a better and more profound understanding of Islamic finance. As Muslims, our mission is to contribute to the better promotion of Islam in one way or another.

The Iranian Association of Islamic Finance is the sole and pivotal association having been established for the promotion, development, and enhancement of the status quo and activities of the Islamic finance not only in Iran but also across the globe. It is a multi-faceted platform via which the concepts and practices of Islamic finance in various realms including, but not limited to, the development of Islamic financial instruments and institutions are initiated, activated, and promoted accordingly. We have done our level best to keep our users and target population tuned and updated with the latest initiations and developments in pertinent fields.

At the top and strategic level of the management in the Iranian Association of Islamic Finance, we have the representatives of the Shariah Board and Council of the Iranian financial sectors, that is to say, capital and money markets. The Head of the Shariah Board and Council of the Securities and Exchange of Iran (SEO) and the Shariah Council of the Central Bank of Iran (CBI), His Excellency Professor Dr. Mesbahimoghadam, sits on our Board. The founders of the Association are the well-known erudite scholars in the field of finance and Islamic finance in Iran. Here I would like to express my heartfelt condolences to the late distinguished Islamic finance professor and scholar, late Professor Dr. Mousavian. Dr. Mousavian was a prolific and diligent figure in Islamic finance having written quite many books and articles on the latest topics of Islamic finance. May God rest his soul in peace.

There are diverse programs conducted and organized by the Iranian Association of Islamic Finance for almost every walk of life such as market practitioners and students. Over the last 8 years, the Association has successfully held Islamic finance MBA and DBA which are accredited by the SEO of Iran and Imam Sadiq University. These courses are taught by top university professors, high level and experienced financial institutions directors and market practitioners. The graduates of the courses are given the capital market qualification certificates and are regarded eligible and qualified for working at various managerial and also trading levels.

The Iranian Association of Islamic Finance has also been active in international arena. We have been closely working and in touch with notable entities, associations, organizations, and individuals all across the world. We have already entered into MoUs with various internationally known and acclaimed associations, most of which are standard-setters and benchmarks in the world. We have signed MoUs with the AAOFFI, EAIFE (European Academy for Islamic Finance and Economics) and Al-Sadiq Institute. Since we signed these MoUs, there have been several joint workshops and sessions bilaterally or multilaterally organized and held for the enhancement of the Islamic finance understanding among our Ummah. We have tried to turn our paper MoUs into efficient and useful practices.
The theme of this year’s conference is about the harnessing of inflation and enhancement of economic growth. Hopefully we have received a noticeable number of articles having been written and authored by both local and international professionals and academicians. The entire received papers were distributed among our scientific board and referees for blind and fair evaluation. The selected papers will be presented today in the following sessions of the conference.

In the next year, we are planning to touch upon and work more in earnest on the emerging and novel topics in financial markets. Diverse topics and issues are on the top of our agenda for our next year’s program. Some of the topics which are of high significance and interest to us include alternative investments, crypto-currencies and crypto-assets such as NFT, CBDC, and SRI and impact investment, to name but a few. We are trying to approach these areas from Islamic perspectives and offer Shariah-compliant and workable solutions to launch these products and practices in the market. Needless to mention, we would be more than delighted to cooperate with those interested in these fields.

Omar Mustafa Ansari, Secretary General, AAOIFI
In the beginning of his presentation, he said there are some key challenges limited to Iran’s economy such as: International sanctions, Banking sector challenges, Fiscal deficit, Lack of foreign direct investment (FDI), Geo-political tensions and Structural economic issues.
The he mentioned Islamic finance can act as an instrument for economic development through:
• Deploying finance to serve the real economy: Injecting finance in the real and needy sectors.
• Adopting risk-sharing modes of financing: Promoting entrepreneurship and reducing unemployment.
• Promote profit and loss sharing to structure and equity partnership: Risk appetite / absorption capacity enhancement for the real sector can lead to a better economic development.
• Supporting infrastructure development: Natural support for infrastructure – project finance
• Asset-backed Sukuk – to avoid overspending: Depending only on the asset-backed Sukuk and other legitimate Sukuk forms, ensures that the government avoids overspending and the government borrowings are directly linked with the infrastructure development.

The Secretary General of AAOIFI stressed that there are some solutions for promoting production growth in Iran as follows:

• Investment in Infrastructure
• Support MSMEs
• Sustainable agriculture practices
• Access to finance
• Export promotion
• Value chain development
• Technology adoption
• International collaborations
• Public-Private Partnerships (PPPs)
• Diversification of the economy
• Education and skills development
• Incentives for innovation

Regarding the strategies for inflation control and production growth, Ansari said the following ways could work:
. Government spending, borrowings and fiscal deficit, Government borrowing linked to Sukuk i.e., only assets and identified revenue resources – natural limits assigned.
• Business development and growth: Entrepreneurship development, Stability and risk-sharing, Asset-backed financing, Trade-based financing and supporting of trade activities, Agricultural financing – through risk sharing modes.
• Removing the de-linkage between financial and real markets – controlling the inflation created by interest: Equity financing, Profit-and-loss sharing, financing real economic activities.
• Socially Responsible / sustainable finance and investment and financial inclusion: Sustainable investments, Responsible finance, Islamic microfinance, Islamic SME finance, Islamic agricultural finance, Islamic FinTech.

Somewhere else he raised a question, How standardisation and alignment with global Islamic finance standards help Iran in economic development?

• Having huge real sectors – agricultural, manufacturing, services etc. can provide great opportunity for investments and IF structures
• Clarifying misunderstandings and myths; Use of global IF standards, can reduce misunderstandings about the permissibility across the globe and can help cross border investments and transactions
• Increased global interaction

Regarding the strategies to promote sustainable Islamic finance, Ansari said they are as follows:
1. Offer a wide range of Shari’ah compliant investment products and services
2. Spread awareness and educate masses about Shari’ah compliant investing
3. Make Shari’ah compliant investment products and services more affordable and accessible
4. Partner with local ethical investment organisations
5. Leverage technology

Dr. Abideen Adeyemi Adewale, Acting Assistant Secretary-General, Member of the Secretariat, IFSB

In the begging of his lecture, Dr. Abideen said in 2023, the financial services industry in many jurisdictions was faced by headwinds including but not limited to:
1. Policy rates hike amid inflation concerns
2. Spillover of the effect of financial tightening in advanced economies
3. Moderated growth amid weak demand
4. Foreign exchange volatility
5. Fiscal deficit (subsidy removal or rationalisation(
Nonetheless, the global IFSI demonstrated soundness and resilience, sustained growth trajectory, and recorded structural developments.
Total assets of the Islamic financial services industry (IFSI) stood at $3.25 Tr. by the end of 2022. Moreover, the global share of IFSI in Islamic banking was 69.3 %, Islamic capital markets was 29.8 % and Takaful was 0.9%.
As to the Islamic banking’s prudential indicators, he said the profitability performance across jurisdictions indicates resilience to the headwinds, that is:

 Higher profit rates and business volumes contribute to increased profitability.
 Islamic banks benefited from high oil prices and ambitious capital projects due to expanded fiscal space.
 Moderate inflation and currency peg especially in the main GCC markets thus helping to maintain profit margin.
 In certain areas, a prevalence of variable rates financing has boosted margins with rising policy rates
 While those primarily utilizing fixed financing rates must navigate adjustment delays during reprising they generally have low sensitivity to valuation effect in their fixed income portfolio

 Reduced regulatory provisioning requirements in jurisdictions with frontloaded provisioning amid improved asset quality.
 So far generally undeterred by increased funding costs and asset quality challenges. A likely rise in delinquencies and the requirement for greater financing loss reserves will progressively impact profitability.
 increased impairment charges were comfortably offset by the FX revaluation gains

The capital structure of the Islamic banking industry is projected to remain stable, strong, and register improvement in many jurisdictions, in other words:
 The risks to capital from further currency devaluation and loan quality pressures did not affect banks’ capital adequacy ratio (CAR) significantly
 Banks have been instructed to retain their large FX gains rather than to distribute them as dividends, which will provide a cushion to absorb further currency devaluation and loan quality risks.
 Islamic banks’ issuance of sukuk to shore up capital base and replace maturing instruments

Despite increases in non-performing financing (NPF) ratios due to unwinding COVID-19 forbearance measures, Islamic banks are now showing a declining trend in asset quality. The main reasons are as follows:
 Pressure from higher rates, persistent inflation, slower financing growth, and weakening household finances may strain Islamic banks’ financing portfolios.
 Probable declines in collateral worth and credit quality due to challenging economic conditions
 Credit quality might worsen due to growing influence of inflation and monetary tightening on businesses and consumers’ repayment capacity
 proactive frontloading of provisions for non-performing assets, coupled with an improving and positive risk perception

The liquidity position of the Islamic banking sector mostly remained strong, due to the various liquidity support measures adopted in some jurisdictions to mitigate the effect of liquidity pressures due to the tightening global financial conditions, that is:
 Islamic financing growth moderated in 2023 due to restrictive credit as funding costs soars and the higher financing rates dampening demand.
 Foreign exchange volatility pressures Islamic banks' funding and liquidity, widens liquidity maturity gaps, weakens market confidence, and creates difficulty in retaining and collecting deposits for growth, even at higher costs.

 Regulatory exemptions can bolster Islamic banks' profitability by reducing funding costs. However, offering lower deposit rates than conventional banks may hinder competitiveness and also customer retention.
 Deposits are more sticky and represents the bulk of the funding structure of IBs
 Banks diversifying funding through wholesale means, including sukuk and bond issuance.
 Anticipated decrease in corporate reliance on bank financing, with a shift towards issuing more debt.
He touched upon the Islamic capital market and takaful, saying,

 Investor withdrawals, driven by rising interest rates and market volatility, have had a significant impact.
 Over the past ten years, the S&P Global BMI Shariah index has surpassed its conventional counterpart in five-year rolling returns nearly 75% of the time.
 In 2023, global Islamic indices bounced back from a decline witnessed in 2022.
 Significant rises in both equity and sukuk listings were observed, particularly in prominent Islamic finance hubs such as the GCC and Malaysia.
 The global Takaful industry experienced a year-on-year contributions growth of 16.1% in 2022, reaching USD 30 billion.
 There has been a slowdown in the growth of new businesses in the family and life takaful segments in certain jurisdictions due to challenging investment environments, such as rate hikes and unwinding repayment moratoriums.
 Medical costs inflation and high payout claims are increasing as the volume of medical procedures returns to pre-pandemic levels.
 Non-life claims ratios have also risen, especially for motor business lines, which are squeezing margins.

Inflationary pressure possess a risk to the stability of the IIFS through the following channels:
Households and Corporate Resilience
Maturity Transformation and Profit
Financing Demand and Balance Sheet Size
Investment Portfolio
At the end he said a sense of optimism for further growth is projected in 2024. This will be impacted by a number of macroeconomic and fundamental headwinds and tailwinds:
Headwinds:

• Spillover of the effect of financial tightening in advanced economies
• Rising oil and commodity prices amid inflation concerns
• Russia-Ukraine conflict
• Exchange rate volatility
• Political impasse, social unrest and civil conflict
• Climate change risk
• Limited awareness of the IFSI in many key markets
• Sukuk standardization
• Changing competition and competitors due to digitalization

Tailwinds:
• Broadened fiscal space in key jurisdictions
• Regulatory clarity and government initiatives
• Increased digitalization and financial inclusion
• Increased sustainability-linked investments
• Increased mergers and acquisitions
• Increased number of newly established IIFS

Dr. Ashraf Hashim, Chairman, Shariah Advisory Council, Bank Negara Malaysia
He emphasized the principal of wealth in Islam, saying there shouldn’t be much gap between the rich and the poor, going on to say that Allah in the Holy Quran says the wealth mustn’t be confined just to the rich.
He mentioned we need to facilitate and make effective and systematic social finance activities such as Zakat, collection, distribution and Waqf projects.
For instance, in Malaysia Islamic financial institutions Such as Bank Islam has made a systematic Sadaghe House platform for donations.
Other banks mix zakat with financing. Zakat can be given as a loan. However it is controvertial, there is Ijtehad or Maslaha behind it. It’s the time to apply some innovations to connect Islamic finance to social finance (Sadaghe, Waqf, Zakat).
Regarding the controlling of inflation, some people asked the last Profet to determine the price of some items, but the Profet refused because the pricing depends on the supply and demand.
If a price of items increases abnormally, not because of the relation between supply and demand, in other words, because of the intervention that lead to the disruption of the equilibrium of the market thorough hoarding, monopoly and manipulation of prices. In this case, it’s the responsibility of the authorities to intervene, because hoarding, monopoly and manipulation of prices are prohibited by Shariah.
We need to calculate and manage our financial resources, plan and invest them in halal area. Governments must have reserve money not public money to support some financial companies in hard time to make balance in society.
At the end he focused on the principal of money; money itself. That is the money that we have today fiat money, which is a credit money not commodity money (Dinar and Derham in the past). Credit or fiat money that we have can contribute to the fluctuation and inflation. In Bank Negara, we are conducting some research to know if we can use the mixture of commodity money and credit money. It could be quite interesting. For example a platform has been designed in Malaysia in which a person can even buy some gold with one ringgit, but it is delivered when the payment reaches at specific amount. It’s done through blockchain technology.