Islamic finance in the system of national accounts and balance of payments: Recommendations and policy implications

Islamic finance is based on Shari'ah, or Islamic law, which prohibits the receipt and payment of “riba” (normally translated as interest), “gharar” (excessive uncertainty), “maysir” (gambling), and short sales or financing activities that it considers harmful to society. Rather, it involves risk and reward sharing, transactions with real economic purposes, and fair actions of the participants. Consequently, innovative arrangements such as contractual profit-and-loss sharing and leasing arrangements are common. However, macroeconomic statistics, such as the System of National Accounts (SNA) and the Balance of Payments Manual (BPM) have traditionally focused on the coherent treatment of conventional finance rather than Islamic finance. Thus, comprehensive and coherent internationally-endorsed recommendations to account for Islamic finance in both the national accounts and external sector statistics frameworks were absent. These gaps might have impacted the quality and comparability of economic statistics in countries with prominent Islamic financial activities. They have been addressed by the recently-concluded global efforts to update the System of National Accounts, 2008 (2008 SNA) and the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). These have resulted in recommendations on Islamic finance in the System of National Accounts, 2025 (2025 SNA) and the seventh edition of the Balance of Payments Manual (BPM7) from which Islamic finance statistics can be compiled to better inform policy makers and other stakeholders.