Islamization of Monetary Policy of 27 OIC Muslim Countries in Asia: The Successes, The Barriers and The Future Directions

The Islamization of banking, monetary policy, and the financial system began in 1975 after the setup of the Islamic development bank (IDB). Firstly, this paper discusses a concise framework of Islamic monetary policy. Then it presents the success and obstacles of the Islamization process of the monetary policy among the 27 OIC member Muslim countries in Asia and provides future directions to enhance the Islamization process. This paper employed secondary data and used the three criteria to measure the Islamization process: 1) Islamization of commercial banking; 2) making Islamic banking guidelines & regulations; 3) innovation and starting the Islamic monetary policy instruments. This paper finds that more than 154 Islamic commercial banks are operating under the Conventional monetary policy in 23 countries with very few Islamic monetary tools. On the contrary, Iran follows full-pledged Islamic monetary policy with 30 Islamic commercial banks. More precisely, in these countries, only 17% of total banks are Islamic bank, whereas 83% are still interest-based banks. Regrettably, two countries (Turkmenistan and Uzbekistan) do not have any tools of Islamic monetary policy. This paper also finds that though 64% of Islamic banks were established during 1970-2000 periods in 27 countries, only 25% of countries prepared Islamic banking regulation at this period. On the other hand, 75% of Islamic banking regulations were made during 2000-2015 periods. Most common Islamic monetary instruments are project-based Sukuk, project-based debt instruments, etc. Finally, this paper recommends six steps to enhance the Islamization process.


Introduction
The Islamization of the financial system and monetary policy began after1975 by the effort of the Islamic development bank. The two steps of operations enhanced Islamization. The first step was to start Islamic financial services associated with conventional banking and founding Islamic financial institutions. As the consequences, two kinds of financial organizations were developed: Islamic banks in Muslim majority countries, and Islamic non-bank financial institutions in many Muslim and non-Muslim countries (IBBL, 2017). It should be mentioned that the bank is the leading intermediary to circulate money in the economy. Thus Islamic banking will make ensure the functions of Islamic monetary policy. The success of the Islamization of banking and monetary policy was visible immediately after the efforts of IDB.
Moreover, to implement the Islamic monetary system, several Islamic giant finance companies started their financial operations in the many Muslims and non-Muslim countries. Table 1 exposes the list of top seven giant Islamic financial institutions of the world. They establish several Islamic financial institutions worldwide in two ways. They directly founded IFI in its home country by its sole financing, secondly, set up the IFI in other countries with joint ventures of local financial institutions. Consequently, Islamic Shariah-based banks, investment & finance companies, cooperatives, Takaful companies were established worldwide. Besides, numerous countries started Islamic index in stock exchanges. Finally, central banks of these countries innovate and introduced several Islamic monetary instruments to regulate and operate the Islamic financial institutions smoothly.  (2019) However, this paper aims to inspect the Islamization process of monetary policy of the 27 OIC Muslim countries. This paper uses the three criteria to measure the Islamization process of monetary policy. Firstly, Islamization of commercial banking, secondly, Making the Islamic banking guidelines & regulations and finally, Innovation and starting the uses of the Islamic monetary policy instruments in these countries. The success story, the barriers, and the future direction will be discussed in the following sections.
The prime objective of this article is to inspect the Islamization process of monetary policy among Muslim countries. More precisely, the motive of this paper is to focus the success of Islamizing monetary policy, find out the obstacles that interrupt stop and slow the Islamization process, and finally, suggest some solvents to overcome or remove the impediments to rapid the Islamizing the monetary policy among the Muslim countries.

Literature Review
Several types of research have been done on the Islamic monetary policy. It should be mentioned that Chapra (1983) proposes a framework of Islamic monetary policy by discussing its role and strategy. He claimed that the discount rate and open market operation is not permissible in Islamic monetary policy because of having a relationship with interest. Khan and Mirakhor (1989) present a model of Islamic monetary policy through the IS-LM framework. They show how the changes in the money supply influence the macroeconomic indicators of the Islamic Shariah-based economy. Hathaway and Lee (2004) scrutinize the Islamization process of the financial system in the Pakistan economy. They expose that Islamization started in Pakistan with the initiating of the Islamic banking at the rural areas in the 1950s. Hasan (2011) raises the issues of money creation in the Islamic economy. He describes the money creation process by the fiscal policy and bank's credit. He also inspects the role of the gold standard and central bank. Tahir (2013) analyzes the framework of the Islamic fiscal and monetary policy. He summarizes the shariahcompliant responsibilities of the institutional body, such as the government. The combined application of these policies may be effective if the government maintain economic and distributive justice rather than a sole Governor. Awad (2015) reveals the recent improvement of the Islamic monetary instruments under full-pledged Islamic financial system as a reference to Sudan. He also highlights the significant role of these instruments in attaining the purpose of monetary management. Uddin and Halim (2015) disclose several alternative monetary tools for Islamic monetary instruments concerning the money management of the period of Islamic rulers. They propose the inflation-adjusted GDP growth as an alternative tool of monetary policy. Bidabad (2015)  It can be summed up on the above discussion that these studies did not initiate the issue of Islamization of Islamic banking and monetary policy in the 27 OIC Muslim countries from Asia. It is the research gap of the earlier studies and the unique characteristics of this paper. It scrutinizes the latest scenario of current monetary policy of 27 OIC Muslim countries from Asia. Besides, it presents the success and obstacles of Islamization among the 27 OIC member Muslim countries in Asia. Finally, it provides future directions to enhance the Islamization process.

A Brief Overview of The Islamic Monetary Policy
Monetary policy is synonymously used as a money management tool. It can be delineated as the management of demand and supply of currency to achieve economic growth (Samuelson & Nordhaus 2010). McConnell et al. (2018) defined it as the management of money supply to attain full employment by helping the economy. The Monetary policy is classified into two categories. Expansionary Monetary policy: increasing of the money supply to get rid of recession. Contractionary or tight monetary policy: Decreasing the money supply to control or manage inflation. A brief overview of the Islamic monetary policy will be discussed below: Money Demand and Islamic Monetary policy: Islamic monetary policy checks several tools, areas of money demand, and means of the money supply to design its monetary policy. It is formed by filtering the tools of conventional monetary policy and adding several new instruments in Islamic perspective. However, along with the goal of the traditional monetary policy, the target of the Islamic monetary policy is to attain the socio-economic well-being and justice (Chapra, 1983).
Moreover, Islam always discourages to accumulate money among a few people by imposing Zakah at a rate of 2.5% yearly on idle cash (Al-Quran, 9:60; 2: 43). In contrast, it encourages the smooth circulation or flow of money among mass people to reduce income inequality and thus stabilize the economy. Since the speculation is severely affecting the money market in the form of demand as well as a supply shock of money and market volatility, it is not allowed in Islamic monetary policy (Chapra 1985, Ahmad 1997, Hamid 2009). So, the accumulation of money is not possible in Islamic economy to further stabilize the money value and inflation. Table 2 highlights the money demand in the conventional and Islamic monetary policy.

Money Supply and Monetary Instruments in Islamic Monetary policy:
Monetary policy aims to stabilize the money value and thereby stabilize the economy. Excess or unnecessary money supply reduces the purchasing power of money. Hence, Islamic monetary policy impedes the additional sources of money supply at its origin, such as luxurious consumption expenditures, illegal Businesses, smuggling, black money creations, idle cash, etc. Besides, it introduces the safe and secure investment climate to mobilize money without fluctuations of its value. Table 3 discloses the monetary instruments of conventional and Islamic monetary policy.

Methodology
This is a conceptual research paper based on the secondary information of the 27 OIC Muslim countries of Asia. The secondary data were collected on the present monetary policy of the Muslim countries, conventional and Islamic monetary policy tools employed in the Muslim countries, starting year of Islamic banking and Islamic central banking/ Islamic central banking division and number of Islamic banks in the Muslim countries. Moreover, the secondary data were mainly collected from the central banks' websites of the Muslim countries. The Microsoft Excel software is used to summarize the data and preparing the diagrams.

Islamization of Monetary Policy: The Successes
This section presents the progress scenario of Islamization through three sub-sections. The subsection-A exposes the scenario of the success of Islamization in the commercial banking sector. Subsection-B discusses the success of Islamization in making Islamic commercial banking regulation by the central bank. And finally, subsection-C reveals the scenario of the usage of Islamic Monetary Instrument among these countries. The whole discussion is given below:

Figure 1. Scenario of Islamization of Islamic Banking in 27 OIC Members from Asia
As the consequences of the effort of IDB, currently, more than 1500 Islamic Financial Institutions (IFIs) including more than 300 Islamic banks are functioning in the world (GIFR 2017, Mughal 2017, Hossain 2019). The Figure 5 presents the Islamization scenario of Islamic banking in the 27 OIC countries from Asia. The Figure 1 exposes that, only Iran has full-pledged Islamic banking system while the remaining 26 states have partial Islamic banking along with conventional banking. Also, among the remaining 26 countries, the number of Islamic banks varies from 1 to 8 for 20 countries, 17 to 24 for four countries. Disappointingly, the two counties have no Islamic bankingthese are Turkmenistan and Uzbekistan. But the founding of Islamic banking is the ongoing process in Turkmenistan.

Islamic banks Conventional banks
More specifically, the Figure 2 explores the collective scenario of Islamization of Islamic banking among the 27 OIC countries in Asia. In these countries, only 17% are Islamic, whereas 83% are still interest-based banks in the commercial banking sector. Besides, among the 27 countries, the most substantial portions (60%) of Islamic banks are situated in the five countries (see Fig-3). Table 6 in the Appendix illustrates the latest scenario of Islamic banking industry of the world.

B. The Success of Making The Guidelines & Regulation for Islamic Commercial Banking
The  Figure 4 shows the gap between the preparation of Islamic banking regulation and the starting year of Islamic banks. This figure reveals that there is a massive gap between the starting year of the Islamic bank and starting Islamic banking rules. It is the sign of the slowness of the Islamization process of monetary policy among the 27 OIC countries of Asia. Table 5 in Appendix depicts the data on the establishment of Islamic banks and the making of its regulation. However, the Figure 5 and Figure 6 displays the comparative scenario of the starting year of Islamic bank and beginning year of Islamic banking rules by the central bank of the 27 OIC countries. In the 20% countries, Islamic banks were established in the 1970s, while none of the formal Islamic banking regulation was formed in this decade. In this process, the formation of Islamic banking regulation was initiated in the 1980s. Consequently, among the most significant portion (50%) countries, Islamic banking regulation was formed by the central bank in the last decade (the 2000s). Besides, during the half of the current decade (the 2010s), the central bank makes the Islamic banking rules in 25% countries in Asia. Moreover, though 64% of Islamic banks were established during 1970-2000 periods in these countries, only 25% of countries prepared Islamic banking regulation at this period. On the other hand, 75% of Islamic banking regulations were made during 2000-2015 periods.
These guidelines include a complete framework for the Islamic commercial bank. For example, some contents of Islamic commercial banking guideline made by the central bank of Bangladesh are presented here. It includes, introduction to Islamic Banking, terminologies of Islamic Banking, licensing criteria to establish a full-fledged Islamic Bank, pre-requisites and conditions for the interest-based Banks to get license for converting into Islamic bank or introducing the Islamic Banking Branch, formation of an Islamic Banking division in conventional bank, control and segregation of Islamic Banking fund in traditional bank, the management of receivables from interestbased instruments, haram, and suspicious incomes, debt, and their Shariah rulings.

C. The Usages of Islamic Monetary Instruments among The Muslim Countries
The data on the current monetary policy were collected from the websites of the central banks of Muslim countries and compiled by the author. The data in Table 4 reveal that only one country (Iran) has full-pledged Islamic monetary policy. Whereas 26 Countries follow the interest-based monetary system, of which 13 countries have some instruments of Islamic monetary policy for Islamic banking. The data on the Islamic monetary instrument was not found in the central bank websites of 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999   However, the data expose that the most used instruments of conventional monetary policy is the open market operation, reserve ratio (RR), interest rate, currency peg, credit auction, refinance facilities, repo operations, etc. Besides, some countries also implement Islamic monetary policy tools along with conventional monetary policy tools. These are Sukuk, Islamic money market instruments, repo, reserve requirement, Islamic debt instruments, Islamic acceptance certificate, Quard al- Hasan, etc., Moreover, Iran central bank employs the provisional maximum or minimum rate of return (instead of interest) to determine the money supply (Ms). The most common tools are provisional profit rate, Central Bank participation Papers, reserve ratio, credit ceiling, and open deposit account.  Islamization process became slow. f) Internal conflicts: Islamic economic man is the precondition to establish an Islamic financial system. But the recent trend shows that the owner, management, and the employees are highly concentrated to achieve the worldly gain compared to the hereafter goal. So the internal conflict originated for salary, home finance, and thus more reasons. That hampered the Islamization process. g) Employment: although the Islamic banking sector creates some job opportunity, these are very limited compared to the conventional banking industry. Unfortunately, there is a minimal job on Islamic banking and finance research, such as research assistant, research associate, and research fellow. So how the Islamic expert will be generated? h) Unwillingness and reluctance of the Government: Government unwillingness is one of the main obstacles to make slow the Islamization of banking and monetary policy. i) Political and ideological reason: a political party has its vision and ideology. The most common ideologies are secularism, followed by communism. So it creates impediments for Islamization of banking, monetary policy.

External:
a) Though IDB sponsors Islamic banking, it has some structural problem such as it has no individual country office and independent country director. b) Lack of collaboration or MOU (memorandum of understanding) among IFIs, Islamic research Institutions, and the domestic universities of the respective countries. For example, IRTI with Dhaka University, IDB with Dhaka University in Bangladesh. c) Not sharing the practical experience of the full pledge Islamic central banking, monetary policy, financial system from Muslim majority country that applied the full-pledged Islamic financial system likes as Iran and Sudan. d) Inadequate research grants. IRTI and many institutions provide some grants, but these are not adequate. e) No or inadequate scholarship by IFIs, but arrange the expensive conference. Scholarship is at least 100 times more powerful than the expensive conference. f) There is no role of non-resident international Islamic economic expert for his country. For example, Islamic economic expert of a Muslim country lives in another country.

The Future Directions and Recommendations
a) The combined efforts of national and international Islamic academic and financial institutions can enhance and rapid the Islamization process. For example, OIC, Islamic Research and Training Institute (IRTI), and IDB agreement with the institutions of Muslim countries. IRTI can expand its branch among the Muslim countries or may supervise to establish such an institution in Muslim countries. b) IDB, as a mother institution may propose and help the Muslim country to prepare long run (e.g., 20-30 years) perspective plan for implementation of Islamic finance. The recent trend shows that, with the change of the government of a Muslim country, the economic and financial policy also changes. As a result, Islamization policy also changes. In contrast, this scenario is not visible among the western countries to implement the economic system. c) Funding is not the problem to initiate the Islamic monetary and banking system. But it needs the efficient method of the distribution of funds. Adequate investment is required in Islamic economics, finance, and banking education. d) Publication of full pledge Islamic monetary and financial system framework practiced in Iran and Sudan. e) A Conference needs a huge budget. So instead of increasing the number of conferences, the target wise conference should be arranged by the Islamic financial institutions (IFIs). Such as conference for the governor of the Central Bank, chief economist of the Central Bank, finance minister, prime minister, professor of top universities, economic adviser, chief of the Islamic research institution, undergraduate, and graduate students, assistant professor, a young researcher and so more. Finally, all selected paper must be published online. f) Islamic economics scholarship is needed to make Islamic economics expert. A Scholarship is at least 100 times more powerful than the expensive conference.

Conclusion
This paper discussed the latest scenario of the Islamization of the current monetary policy of the 27 OIC Muslim countries from Asia. It employs the secondary data, but the information on the Islamic monetary policy is not available in the websites of the central banks of these countries. The finding reveals that, among the 27 countries, one country has full pledge Islamic banking and monetary policy. In contrast, 24 countries have partial monetary tools for Islamic banking. Unfortunately, the Islamization process slowed down or stopped in many countries for some internal and external reasons. Finally, this paper suggests six instructions for rapid the Islamization process.