12/15  Second, last December saw the publication of RDL 22/2018, which assigned additional powers to the Banco de España, in the form of new tools, such as the sectoral countercyclical capital buffer and limits on credit conditions and sectoral concentration of credit exposure. What is the difference between these tools and the ones approved in 2014? The first fundamental difference is that instead of a global buffer, we can now make use of much more focused tools. In this respect, we need to be aware that, although the application of a global capital buffer affects lending, it does so indiscriminately, and in certain circumstances its application may have unintended consequences. Allow me to give an example. Imagine that the supervisor observes excessive growth in consumer credit and decides to activate the global buffer to limit this growth. It is very likely that institutions will react to this tightening of capital requirements by increasing credit, precisely in those sectors that offer the highest returns, in order to compensate for the increase in their capital costs. Therefore, the activation of this global buffer may mean that consumer credit growth, instead of moderating, increases, largely at the expense of financing to other sectors, in which the supervisor had not observed any problem. The new legislation, by giving the Banco de España the power to limit the assumption of risk at sectoral level, allows the measures to be restricted to exposures to the specific sector in which the risks are concentrated.

This imperative translates into the need and demand for more Islamic microfinancial products. In emerging as a new market niche, Islamic microfinance would meet the differentiated demands of low income communities and provide support to entrepreneurial activities. Its strong value proposition reinforced by financial inclusion would  2  BIS central bankers’ speeches  result in significant potential to uplift the economic performance and development. Furthermore, Islamic microfinance, if supported by microtakaful, has the potential to provide a more comprehensive, sustainable and accessible financing and protection solution for the lower income groups and small businesses. Access to financial products and services enhances the potential to thrive and to generate growth and employment. Investment in talent development and research activities for this purpose can thus contribute towards evolving a more inclusive Islamic financial system. This is also within the paradigms of development and welfare in the Islamic context, as the Islamic finance model is also designed to be relevant to social welfare and economic development of not only the under-privileged communities, but also of contributing towards intensifying the progress of low income countries in the world. Thirdly, is for the effective dissemination of information to facilitate the standardisation and harmonisation process in Islamic finance. Several developments in this recent decade have facilitated standardisation and harmonisation in Islamic finance. The extensive engagement related to setting the prudential standards for Islamic finance by the Islamic Financial Services Board (IFSB) has facilitated consistent implementation of regulatory and supervisory standards.