Despite the importance of the banking sector as the largest component of the financial sector in the Arab countries, this does not diminish the importance of the other non-banking financial sectors, as the non-banking financial sector is considered a partner of the banking sector in promoting economic growth and financial stability in the Arab countries.
This sector also plays a vital role in promoting financial inclusion, which supports financial and economic stability. For example, the insurance sector contributes to achieving the goals of economic growth and development in general by providing protection for the properties of individuals and institutions and the preservation of national wealth. Other non-bank financial institutions are also playing an increasingly important role in promoting financial inclusion, such as: microfinance institutions, financial leasing companies, small and medium enterprise, finance companies, and crowdfunding companies. These institutions expand access to finance and financial services by granting credit to groups that face challenges in accessing bank finance.
As a lesson learned from the global financial crisis in 2008, the need emerged to regulate all non-banking financial sector institutions, especially finance companies of all kinds (including shadow banking). The absence of the necessary data about the sector and the lack of adequate supervision and control over it, may result in the emergence of asset bubbles and systemic risks that negatively affect financial stability. Accordingly, it is very important for the regulatory authorities to study the reality of this sector and define its activities and challenges accurately, with a focus on providing accurate data that enables the monitoring of the sector, to determine its size and risks. It also requires greater coordination between the various supervisory authorities on the financial and banking sector. In this context, the methods of supervising the non-banking financial sector may differ from one Arab country to another (like the rest of the world). Some countries have entrusted the supervision of most non-banking financial sector institutions to the Central Bank, while some countries have supervisory bodies.
The coordination between the regulatory and supervisory authorities is a key for the success of effectively measuring the risks arising from the non-banking financial sector, provided that the supervisory authority has the ability, authority, and appropriate tools to address the risks of the sector in a way that enhances financial stability. Considering the above, and in sought of the Arab Monetary Fund to keep its member countries abreast with the fields of economic, financial, and monetary reforms aimed at enhancing financial stability in the Arab region, in conjunction with enhancing interest in non-banking financial sector in the Arab countries, its role in financial inclusion and economic development, and to protect it from the risks that it may be exposed to it. The Arab Monetary Fund launched this initiative with the aim of enhancing the role of Arab central banks in assessing the risks of non-bank financial institutions, in cooperation with the concerned official authorities, and with interest in developing an accurate definition at the state level of the non-banking financial sector institutions that are supposed to be subject to its supervision. And conduct an in-depth study on the reality of the sector in the country, to determine its size, nature, and the challenges it faces.