The top two organisations that set the rules for Islamic finance signed an agreement on Tuesday to work together to develop and revise some of their guidelines, aiming to hasten standardisation in the $2 trillion industry.
Islamic finance is growing fast across markets in Africa, the Middle East and Southeast Asia, but it remains a fragmented industry with uneven implementation of its rules, which could stunt growth.
Collaboration is important to avoid mounting pressures from investors, Islamic finance institutions and regulatory bodies, AAOIFI Acting Secretary General Omar Mustafa Ansari said at an industry conference in Manama, Bahrain.
"Some of these pressures we are already feeling ... There is a need for change and we are all aware of it."
Investors want to reduce complexity in Islamic finance and simplify the process of creating an Islamic finance product and bringing it to market. Currently the fragmented nature of the industry means this can be a lengthy process.
Tackling the complexity of some sharia-compliant contracts could make them easier to design and bring to market, which could help attract new issuers of Islamic bonds, according to credit rating agency Standard & Poor's.
Islamic finance, which bans interest payments and pure monetary speculation, is estimated to have over $2 trillion of assets globally with around $1.3 trillion held by Islamic commercial banks.
Standardisation is becoming more necessary because Islamic finance is now systemically important in over a dozen countries, including Malaysia and Qatar, while countries like Morocco and Kenya have opened up to the sector in recent years.
AAOIFI and IFSB have traditionally worked separately on their respective mandates. AAOIFI focuses on accounting and auditing standards, while IFSB develops prudential rules in areas including capital adequacy and disclosure requirements.
But in the past few years their work has overlapped and this in turn has slowed adoption by national regulators.
Both AAOIFI and IFSB have issued standards on corporate governance, but a single document could increase adoption across jurisdictions, IFSB Secretary General Bello Lawal Danbatta said ahead of the signing of the agreement.
The proposed collaboration would make better use of limited resources and could extend to new projects, as there is yet to be a standard on financial inclusion, Danbatta added.
AAOIFI has published over 100 standards which are mandatory in countries such as Bahrain and Oman, but it is a sprawling organisation with 200 institutional members from across 45 countries.
The IFSB has issued 27 standards and technical notes, with membership that includes 75 regulatory and supervisory authorities, but even founding members such as Indonesia's financial regulator have yet to implement all of its standards.
(Reporting by Bernardo Vizcaino; Editing by Jane Merriman) ((Bernardo.Vizcaino@thomsonreuters.com; Telf: +61293218168; Reuters Messaging: email@example.com))