Investing In Islamic Funds: A Practitioner's Perspective

CHAPTER 11

Legal, Regulatory, Risk, and Operational Framework

Building Investors’ Confidence

Noripah Kamso and Fouzia Amin

Conformity to a condition shall be binding as far as possible.

(Islamic legal maxim)8

People’s usage shall be an operative proof.

(Islamic legal maxim)8

INTRODUCTION

Good governance is necessary for investor confidence. In the conventional space, investment management companies adhere to their home country’s capital market regulations. Investment products need to adhere to the regulations of the country where the products are being established as well as to the company’s respective internal governance processes.

In a Shariah investment framework, investors’ confidence will also rest on Shariah governance. Islamic capital market regulations in many countries may still be undergoing a robust foundation-building process. Therefore, there is a higher reliance on the company’s internal governance processes. In some countries such as Malaysia, Bahrain, the United Arab Emirates, the United Kingdom, and Singapore, these investment processes, policies, and procedures have been standardized to achieve a certain level of international acceptance and build investors’ confidence.

The other potentially thorny issue is the possible variation of Shariah interpretation across different jurisdictions on a single investment product. The perception is that if the Shariah interpretation is not exactly the same in the country where it is issued and the country where it is distributed, ...