Toward an Enabling Framework
Shari'a-compliant financial services endeavor to have fair contracts, to mitigate the risks of speculation, and to avoid the hubris of human behavior. While Shari'a-compliant finance dates back to the early days of Islam, it has experienced a new life since the early 1970s and a tremendous explosion since the beginning of this new millennium.
In the mid-1990s, UK financial authorities had identified the emergence of Islamic finance on the world stage. As mentioned in Chapter 2, in a speech in 1995, Lord Edward George, then governor of the Bank of England, recognized the “growing importance of Islamic banking in the Muslim world and its emergence on the international stage,” as well as the need to put Islamic banking in the context of London's tradition of “competitive innovation.”1
The size of Islamic finance, its worldwide rapid development, and its appeal for both Muslims and non-Muslims all raise challenges to policy makers, regulators, and supervisors, as well as domestic and international standard setters and reviewers.
The following focuses mainly on the regulatory challenges that Islamic banking faces. It first considers the rationale for regulating Islamic banks. It then highlights important aspects of Islamic finance that can be inconsistent with prevailing banking practices and the challenges this represents. It then outlines organizational arrangements that would help overcome the challenges, facilitate the establishment of Islamic ...