Islamic Finance: The New Regulatory Challenge, 2nd Edition

Chapter 19

Regulating the Islamic Capital Market

Nik Ramlah Mahmood

1. INTRODUCTION

In its formative years, the evolution of the Islamic financial services industry was largely driven by the growth of Islamic banking and takaful (insurance products based on Shari’ah principles). Over the last decade, the emergence of a vibrant Islamic capital market (ICM) in several Muslim countries is a significant milestone that denotes the coming to maturity of the global Islamic financial system. In this context, the growth of the ICM parallels the financial deepening process experienced in many emerging markets, most notably the large developing economies. As a reflection of this trend, the emerging markets’ share of global equity market capitalisation rose from 13 percent in 1990 to 24 percent in 2010.

The expanded role of markets in the Islamic financial intermediation process is already providing many benefits in relation to financing investments and catalysing the growth process in many Muslim countries. More importantly, it provides greater opportunities to shift from a developmental process that is based on replicating conventional finance towards an approach that facilitates financing based on structures and services that originate from risk-sharing concepts and that comply with the ethical principles that draw their roots from Islamic theology.

ICM offers a broad range of capital market products and services to meet the needs of issuers and investors, of which the most prominent currently ...