Abstract
This study has critically analysed the regulatory and supervisory framework of Islamic banks in dual banking system of Pakistan, Malaysia, Bahrain and United Kingdom. The core regulatory functions and issues are taken under discussion and results revealed that conflicting views of Islamic jurist and policy makers have further aggravated the Shariah problems. Over the years the regulatory framework in each country moulded in a peculiar way, where Malaysia and Bahrain have developed their indigenous governance systems while in United Kingdom Islamic banks are still under conventional setup. In Pakistan, Islamic banks are under the governance of orthodox regulatory framework, combined with developing Islamic banking regulatory systems. Further, the effectiveness of existing regulatory framework has never been fully challanged by extremely conservative and embryonic Islamic banking industry. DOI: 10.5901/mjss.2015.v6n6s2p629
Highlights
Over the past several decades, the growth in Islamic Finance (IF) and its socially responsible principles have attracted attention all over the world
In some literature researchers holds the view that in most jurisdictions the conventional law is flexible enough to accommodate the agreed terms and conditions of contracting parties (DeLorenzo and McMillen, 2007). In practice it is very difficult as we have seen in Kingdom of Saudi Arabia (KSA), whose legal system is based on strict Shariah principles, but lots of problems were created by various defaulters of IFI due to duality is Saudi legal system (Marar, 2004)
Islamic banks were under conventional setup but with enlargement of Islamic financial industry each country adopted separate regulatory structure based on its institutional setup and market dynamics
Summary
Over the past several decades, the growth in Islamic Finance (IF) and its socially responsible principles have attracted attention all over the world. Islamic banking is practiced in different countries under different Islamic schools of thought and laws with considerable variability in its regulatory and supervisory framework. This variability is affecting the reliability, growth and worldwide applicability as alternative system to conventional system. This study has critically evaluated Islamic banking regulatory and supervisory structure in four diverse countries i.e. Pakistan, Malaysia, Bahrain and United Kingdom. All these countries except UK are Muslim majority countries, but Islamic banking in each country is practiced under relatively different regulatory and supervisory framework
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