Limiting the regulation of Islamic finance: lessons from Dubai

Abstract

With the growth of Islamic finance the activities of Islamic financial institutions, ie, those activities carried on in accordance with the Islamic shari'a, regulators may want to subject the activities of such institutions to greater scrutiny. In considering a model for the regulation of Islamic finance, the regime in the Dubai International Financial Centre is useful. The Centre's Islamic finance regime operates within a legal and regulatory framework that should be familiar to Western regulators. An understanding of the basic principles of Islamic finance and the prohibitions against interests, uncertainty, speculation, unethical investment and unfairness are important for a proper understanding of the manner in which Islamic finance should be regulated. The approach to regulation in the Centre, which focuses on the manner in which Islamic finance activities are carried on, rather than the substance of those activities and the issue of what constitutes shari'a compliance, is one that other regulators may want to follow.