Islamic Finance, Consumer Protection, and Financial Stability

Abstract

Consumer protection and financial literacy are essential pillars of a well functioning and stable financial system. As the global financial crisis demonstrated, inadequate attention to consumer protection and financial literacy can lead to financial instability. Though Shari’ah principles provide a strong foundation for consumer protection, the principles alone cannot provide adequate protection because not all providers are guided by ethical precepts and the practices have deviated from the principles. To safeguard the stability of the Islamic finance industry, consumer protection frameworks that cater to the specifics of Islamic financial products should be an integral part of regulatory frameworks.

Keywords: Islamic banking, Banks, Financial services industry, Financial regulation and supervision, Financial stability, Islamic Finance, Consumer Protection, Financial Stability., islamic financial products, sukuk, market, regulatory frameworks, monetary fund, banking sector, investment

JEL Classification: G20, G21, G24, G32, G38, K22