Regulating Islamic Financial Institutions: The Nature of the Regulated

49 Pages Posted: 20 Apr 2016  

Dahlia El-Hawary

George Washington University

Wafik Grais

World Bank

Zamir Iqbal

World Bank

Date Written: February 25, 2004

Abstract

More than 200 Islamic financial institutions (IFIs) operate in 48 countries. Their combined assets exceed $200 billion, with an annual growth rate between 12 percent and 15 percent. The regulatory regime governing IFIs varies significantly across countries. A number of international organizations have been established with the mandate to set standards that would strengthen and harmonize prudential regulations as they apply to IFIs. El-Hawary, Grais, and Iqbal contribute to the discussion on the nature of prudential standards to be developed. They clarify the risks that IFIs are exposed to and the type of regulations that are needed to systematically manage them. They consider that the industry is still in a development process whose eventual outcome is the convergence of the practice of Islamic financial intermediation with its conceptual foundations. The authors contrast the risks and regulations needed in the case of Islamic financial intermediation operating according to core principles and current practice. They outline implications for approaches to capital adequacy, licensing requirements, and reliance on market discipline. They then propose an organization of the industry that would allow it to develop in compliance with its principles and prudent risk management, and facilitate its regulation.

This paper - a product of the Financial Sector Global Partnerships Department - is part of a larger effort in the department to promote the stability and development of financial systems through strengthening the Bank's cooperation with concerned international financial bodies. The paper contributes to the discussion on the regulation of Islamic finance, an area of increased international cooperation, most notably with the recent creation of the Islamic Financial Services Board.

Suggested Citation

El-Hawary, Dahlia and Grais, Wafik and Iqbal, Zamir, Regulating Islamic Financial Institutions: The Nature of the Regulated (February 25, 2004). World Bank Policy Research Working Paper No. 3227. Available at SSRN: https://ssrn.com/abstract=610268

Dahlia El-Hawary (Contact Author)

George Washington University ( email )

710 21st Street NW
Washington, DC 20052
United States

Wafik Grais

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Zamir Iqbal

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
2,603
rank
4,207
Abstract Views
9,644
PlumX