Bewertung des Arabian Journal of Business and Management

Variety in the Rules of Islamic Financial Institutions

Abstract

Islamic Institutions are a growth industry in the world. More than 200 Islamic financial institutions (IFI) are opening in more than 84 countries. With an annual growth rate between 12% and 15%, the assets of the IFI exceed $200 billion. The regulatory regime governing the IFIs varies across countries. For this reason, several international organizations such as AAOIFI and IFRS, have been established to set standards which should reinforce and eventually synchronize prudential regulations as they apply to the IFIs. The aim of this paper is to discuss the character of the prudential standards to be developed. It specifies the risks that the IFIs are exposed to and the nature of the regulation that would help to supervise them. Industry is believed to be constantly evolving with an estimated convergence of the practice of Islamic financial intermediation with its conceptual foundations. Consequently, the paper contrasts the risks and the regulations considered necessary in the case of the IFIs operating according to the core rules and current practice. Moreover, the paper deals with the implications of approaches to the capital adequacy, licensing requirements and reliance on market discipline. This paper proposes an organization of the industry which would enable to expand in conformity with its principles and prudent risk management and ease its regulation.