Islamic Finance in the Western Balkans: Prospects and Regulatory Challenges

in Arab Law Quarterly
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Abstract

In this article the authors contend that the murabaḥa debt-contract is over-emphasized, inefficient, and of questionable value with regards to creating Shariʿah-compliant alternatives to ribā-based finance. Instead, they argue that mushārakah, or equity-participation, should be the focus of Islamic financial innovation. They propose the creation of a new mushārakah market that would allow investors to bid for participation in investment projects, which would be distinguished from existing equity markets by requiring the direct participation of investors in a project’s management. Second, the authors address the legal and regulatory reforms necessary for mushārakah financing to succeed in the Western Balkans. They recommend the protection of property rights through financial arbitration mechanisms rather than court litigation. Arbitration resolves the conflict of laws inherent to Islamic finance, by providing a means of negotiating disputes between Islamic and secular sources of law. These measures reduce transaction costs associated with equity participation and thereby increase investor confidence.

Islamic Finance in the Western Balkans: Prospects and Regulatory Challenges

in Arab Law Quarterly

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References

3

Patrick Honohan“Islamic Financial Intermediation: Economic and Prudential Considerations”World Bank Research Paper (July 2001).

10

Habibullah Khan and Omar K.M.R. Bashar“Islamic Finance: Growth and Prospects in Singapore”U21 Global Working PaperNo. 001 (2008) available at: http://www.u21global.edu.sg/PartnerAdmin/ViewContent?module=DOCUMENTLIBRARY&oid=157438 (downloaded on 8 February 2001).

11

Masao Yanaga“Islamic Finance and Financial Services Regulation in Japan”Journal of International Banking and RegulationNo. 24(4) (2009) 200-205.

12

Shayerah Ilias“Islamic Finance: Overview and Policy Concern”Congressional Research Service Report for Congress9 February 2009 2 (available at: http://www.iflr.com/Article/2117395/Growth-of-Islamic-finance.html).

14

Shayerah Ilias“Islamic Finance: Overview and Policy Concerns”Congressional Research Service Report for Congress9 February 2009 2 (available at: http://www.iflr.com/Article/2117395/Growth-of-Islamic-finance.html).

27

F.E. Vogel and S.L. HayesIslamic Law and Finance: Religion Risk and Return (The Hague: Kluwer International Law Publishers1998) pp.195-196.

29

Shayerah Ilias“Islamic Finance: Overview and Policy Concerns”Congressional Research Service Report for Congress9 February 2009 available at: http://www.iflr.com/Article/2117395/Growth-of-Islamic-finance.html (downloaded 13 January 2010) 2.

32

V. Mody“Writing the rules: The need for standardized regulation of Islamic finance”Harvard International Review (Spring 2007).

33

See Ibrahim Warde“The Relevance of Contemporary Islamic Finance”Berkeley Journal of Middle Eastern and Islamic Law2 (2009) 159-162.

35

See Scott R. Anderson“Forthcoming Changes in the Sharʾiah Compliance Regime for Islamic Finance”Yale Journal of International Law35 (2010) 237.

40

See Mohammed Abbas“Shortage of Islamic scholars troubles Islamic banking”New York Times2 February 2008 available at: http://www.nytimes.com/2008/01/22/business/worldbusiness/22iht-bank.4.9412578.html?_r=1.

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