Islamic Finance - the central government as regulators
Because a licensed financial institution's license was contingent upon its adherence to Shari'ah principles, regulators are worried about compliance issues connected to that institution. A company that wants to obtain an Islamic bank license will frequently state in its articles of association and memorandum that its main line of business is banking according to Shari'ah law. Some nations, like Malaysia, also stipulate in their laws that the creation of a Shari'ah board for the business is a prerequisite for receiving an Islamic banking license. The Central Bank shall recommend the grant of a license, and the Minister shall not grant a license, unless the Central Bank or the Minister, as the case may be, is satisfied. ‘That there is, in the articles of association of the bank concerned provisions for the establishment of aShari’ah advisory body to advise the bank on operations of its banking business in order to ensure thatthey do not involve any element which is not approved by the religion of Islam.’ Although similar direct provisions cannot be found elsewhere, it can be anticipated that the approving authority may not award a license if certain prerequisites are not met.
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