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Five essays in Legal and Regulatory Issues in Islamic Banking and finance - Essay Example

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Five essays in Legal and Regulatory Issues in Islamic Banking and finance

However, in some cases Islamic banks can operate with a relatively limited efficiency facing a variety of regulatory challenges, but still they wouldn’t be operating as ideally efficient banks. This decrease in efficiency is not due to mechanical deficiencies inherent within Islamic banking, but to the inefficient operation of the conventional banking system, which obstructs the operation of Islamic banks as the symptoms of a conventional banking system pervades to Islamic banks likewise the conventional banks. This does not mean that the survival of Islamic banks operating within the conventional banking framework is threatened. Some regulators try to overcome this by adopting a separate Islamic banking regulatory framework parallel to that of the conventional banks. Ahmed stated that the challenge for Islamic law was to create financial contracts from traditional nominate contracts to meet the modern day needs of financial markets and intermediaries. Recent history of the growth of the Islamic financial sector is an indicator of the adaptability of Islamic law to changed situations. Given the principle of permissibility, Islamic commercial law can evolve as long as the limits imposed by Shariah are not traversed. The adaptability features of source of law and legal justification for Islamic law were closely examined. While contemporary Shariah scholars and jurists have done an admirable job of modifying the classical nominate contracts into financial contracts, there still remains a lot of work to be done to make Islamic commercial law relevant to modern day needs. To enable this, there is a need to develop Islamic law, keeping in mind the maqasid al-Shariah and the existing technology and environment. The renowned theory by Lon Fuller that is titled the “inner morality” of the Rule of Law clearly stipulates that a legal system will fail if laws presented within the system are obscure, and contradicting. Therefore, to ensure that Islamic banking maintains its unique nature it has been critical to devise a legal framework that ensures efficient functioning of Islamic banking, which is in conformity with Islamic teachings. We can look into the key elements that are contained within a legal framework to support efficient functioning of Islamic banking. Aldohni stated that under the Islamic banking act, Islamic banking business is described as a banking business whose operations and objectives only contain elements that have been approved by the Islamic religion and in particular, the Shariah laws (63-65). Therefore, the main elements within the legal framework for efficient functioning of Islamic banking draw their origin to the Islamic religion. The most predominant element of the legal framework for Islamic banking is prohibition of the issuance of interests on all forms of transactions within Islamic banks. This element within the legal framework ensures the efficient functioning of Islamic banking in a manner that conforms to Islamic teachings and it helps in differentiating Islamic banks from the other commercial banks (Aldohni, 68-71). This differtiation would lead to figuring out to the public the equitability and avoidance of Ghara in Islamic banking as compared to conventional system conventional banking legal and regulatory framework. Moreover, one of the key elements ...Show more

Summary

1- Discuss the key elements of a legal framework for efficient functioning of Islamic banking. Islamic banks can provide efficient banking services to the nation if they are supported with appropriate banking laws and regulations. This will aid them to introduce PLS and other Islamic modes of operation, which are very conducive to economic development…
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