Commercial Fraud is a Two Way Street – Middle East Companies Increasingly Fall Victim To Sophisticated U.S. Scams

online-fraud-scammer419By: Wassem M. Amin, Esq.

A recent disturbing trend that I have witnessed in my practice is the rising occurrences of fraud perpetuated upon Middle East businesses via sophisticated schemes in the United States.  Most, if not all, cases take place within the context of a sales agreement where a fictitious American supplier targets Middle Eastern import/export firm.  Sophisticated scams often involve official-looking documents, such as bills of lading, fake certificates of origins, and even letters of credit.  Most correspondence between the parties is done via email and the parties rarely meet in person.  In particularly sophisticated cases, the scam artist in the U.S. even invites a representative to meet at the American Company’s “headquarters,”–which turns out to be an office suite rented for the day.

After the purported agreement is reached, the purported supplier urges the Middle Eastern company to wire funds prior to shipment of the agreed-upon goods.  This is usually accompanied by fictitious emails from a fake freight or shipping agent to reassure the buyer of shipment.  Of course, once the buyer wires the money, they never hear from any of the parties again.  I have seen losses that range from a few thousand dollars to millions of dollars.

Middle Eastern companies are particularly susceptible to fraud by US scam artists due to several misconceived notions.  First and foremost, they believe that a US company cannot be fraudulent due to erroneous misconceptions about the U.S. laws and regulations.  Second, most commercial business transactions in the Middle East are very informal and do not involve extensive legal documentation.  They rarely ever involve legal counsel.  Therefore, most Middle Eastern buyers are unfamiliar with the requirements of any agreements and how to conduct due diligence to properly vet a potential supplier.

A Middle Eastern company can reduce the risk of such fraudulent transactions in several different ways.  First, it is always advisable to seek the professional counsel of an International Transactions Attorney or Business Consultant, particularly one who is familiar with the Middle East.  The expense incurred may protect against exponentially larger losses.  Second, international buyers should insist on using a Letter of Credit as the method of payment–especially if the parties do not have any prior transactional history.  A Letter of Credit will work as a safeguard to ensure that goods are shipped prior to the release of funds.  Third, international buyers should conduct their own extensive due diligence to ensure that the supplier or seller is a reputable company.  That may include steps such as retrieving the company’s corporate/business registration records, asking the company for prior buyers’ contact information as references, and search with local and national Better Business Bureaus to uncover customer complaints.

The extent of protective measures, of course, depends on the size and complexity of the transaction involved.  The bottom line is that once a buyer is defrauded, it is very difficult to recover the losses.  Consulting an international transactions attorney or consultant is an important investment for any party – whether a US supplier OR a international buyer.  As always, caveat emptor.

Disclaimer: These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Wassem M. Amin is an Associate Attorney at Dhar Law LLP in Boston, MA.  Wassem has extensive experience in the Middle Eastern region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or 

US Citizenship Through Islamic Finance Compliant Investments: The EB-5 Investor Visa Program

By: Wassem M. Amin, Esq.

ImageThe United States is one of the largest recipients of foreign direct investment from the Middle East, particularly from Saudi Arabia, Kuwait, Qatar, and the United Arab Emirates.  Despite the economic recession, investors from these countries continue to diversify within the U.S. financial and real estate markets.

Unbeknownst to many foreign investors, however, is that a collateral, or perhaps primary, benefit of investing in the United States may be the ability to obtain permanent residency and eventual citizenship.  A foreign investor who makes a qualifying investment can apply to obtain a green card (permanent resident card) and, eventually, United States citizenship if they meet all the criteria of the EB-5 immigrant visa program.

However, a challenge for many Middle Eastern investors is the ability to procure an EB-5 qualifying investment that will also adhere to the principles of Islamic Finance.  There are several methods to structure an EB-5 investment to be Islamic-finance compliant, one of which is discussed in this post.

The EB-5 Program

The United States Congress created the employment-based EB-5 immigrant visa category in 1990 for immigrants who invest in and manage U.S. commercial enterprises that benefit the economy.  To qualify, investments must create at least 10 full time jobs for U.S. workers.  The minimum investment required is $1 million, although that amount is reduced to $500,000 if the investment is made in a high unemployment area or a qualifying rural area.  Immigrant investors who successfully qualify would obtain a permanent resident card with the opportunity to apply for citizenship after 2 years.

In 1992, to stimulate interest, Congress enacted the EB-5 Regional Center Pilot Program.  The program allowed public and private entities to apply to the United States Citizenship and Immigration Services (“USCIS”) to be designated as a regional center.  The regional center would, in turn, develop qualifying investments for foreign investors under the EB-5 program.  Regional centers provide a structure for focusing foreign investment in a specific U.S. geographic area and for promoting economic growth in such area through increased export sales, creation of new jobs, and increased domestic capital investment.  For an immigrant investor, the benefits of investing through a regional center are numerous.  Typically, a regional center investment has already been evaluated for feasibility.  Similarly to a real estate developer who is raising capital, a regional center would already have prepared business plans, private placement memorandums, feasibility studies, and other offering documents.  In the case of an EB-5 investment, the regional center would have also completed economic impact studies to demonstrate to USCIS that it meets the job-creation criterion. In addition, most regional centers hold an immigrant investor’s funds in an escrow account pending USCIS approval of the investor’s EB-5 application.   Therefore, if the application is denied for any reason, the investor recovers his or her principal investment.

Most Regional Center investments are in large real estate development projects.  For example, a recent example of a regional center I have advised was structured as a partnership to invest in the expansion of an established ski resort in the state of New Hampshire.  The partnership was structured as a limited partnership, with the foreign investors designated as the limited partners and the real estate developer as the general partner.  Such a partnership can also comply with Islamic finance principles, subject to the requirements discussed below.

Structuring the Investment to be Islamic Finance (Shari’a) Compliant

Islamic Finance products and instruments set out to achieve the same business goals as conventional finance products and instruments, but within the constraints of Islamic rulings.  Islamic-compliant financial solutions range from profit-and-loss sharing mechanisms, consumer finance, trade finance, working capital finance, and project finance.  Broadly speaking, Islamic finance prohibits excessive risk or speculative investments and the payment or receipt of interest.  In addition, risks in any transaction must be shared between the parties, so that the provider of capital (investor) and the entrepreneur share the business risk in return for a share in the profits.

A Regional Center may qualify as an Islamic-finance compliant investment by structuring the entity as a partnership.  A permissible method of Islamic financing is a musharaka, which, in Arabic, literally means “sharing.”  A musharaka is a joint enterprise formed for a business purpose in which all partners share profits according to a predetermined ratio.  However, the key difference is that losses must be divided exactly in accordance with the pro rata share of capital invested by each partner.  In the context of real estate and project financing, the foreign investor, as a limited partner, would contribute capital while the real estate developer, as the general partner, would contribute either real estate assets or additional capital.

To ensure compliance with Islamic finance principles, the agreement between the partners would need to describe the capital contributions and the allocation of profits and losses, as well as the management responsibilities (which would normally be undertaken by the real estate developer as general partner).  The real estate developer would then undertake the project using the capital and other contributed assets in the construction and operation of the project.

Disclaimer: This article is for informational purposes only and does not constitute an offer or solicitation to sell shares or securities. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended. This article does not constitute investment advice or counsel or solicitation for investment in any security.  These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice.  The material posted on this web site is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel.

Demystifying the Saudi Arabian Market: Investment Options and Establishing a Presence (Part 2)

doing-business-in-saudi-arabia_mainBy: Wassem M. Amin

Saudi Arabia’s Foreign Investment Regulations give foreign investors a variety of options in determining how to conduct business operations in the Kingdom.  However, regardless of the option chosen, if a physical commercial presence is established, foreign investors must first obtain a foreign capital investment license from the Saudi Arabian General Investment Authority (SAGIA).

Establishing a Physical Presence

Investments in Saudi Arabia may be through the formation of a new business entity or through the acquisition of assets or equity in an existing company.  Commercial enterprises by foreign companies may be structured as any of the following: (1) joint ventures, (2) wholly owned subsidiaries, (3) local branches of a foreign company; or (4) representative or agent offices.

The principal body of law governing commercial enterprises in Saudi Arabia is the Companies Regulation, which is enforced and regulated by the Ministry of Commerce and Industry.  In some circumstances, an enterprise may be subject to the rules and regulations of additional regulatory bodies such as the Saudi Arabian Stock Exchange (Tadawul), the Saudi Arabian Monetary Agency (SAMA), or the Capital Market Authority (CMA).

In terms of the legal type of entity established, foreign investors have several options to consider–depending largely on the scope and type of the proposed enterprise as well as the investor’s exit strategy.  The types of entities are: (1)  Joint Stock Company; (2) Limited Liability Company; (3) Joint Venture; (4) Branches of foreign companies; and (5) Technical and Scientific offices of foreign companies.

Joint Stock Company (JSC): JSCs are the most analogous entity to a C-Corporation in the United States.  They may be wholly foreign owned and are typically established with the intent towards a future public offering and listing on the Saudi Stock Exchange (Tadawul).  A minimum of 5 shareholders and 3 directors on the board of directors is required.  The minimum initial capitalization required is 2 Million Saudi Riyals (SR), which rises up to SR10 Million if the JSC will issue publicly traded shares.

Limited Liability Company (LLC): As with JSCs, Saudi law permits an LLC to be wholly foreign owned and managed.  LLCs must have at least 2, but not more than 50, member-investors. Each member owns a pro-rata equity share equal to the uniform nominal value.  Liability of individual members, under most circumstances, is limited to the member’s paid-in capital.  Minimum initial capitalization for an LLC with any foreign members is typically SR500,000.  However, for certain industries, such as agricultural or industrial projects, the minimum capital may be much higher.  Unlike JSCs, LLCs do not issue shares and cannot be publicly traded on the Saudi Arabian Stock Exchange.

Joint Ventures – LLCs and JSCs may both be wholly owned or established with a Saudi business partner.  The decision to establish a Saudi partner may be mandatory in some fields, such as establishing a branch of international law firm.  However, in other cases, a foreign investor may benefit from a Saudi partner’s expertise and familiarity of the local market, customs, and traditions.  The risks and benefits of doing so must be carefully analyzed after thorough due diligence is conducted.

Branches of Foreign Companies – Branch offices are set up to represent foreign companies in Saudi Arabia.  Similarly to JSCs or LLCs, branch offices are allowed to engage in direct business activities.  However, their scope of business is limited to that of the parent company.

Technical and Scientific Offices (TSOs) – TSOs are easily set up in Saudi Arabia and are usually established when a foreign company enters into long-term distribution or agency arrangements with local companies.  However, their scope of allowed commercial activity is limited to providing technical support and assistance to local distributors, agents, and consumers.  TSOs are prohibited from engaging in any direct business activities.

Other Commercial Arrangements – Distribution arrangements may be done through a joint venture with a Saudi partner or by appointing a local distributor or agent on your behalf.  Other options, such as franchising or a direct international sale, may also be available, depending on the type of service or product the foreign company offers.

Demystifying the Saudi Arabian Market: Opportunities and Challenges (Part 1)

By Wassem M. Amin

doing-business-in-saudi-arabia_mainThe Kingdom of Saudi Arabia unveiled a record budget for the 2013 fiscal year.  According to Fitch Ratings,  overall spending has been increased by nearly 20% over the past year.  In fact, spending in every sector will increase between 20-30%.  For example, the budgeted capital spending is 28% higher in FY13, while spending on the Education and Healthcare sectors will increase by nearly 36%.  Saudi Arabia’s increased spending is part of the its policy to create economic diversification and reform, in turn decreasing their dependence on oil revenue and creating new jobs for the local population.

In tandem with aggressive economic growth and spending, the government has been seeking to boost local and private foreign investors in the Kingdom.  Over the past few years, it has overhauled previously restrictive foreign direct investment laws to allow businesses to be wholly-owned by foreigners.  At the same time, it has significantly increased the availability of resources to foreign investors through its investment arm, the Saudi Arabian General Investment Authority (SAGIA).  In addition, despite the political unrest in the Middle East and worldwide global recession, the Kingdom has remained relatively stable and, thus far, unaffected.

The Kingdom’s expansionary policy has created significant opportunities for foreign investors.  However, although many multi-national corporations have penetrated the market, individual investors and small to medium enterprises (SMEs) still find it difficult to do so.  This is due to a combination of factors.  First, individual investors and SMEs often lack the access to global consulting firms that assist many larger businesses.  Second, the Kingdom, unlike its neighbor the United Arab Emirates, has not engaged in aggressive advertising to advocate foreign investment.  Third, although the government has implemented significant reform, its complex legal system, based on Shari’ah law, is confusing to outsiders.

Finally, and perhaps most critically, the Saudi culture and society remains extremely conservative.  Those unfamiliar with cultural norms and customs are often shocked upon their arrival in the Kingdom.  On a few cross-border transactions that I have consulted on, that lack of awareness has typically been the most likely precipitator of frustration between either party.

Saudi Arabia is perhaps one of the most attractive foreign investment economies in the world.  Investment opportunities exist in virtually every sector.  But, as with any investment, it is necessary to be fully informed.  A thorough knowledge, either through professional consultation or self-education, of the risks, laws, traditions and customs is a critical prerequisite.

Over the next couple of weeks, I will be writing a series of blog posts that address the most important differences and similarities of doing business in Saudi Arabia.  I will focus on different investment vehicles, setting-up a business, regulatory laws (including IP protection), locating resources, and customs and traditions.

If you have any individual questions, feel free to contact me.

A Call for Regulation in the Islamic Financial Services Industry: A Comparative Study of Saudi Arabia and Malaysia

A Call for Regulation in the Islamic Financial Services Industry: A Comparative Study of Saudi Arabia and Malaysia

Islamic Finance2

Wassem M. Amin*


Originally developed in the 1960s[1], the market for Islamic Finance still remains relatively small compared to the global financial market.  The overall market for Islamic Finance instruments in 2010 was valued at one trillion dollars,[2] a minuscule figure compared to the market capitalization of the Dow Jones Index alone.[3] However, the global Islamic Finance market has been expanding at a rate of 10-15% annually.[4] Saudi Arabia and Malaysia, with $92 billion and $86 billion in Islamic-compliant assets, respectively, have led the worldwide market in growth.[5]

As the market for Islamic Finance products continues to expand, Saudi Arabia has faced growing criticism for its lack of banking laws that govern Islamic Banks directly.[6]  Saudi Arabian law does not differentiate between Islamic banking and conventional banking.[7]  Instead, the Islamic Financial industry is self-governed by individual board members in each bank.[8]  This laissez-faire approach has resulted in a lack of uniformity and regulation that is hindering the growth of the market in Saudi Arabia and the global market as a whole.[9]  For example, in 2010, Saudi Arabia accounted for zero new Islamic Bond issuances.[10]  On the other hand, during the same year, Malaysia accounted for 62.5 % of all sukuk[11] (Islamic Bonds) issuances worldwide, valued at almost $19 Billion.[12] Malaysia has a national Shari’a board which establishes rules and regulations for Islamic Financial Institutions within the country.[13]  These rules are standardized under the Malaysian Central Bank and must be adhered to by Islamic Banking Institutions.[14]  The clear laws and regulations have encouraged the aggressive growth of the Islamic Finance market in Malaysia.[15]   Saudi Arabia must establish regulatory laws similar to those of Malaysia in order to encourage the continued investment and consumer confidence in its Islamic Banking industry.

The regulatory mechanisms in Malaysia —which directly govern the unique principles of Islamic Finance—address the majority of the criticism that Islamic Financial Institutions (“IFIs”) in Saudi Arabia have received.[16]  First, they guarantee a uniform set of laws that applies to all IFIs, eliminating the confusion of conflicting Shari’a interpretations.[17]  Second, they establish a specialized forum within the civil court system with the exclusive jurisdiction to hear any disputes arising from IFIs or their financial products, therefore ensuring that the judicial body entrusted to do so is well qualified and well versed in the area of Islamic Banking and Shari’a principles as applied therein.[18] Finally, rules governing the appointment of an IFI’s Shari’a board eliminate the potential for a conflict of interest while ensuring that individual members are qualified.[19]

This paper will examine the regulatory differences between the two largest Islamic Finance Markets, Saudi Arabia and Malaysia.  It will argue that Saudi Arabia needs to establish regulatory laws similar to that of Malaysia to encourage the Foreign Direct Investment in its Islamic Financial products and encourage the sector’s growth.  Further, standardization will help cut the costs of Islamic Finance products and, more importantly, foster the emergence of a truly integrated global Islamic Finance market.

Accordingly, Part I of this paper will examine the brief history behind Islamic Finance, the major differences vis-à-vis conventional finance, and its underlying principles and guidelines.[20] Part II will analyze the various Islamic Finance investment vehicles that are primarily used in today’s markets.[21] Part III will analyze the various regulatory governance systems in place and the impact on the industry in two of the largest Islamic Finance markets: Saudi Arabia and Malaysia.[22]  Finally, Part IV will argue that Saudi Arabia needs to implement banking laws and nationally regulate its Islamic Banking Industry to successful maintain the growth of the market.[23]

I.  History and Development of the Islamic Finance Market

  1. Shari’a Law

Islamic Finance can be broadly described as a financial system that is in compliance with Shari’a law, which is the primary source of guidance for all Muslims.[24] Translated into English, the term Shari’a roughly means “Islamic Law.”[25] Islamic Law is an umbrella for distinct sources of a combination of legal and religious tradition.[26]  In order of significance, the primary sources from which Islamic Law is derived include, (1) the Qu’ran, (2) the hadith, (3) ijm’a, and (4) qiyas.[27]  Muslims believe the Qur’an contains the literal word revealed of God to their prophet.[28]  The hadith are the recordings of the Prophet’s actions and words as documented by his followers.[29]  These examples are in turn translated by religious scholars and applied to modern day conditions primarily through a form of analogical reasoning known as qiyas.[30]  Lastly, when Islamic scholars and jurists reach a consensus on the proper application of the qiyas, it results in a per se valid and binding religious law or an ijm’a,[31] also known as a “consensus of the jurists.”[32]

  1. The Importance of Islamic Finance in the Modern Financial Landscape

Islamic Finance is a relatively new brand of finance whose roots could be traced to 1963 to a bank in Cairo, Egypt.[33]  However, since then, the market for Islamic Finance has rapidly expanded at a rate of 10-15% annually.[34]  Islamic Financial assets are expected to be valued at almost one trillion dollars at the end of this year.[35] The rapid ascent of Islamic Finance has caused many Western countries to realize its significant potential.  In a speech in 2006, then British Prime Minister Gordon Brown declared his desire to see London become the international global center for Islamic Financial activity.[36]  He has also pledged his support for any legislative changes necessary to ensure a level playing field for Islamic Financial products.[37]  As a result, the Financial Services Authority of England[38] has dedicated a special division to develop the requisite legal framework.[39]  By the end of 2006, the Islamic financial services market in England was valued at almost one billion dollars.[40] Additionally, major financial institutions, such as HSBC and Citibank, have developed networks of financial instruments that are compliant with Islamic Law.[41]  There is undoubtedly a growing demand for Islamic Financial Products globally.[42] This demand has been partially attributed to the increasing wealth of Muslim countries, an increased lending capacity in Muslim populated areas, and large scale developments in the Gulf region which have resulted in more lenders entering the market.[43]

The International Association of Islamic Banks (“IAIB”) recommends that every financial institution offering Shari’a compliant services to have a board of Islamic and Legal scholars directly elected by the shareholders.[44]  If the board refuses to validate a product proposal because of noncompliance, the bank must abandon it.[45]  The IAIB was founded in Saudi Arabia with the objective enforcing ties and links among Islamic Financial Institutions and ascertaining their observance to Shari’a principles.[46] Although the IAIB is only a voluntary business league, it has emerged as an authoritative organization whose influence on Islamic banks has been considerable.[47] In an effort to standardize the regulation of the industry, many Middle Eastern and Muslim governments have established regulatory boards to oversee compliance based on IAIB’s recommendations.[48] In countries that have done so, a special regulatory scheme governs conventional finance while a separate system of governance oversees Islamic Financial Services.[49]  As for industry oriented, non-governmental initiatives, advisory bodies in various countries have been established including the Institute of Islamic Research at Al-Azhar University and the Islamic Jurisprudence Council of the Muslim World League.[50] Other industry sponsored bodies include the Accounting and Auditing Organization of the Islamic Financial Institutions, the Islamic Financial Services Board, the International Islamic Financial Market, and the International Islamic Rating Agency.[51]

2.   Conventional Banking versus Islamic Banking

One of the foremost legal Islamic jurists stated: “[T]he basic difference between the capitalist and Islamic economy is that in secular capitalism, the profit motive or private ownership are given unbridled power to make economic decisions.”[52]  The very entrepreneurial spirit of a capitalist society is dependent on the concept of interest.[53]  For example, it is impossible to conceptualize how the American economy could survive if lending institutions were not given an incentive to make funds available to small businesses or homeowners, let alone corporations.[54]  Consequently, most American investors have a significant amount of capital and savings invested in different interest bearing accounts such as stocks, bonds, mutual funds, CDs or saving accounts.[55]  Indeed, interest is such a central concept of American financial markets that a mere statement regarding the lowering or raising of rates by the Federal Reserve Bank has the potential of crippling the economy.[56]  As we have seen during the housing market crash, instruments in interest-based economies are so intertwined that the crash of one has the potential of depressing an entire economy.[57] The value of Islamic Finance was particularly evident following the subprime mortgage crisis in 2008.[58] Islamic banks were shielded from the subprime mortgage crisis since Shari’a principles prohibited the investment in interest-based products.[59]  Indeed, following the crash, the Vatican indicated in a statement that banks should look to the rules of Islamic Finance to restore confidence with their customers.[60]

The theory behind Islamic Finance, although idealistic, is characterized in general as a distinction between a system that is driven purely by profits and one that contains the dual goals of religious piety and profit maximization.[61]  In practical terms, the primary differences are the various restrictions that Islamic Finance places on the types of permissible investments.[62] Due to the fact that Islamic Finance is based on Islamic teachings, it prohibits the investment in products that are forbidden by the religion such as: the charging of riba (interest), the undertaking of excessively speculative or risky ventures, contractual uncertainty or ambiguity, traditional insurance products, and, not surprisingly, industries that deal in gambling, pornography, alcohol, tobacco, pork products and even industries that produce certain media products such as gossip magazines.[63]  Islamic Law jurists believe that no more than 5% of a business’s income should be derived from these activities in order for it to be compliant with Islamic Finance principles.[64]

  1. The Prohibition of Interest (“Riba”)

The prohibition of interest is perhaps the central tenet, and most commonly known feature, of Islamic Finance principles.[65]  Therefore, it is necessary to examine the extent of this prohibition in some more detail.  Islamic Law prohibits the accumulation of wealth through interest because it is believed to not be a product of one’s own effort.[66] Muslims believe that an interest-based economic system will always lead to the accumulation of wealth in the hands of a few at the expense of many.[67]  This is based on the assumption that lenders choose to lend money to those with the most collateral, who, in turn, use that money to generate more profits.[68]

For many in the western world, it is difficult to grasp the importance of this prohibition without understanding its origins.[69]  To effectively understand the notion of Islamic Finance, it is critical to understand the reasons behind the prohibition on interest.  Despite many beliefs, the prohibition of interest does not stem from some benevolent notion or belief.[70] Instead, this prohibition is expressly stated in Islam’s Holy Book, the Qu’ran.[71]  However, although this prohibition comes directly from Islamic Law, it still creates ambiguity when applied in the modern world.[72]  Translated directly, the Arabic term “riba” literally means an addition.[73]  However, the exact definition of riba, in real world application, has been subject to one of the longest controversies in the Islamic Finance World.[74]  Does the prohibition refer to interest or usury? This is a very important distinction.[75]  If riba was taken to mean the prohibition of usury, then only transactions which involve the unjust or illegal collection of interest are prohibited—which are also prohibited in many western contracts.[76]  Through this interpretation, the lawful charging of interest would be permitted under Islamic Finance Laws.[77]  However, this is only the minority position.[78]  The majority interpretation and the general consensus among Muslim jurists is that a broad interpretation of riba should be used, outlawing all forms of interest, whether lawful or unlawful (usury).[79]  This prohibition also extends to currency lending transactions (or trading in futures and derivatives), and trading that involves other commodities, such as some types of essential food staples, gold and silver.[80]

Many purported Shari’a-compliant instruments use prepayments to circumvent the prohibition on interest.  Prepayment works by reducing the principal owed by borrowers.[81]  However, Shari’a committees of most Islamic banks and Islamic Law expressly forbid this practice.[82]  Although not ideal, a possible work-around is to offer rebates instead.[83]  Another method is to offer advance purchases at a slight markup and distribute the payments evenly over a specified period.[84]  However, it is strictly prohibited for Islamic Finance products to charge late fees on any loan or purchase.[85]

The Prohibition Against Speculative and Excessively Risky Transactions (“Gharar”)

Another central feature of Islamic Banking is the prohibition of gharar, which roughly translates into “trading in risk”[86] or “risk taking.”[87]  This has been interpreted by Islamic jurists to prohibit the lack of specificity and speculative contracts or investments.[88]  This is derived from the Qu’ran’s prohibition against games of chance, such as gambling.[89]  The practical consequences of this prohibition is that the sale of items that are not currently in existence (such as a futures or options contract) and contracts or financial instruments that are highly speculative in nature are expressly non-compliant with Islamic finance.[90]  In order for financial instruments to be legally compliant with this prohibition, an instrument must: (1) not have excessive speculation or risk; (2) the instrument or contract must have an underlying subject matter of the sale; and (3) society must not be in need of the contract in question (which explains the prohibition on food contracts and futures).[91]  These restrictions effectively invalidate most common financial products and activities such as future contracts on food products, derivative or option trading, and hedging.

II.                Permissible Islamic Financial Products

Although the prohibition on interest and speculative risk taking may initially seem to stifle the possibility for any financial products, Islamic Finance practitioners have developed innovative ways to circumvent the religious restrictions.  The most common forms of financing that are Shari’a-compliant are outlined below.  Although this list is by no means exhaustive, it represents the most common Islamic Finance Products in use today.[92]

  1. Mudharabah

This is a profit sharing contractual agreement that is employed typically between a financial institution and an entrepreneur.[93]  The entrepreneur, who seeks funding for his project, receives the money from the institution while in return providing the labor and business expertise. [94] Prior to the contractual agreement, the two parties determine a ratio at which they will share profits, and all profits made in the venture are shared accordingly.[95] However, unlike western financial institutions, the bank also shares in the losses from the business venture—exposing itself to this risk—and therefore justifying its claim to a percentage of the profits.[96]

2.   Musharakah

Joint-venture financing, or musharakah, is widely used in project finance, real estate development, and other long term investment projects in the Middle East.[97]  Mimicking the default provision of the Uniform Partnership Act of 1914 (“UPA”), each partner in a musharakah agreement has equal management rights regardless of their respective investments.[98]  However—also similar to the UPA—the parties can deviate from the default provisions through a written contractual agreement.[99]

3.  Murabaha (“sharing profits”)

This financial product is the Muslim version of a Mortgage—with a little Shari’a compliant variation.[100]  A bank or financial institution buys an asset and subsequently sells it back to the customer, who will make a single or multiple deferred payments over an agreed upon period of time.[101]  The purchase price, sale price, and the expressly defined profit margin are all agreed upon prior to the contractual agreement.[102] The profit here is justified on the theory that the bank is being compensated for the loss of the investment value of its money.[103]  Note that this system of financing—by definition—prohibits Adjustable Interest Rate Mortgages (“ARM Mortgages”) that many economists have speculated were one of the major causes of the recent economic crisis.[104]

4.  Wadiah (“custody”)

A wadiah is a contract between a financial institution, usually a bank, and a customer-account holder where the customer places his money in trust with the bank.[105]  In return, the bank invests the funds and guarantees repayment of any parts of the funds upon request.[106]  The major difference between a wadiah and a traditional bank account is that depositors in a wadiah are not entitled to any interest payments for their deposited funds.[107]  This allows Shari’a compliance by preventing the prohibited act of interest payment and charging.[108]

5.  Sukuk

This is perhaps the most widely known Islamic Financial Product.  Commonly referred to as Islamic Bonds, sukuk varies from bonds in one major area—they do not draw traditional interest.[109]  A traditional bond is a debt obligation, and the bond issuer is obligated to pay the holders both interest and principal at contractually set intervals.[110]  On the other hand, with a sukuk investment certificate—as they more accurately represent—entitle the holders to an “undivided beneficial ownership interest in the underlying assets” and are allowed to share in the sukuk’s revenues as well as the proceeds of the underlying assets.[111]  However, it is important to note that sukuk products have recently come under fire due to various questionable practices.[112]  Most notably, Islamic Scholars have questioned whether the traditional sukuk model invariably provides interest guised in Shari’a compliance.[113]  Scholars and regulators have questioned the now common practice of marketing asset-backed returns on the basis of the London Interbank Offered Rate (“LIBOR”), which violates Shari’a teachings of prohibiting interest-based or backed products.[114]  Due to these questionable practices, sukuk issuances have dropped off dramatically.[115]


III.              Impact of the Current Regulatory Framework

The scholarship surrounding Islamic Finance is “alarmingly insufficient.”[116] Accounting and financial analyses in the field has been relatively non-existent.[117] The majority of the literature surrounding Islamic Finance has largely been driven by legal practitioners.[118] One of the main areas that have not been addressed is comparative corporate governance within countries housing Islamic Financial Institutions.[119]  The result has been a wide divergence in regulatory practices between various countries.[120] The existing framework for Islamic finance in various jurisdictions exhibits the diverse practice and models of Shari’a governance.[121]  Some jurisdictions, such as Malaysia, have favored the heavier involvement of regulatory authorities.[122]  Others, such as Saudi Arabia, have instituted a more passive approach to the regulation of Islamic Finance and Banking.[123]  This passive approach in regulation has caused  “differing interpretations of Sharia law [and has resulted] . . . in the fragmentation and lack of integration of the market for Islamic financial products [in Saudi Arabia].”[124]  Using a passive approach has affected the vitality and growth prospects of the Islamic Finance market in Saudi Arabia.[125]  On the other hand, a more active regulatory approach, such as in Malaysia, has resulted in increased investor confidence which translates into a larger Islamic Finance market, evidenced by Malaysia’s Islamic Finance industry’s rapid growth in recent years.[126]  Saudi Arabia must implement a system similar to Malaysia’s to ensure that it remains competitive in this fast-growing market.[127] The following section examines in detail the impact of the lack of regulation in Saudi Arabia.

  1. Saudi Arabia

Current Regulatory Overview

In Saudi Arabia, Shari’a, or Islamic, law normally governs all aspects of commercial activities, including banks and financial transactions.[128] In practice, however, banking operations are governed much similarly to their western counterparts.[129] The Islamic finance sub-sector has existed informally for centuries in the Arabian Peninsula and more formally since the 1980s when the first Islamic bank was established.[130]  The history of the modern banking system in Saudi Arabia began in the 20th century with the establishment of a commercial bank in 1926 that was called the Dutch Commercial Company.[131]  In 1957, a Royal Decree established the Saudi Arabian Monetary Agency (“SAMA”), a regulatory agency which oversees banking and finance in the Kingdom.[132]  However, SAMA has adopted a more passive approach to the regulation of Islamic Banking.[133]  SAMA treats Islamic Finance Institutions (“IFIs”) equal to conventional banks.[134]  SAMA has not issued any legislation directly governing IFIs or any guidelines pertaining to Islamic Finance governance.[135]  In addition, unlike Malaysia, there is no Shari’a national advisory board or any institution solely dedicated to being the authoritative body on Islamic Finance.[136]  The national advisory in Malaysia has been credited with instituting uniform rules and regulations that govern all IFIs.  In Saudi Arabia, the impact of the lack of a national governing body has resulted mode of governance created by self initiative on behalf of existing IFIs rather than a mandatory regulatory requirement.[137]

IFIs in Saudi Arabia are not supervised by SAMA.[138]  Instead, they are treated as a commercial company monitored directly by the Saudi Ministry of Commerce.[139]  The legal framework of the financial system in Saudi Arabia is governed by an act called the Banks Control System.[140]  Ironically, although this law is theoretically based on Shari’a, it is silent on the issue of usury or interest.[141]   In fact, Article 8 and 9 of the Act consider money lending with interest perfectly legitimate.[142]  As a result, most of the financial and banking institutions in the Kingdom have been operating as conventional, and not Islamic, banks.[143]  The Bank Control System is still controlling and has not been amended or repealed to regulate the establishment and operation of IFIs in the Kingdom.[144]  Until today, there is no single legislation specifically targeted toward the regulation and implementation of Islamic Finance.[145] Due to these discrepancies in the laws and the lack of a mandatory regulatory authority, IFIs in Saudi Arabia operate under an ambiguous legal framework, with some banks offering a hybrid form of Islamic Finance that is not in full compliance with Islamic Law.[146]

In October 1987, SAMA specifically set up an arbitration tribunal dedicated to resolving disputes surrounding banking and financial matters.[147]  This tribunal, known as the Banking Disputes Committee, was given exclusive jurisdiction by a Royal Decree to hear all financial disputes involving banks.[148]  While this was certainly a step in the right direction, it did not, unfortunately, specifically set up a tribunal for IFIs or other Islamic Financing disputes.[149]  Therefore, although IFIs are governed by completely different principles, they must arbitrate their disputes in the same forum as their conventional counterparts and several problems may arise when the tribunal is unfamiliar with the tenets of Islamic Finance.[150]

Hurdles in IFI Governance in Saudi Arabia

The absence of legislation or regulation directed specifically towards IFIs has resulted in unique self-governance system in Saudi Arabia.[151]  IFIs have instituted a self-regulatory process within each institution that is a result of voluntary initiative and perhaps indirect market pressure.[152]  Typically, each IFI hires, retains, and pays the salary of a committee of Islamic jurists to issue opinions (known as fatwas) certifying each financial transaction to be permissible according to Islamic, or Shari’a, Law.[153]  A prime example is the system instituted by Al-Rajhi Bank, the country’s largest IFI.[154]  Al-Rajhi bank has over 400 branches in Saudi Arabia with almost twenty billion dollars in Shari’a-compliant assets.[155]

The bank has in place a Shari’a board that is stipulated in its articles of incorporation and implemented by internal rules and guidelines.[156]  The board plays four major roles in ensuring that financial products are Shari’a compliant.[157]  First, it monitors the implementation of various Shari’a regulations, interpreted by the board itself, along with a separate Control Department, which aids in the oversight of compliance.[158]  Second, it directly develops Islamic Financial Instruments that are Shari’a compliant.[159]  Third, it promotes Islamic finance both internally within the bank and externally to the public through awareness and publications.[160]  Finally, it directly selects employees at the top management level that are experienced and well versed in Islamic Finance and qualified in implementing its products.[161]

Additionally, Al-Rajhi bank has three support units that are created specifically to support the Shari’a board and its activities—the secretary, the Shari’a Control Department, and the Control and Information Unit.[162]  The secretary insures that the Shari’a board adheres to strict meeting and operating procedures.[163]  The Control Department assists the board in performing Shari’a review of financial products to ensure compliance.[164] The Control and Information Unit specifically provides information on the latest Shari’a developments and promotes Shari’a compliance within the bank and its various subsidiaries.[165]  As an added measure, Al-Rajhi Bank has created a fourth department, the Executive Committee, whose main function is to oversee these various operations.[166]  Specifically, the Executive Committee oversees the Control Department, appoints controllers to audit for Shari’a compliance, and resolves disputes that may arise between the various support units.[167]  The Executive Committee reports directly to the Shari’a board.[168]

To cope with the lack of government regulations on Islamic Finance, Al-Rajhi bank has passed its own set of guidelines and procedures known as the Shari’a Monitoring Guide and the Shari’a Control Guidelines.[169]  The bank states that these regulations are designed to ensure the proper monitoring and implementation of Shari’a rulings.[170]  The guidelines state that all of the Board’s rulings are considered binding on the bank.[171]  Therefore, any financial products or services must be approved by the Executive Committee before they are offered to the public.[172]

However, despite this seemingly thorough mode of self regulation, Al-Rajhi bank has continued to face difficulties operating in a country that does not directly recognize IFIs.[173]  For example, in 1983, Al-Rajhi sought to obtain a license from SAMA designating it as an Islamic bank because they wanted to diversify into accepting deposits and undertake financing.[174] However, the request was denied by SAMA under the view that if Al-Rajhi bank was deemed an Islamic bank, SAMA would be implying that other banks in the country were non-Islamic.[175]  The license was eventually granted in 1987 after much lobbying with the Royal Family and a stipulation that Al-Rajhi not use the word Islamic in their operational title.[176]  As of the date of this Article, Al-Rajhi bank was the only bank in Saudi Arabia that was certified as an Islamic Bank by SAMA.[177] The case of Al-Rajhi bank illustrates the significant hurdles in operating in a regulatory environment which does not independently recognize IFIs.[178]

2.  Malaysia

Current Regulatory Overview

Malaysia has undertaken a much more proactive approach to regulating and governing IFIs.[179]  Malaysia’s legislative and legal framework consists of Shari’a and common law.[180]  The common law principles are applied in civil court matters and disputes.[181]  Islamic, or Shari’a law, governs disputes involving family matters and inheritance.[182]  The Constitution of Malaysia grants civil courts exclusive jurisdiction over Islamic Banking disputes and regulation, and as such, common law, instead of Shari’a law, applies.[183]  However, the Central Bank of Malaysia, along with the cooperation of the judicial civil body, set up a court in the Commercial Division of the civil court system that deals exclusively with IFIs and any disputes arising under Islamic Banking, and, as such, is governed by Shari’a law.[184]  This court, known as the Muamalah bench, is granted jurisdiction to only hear cases on Islamic Banking.[185]

The development of a comprehensive regulatory framework governing the Islamic Banking Industry was undertaken by Malaysia in several phases beginning in 1983.[186]  These developments were also facilitated by the passing of several laws aimed specifically at the regulation of Islamic Banking—such as the Islamic Banking Act of 1983 (“IBA”)[187], the Takaful Act of 1984[188], the Banking and Financial Institutions Act of 1989 (“BAFIA”)[189], the Securities Commission Act of 1993[190], and  the Central Bank of Malaysia Act of 2009[191].  Under BAFIA, a Shari’a Advisory Council (“SAC”) was established in 1997.[192]  The SAC is considered the highest Shari’a authority in the country[193].  One of the primary tasks of the SAC is to aid the civil courts in defining and interpreting banking regulations to ensure compliance with Shari’a law.[194]  Its rulings and guidelines pertaining to Islamic Banking and Finance are binding on all IFIs in Malaysia.[195]  To prevent a potential conflict of interest, members of the SAC are appointed directly by the King of Malaysia with advice from the Minister of Finance.[196]  In addition to a uniform regulatory framework, the IBA mandates that all IFIs establish their own Shari’a board.[197]  The main purpose of the board within each institution is to advise the IFIs of any Shari’a ruling by the SAC and ensure compliance with Shari’a tenets and regulations, as interpreted by the courts and the SAC.[198]  The IBA grants the government the right to refuse the incorporation and operation of any IFCs that do not comply with these regulations.[199]

The Central Bank of Malaysia Act of 2009 played a pivotal role in the monitoring and supervision of Islamic Finance.[200]  This Act created the Bank Negara Malaysia (“BNM”), also known as the Central Bank of Malaysia, which regulates the governance of the SAC and individual Shari’a boards within each IFI.[201]  The BNM has issued a set of regulations known as the Guidelines on the Disclosure of Reports and Financial Statements of Islamic Banks.[202]  These guidelines regulate the establishment of the SAC, its membership, duties, responsibilities, and restrictions.[203]

As for individual Shari’a boards, the Guidelines mandate a strict reporting structure and oversight that each IFI must abide by.[204]  It specifies that each IFI’s Board of Directors must appoint members of the Shari’a board with a maximum, renewable term of two years.[205]  Each member of the Shari’a board must then receive individual approval from the BNM.[206]  To qualify as a member of the Shari’a board, the guidelines set out strict qualifications which ensure that the individual possesses the necessary expertise in Islamic jurisprudence and Islamic transactional law.[207]  Additionally, to prevent a potential conflict of interest, a Shari’a board member of an IFI cannot concurrently serve as a board member of a different IFI.[208]  Board members are then subject to constant monitoring and could be disqualified if they breach a corporate governance rule, fail to attend at least seventy-five percent of annual meetings, declare bankruptcy, or be found guilty of a criminal offense.[209]

The responsibilities of the Shari’a board are also carefully set out in the guidelines.[210]  For example, the board is responsible for advising the IFIs Board of Directors, endorsing Shari’a compliance manuals, assisting in the interpretation of Shari’a laws, and advising on any matters referred to it by the SAC, among other duties.[211] The board is also legally required to produce an annual report to the SAC that includes, at a minimum, a declaration of Shari’a compliance by the IFI endorsed by all members of the board.[212]  This allows for direct accountability of the board members in the event that an IFI deviates from Shari’a principles.[213] Similarly, the IFI’s Board of Directors is bound by any ruling that its Shari’a board members issue, in addition to the SAC’s interpretations.[214]

IV.   The Impact of Lack of Regulation in Saudi Arabia and Finding the Solution in Malaysia

The latest statistics for the Islamic Finance industry demonstrate a growth in the number of institutions, in the size of their operations, and in the diversity of services and products offered.[215]  Islamic financial assets are projected to grow at a rate of 24% annually, reaching $1.15 trillion by 2013.[216] The annual growth rate in the industry has averaged twenty-three percent since 1994.[217]   In 2010, Malaysia accounted for eighty-four percent of all sukuk (Islamic Bonds) issuances worldwide, valued at almost $19 Billion.[218]  In the same year, Saudi Arabia contributed to none of the sukuk issuances.[219]  In 2007, Malaysia had three of the top ten performing Islamic Mutual Funds—the CMS Islamic Fund, the CIMB Islamic Equity Fund, and the RHB Islamic Growth Fund.[220]  In fact, the CMS Islamic Fund ranked first in terms of Return on Investment.[221]  By contrast, Saudi Arabia had only one fund listed in the top ten performing funds—the Al-Rajhi India and China Equity Fund—which, notably, is not based on assets in Saudi Arabia, but rather India and China.[222]

The lack of regulation in Saudi Arabia has severely hindered the growth of the Islamic Finance Market both within the Kingdom and globally.[223]  The result has been a questioning of the legal status of Shari’a rulings, conflict of laws that frequently arise, systemic challenge of the courts’ jurisdictions, and addressing conflicting Shari’a rulings by different banks on the same issue.[224]  This laissez-faire mentality has caused a decrease in consumer confidence and a migratory shift of foreign direct investment to nations that have clear regulations in place—such as Malaysia.[225]

The regulatory mechanisms—which directly govern the unique principles of Islamic Finance—in Malaysia address the majority of the criticism that IFIs in Saudi Arabia have received.[226]  First, they guarantee a uniform set of laws that applies to all IFIs, eliminating the confusion of conflicting Shari’a interpretations.[227]  Second, they establish a specialized forum within the civil court system with the exclusive jurisdiction to hear any disputes arising from IFIs or their financial products.[228] This ensures that the judicial body entrusted to do so is well qualified and well versed in the area of Islamic Banking and Shari’a principles as applied therein.[229] Finally, rules governing the appointment of an IFI’s Shari’a board eliminate the potential for a conflict of interest while ensuring that individual members are qualified.[230]

  1. The Legal Impact of Shari’a Interpretation in Saudi Arabia and Malaysia

One of the main problems that often arise during disputes in the Kingdom is to what extent do interpretations by a particular IFI’s Shari’a board is binding or persuasive on other IFIs and on a court.[231]  A survey conducted in 1996 by the IOIA showed that almost fifty-seven percent of IFIs in the Kingdom believe that Shari’a rulings are merely advisory.[232]  Another thirty-five percent believe that western banking regulations should govern.[233] This survey evidences the fact that the Shari’a governance system in the Kingdom is not very effective as a mode of regulation.[234]  By contrast, in Malaysia, the Central Bank of Malaysia Act expressly mandates that Shari’a interpretations by the SAC are final and binding on the all IFIs that operate in that country.[235]  The absence of a similar comprehensive and binding regulatory framework will hinder the growth of the Islamic Finance Industry in Saudi Arabia, as the above statistics have shown.[236] The difference between various rulings among Shari’a boards often results in a lack of consumer confidence—especially when disputes arise.[237]  A recent survey has indicated that less than twenty percent of Shari’a interpretation disputes in Saudi Arabia result in reconciliation.[238]  The problem arises when a Shari’a board of one IFI certifies a financial product as Shari’a compliant while another IFI does not.[239] In addition to a lack of a governing standard, this also results in a lack of transferability of these products between various IFIs and the inability to sell them on an open, global market.[240]  This directly translates into reduced investor confidence and demand.  Investors will be extremely wary of a financial product that has limited intra-market transferability and validity in the event of a dispute.[241]

Malaysia has explicitly recognized this problem and addressed it head-on.[242] It has instituted a national and, most importantly, binding Shari’a Advisory Council.[243]  The SAC’s legal interpretations of Islamic law are considered binding on all IFIs that operate within the country.[244]  The SAC also directly decides whether financial instruments issued by individual IFIs are Shari’a compliant.[245]  This uniformity results in the ability to easily transfer financial products between different IFIs.[246] It also confronts the problem of validity in the event of a dispute as a court can simply turn to the SAC’s guidelines and interpretations for guidance.[247]

This also directly implicates cross-border international Islamic instrument transactions.[248]  Lack of uniformity poses a substantial risk in the event that a dispute arises as to whether an instrument is Shari’a compliant.[249] The convergence of Islamic jurisprudence and unification under one regulatory authority will facilitate higher issuance of globally accepted Islamic capital market products and services in the international financial market.[250]  Arguably, this could lead to the creation of more uniform Islamic financial products and services that will increase investor demand and enhance the growth of the Islamic finance market in Saudi Arabia.[251]  This uniformity has been implemented in Malaysia and has been cited as the reason to the country’s emergence as a worldwide leader in sukuk issuances which has also led it to be recognized by global financial indices.[252]  As an example, the Malaysian Global Islamic Bond has been accepted by the international financial community and is listed on several global exchanges including the Dow Jones.[253]

2.   The Ambiguity of Current Regulations in Saudi Arabia and How Malaysia Handles this Problem

In Saudi Arabia, the Islamic market regulations are governed by the same set of laws which govern conventional banking.[254]  Each bank has its own Shari’a board, which looks at Islamic Law and interprets it according to their own understanding of Islam.[255] There is no central body or hierarchy and therefore each scholar’s opinion is equally valid.[256]  This creates a particular challenge because what one scholar deems to be Shari’a permissible, might not be permissible with another.[257]  The result is a lack of predictability, consistency and even arbitrariness.[258] Consequently, Saudi Arabia IFIs have been engaging in practices that are not Shari’a compliant but are nevertheless overlooked.[259]  For example, a common practice is that of traders borrowing money for use in the stock market trade.[260]  Under the Banking Regulation of Saudi Arabia, such borrowing is available only on interest.[261]  This directly contradicts one of the main prohibitions in Islamic Finance—the prohibition of charging riba, or interest.[262]  Another example is the common practice of margin trading.[263]  Margin trading allows the trading of stocks by making only a margin payment and settling the trade letter on a basis of netting.[264]  This goes directly against Shari’a regulations because it is the same as selling without possession of the actual product, a prohibited practice.[265]  A further example is the practice of short selling of stocks—which is clearly a sale without possession.[266] These practices are common within IFIs in Saudi Arabia and are not prohibited under current Banking regulations.[267] The practical consequences of these practices surface, for example, when an unknowledgeable investor, who wishes to invest in Islamic Financial Instruments, instead buys one of these products only to find out later that they violate Shari’a principles.[268] The investor is then left holding an instrument that violates his own principles, is not easily transferable, and could be deemed invalid when a dispute arises.[269]

Another major issue of concern has been the common practice of allowing IFI’s Shari’a board members to sit on several boards concurrently.[270]  This issue has recently started receiving attention and has been summed up aptly by a leading commentator:

[T]he Sharia’h [board] . . . usually assists the financial institution by instructing it as to how to modify its transaction documents so that the transaction is not un-Islamic.  The Sharia’h [board] [] awards its mark of compliance to transactions that it deems acceptable.  Too often, in our experience, the fatwa [or opinion] issued by the Sharia’h committee is exceedingly brief, containing only conclusory statements on mere components of the transaction.  Astoundingly, there are no more than a dozen individuals serving in one capacity or another, on nearly every Sharia’h [board] [] of every Islamic financial institution worldwide.  The issue of whether there exists a conflict of interest in this arrangement is only now beginning to receive treatment.[271]

Although there is certainly no shortage of Shari’a-law scholars, the problem in Saudi Arabia stems from the paucity of qualified Islamic scholars who can interpret Shari’a law and at the same time possess a comprehensive understanding of modern economics and finance.[272] There is estimated to be less than ten such scholars in the country, and most of them serve on boards outside the country concurrently.[273]  Additionally, there are no regulatory requirements for the appointment of these scholars.[274]  The lack of a standardized regulation or qualification mechanism for Shari’a board members compromises their eligibility and, in turn, their certification of Islamic Financial Instruments.[275]  This invariably results in a lack of investor confidence on the issue whether Islamic Financial Instruments that are issued by Saudi Arabia IFIs are truly Shari’a compliant.[276]

Malaysia was a leader in addressing this issue in its efforts to prevent conflicts of interest and ensure the eligibility of members who sit on IFIs’ Shari’a boards.  Under current regulations issued by its Central Bank, members of any IFI’s Shari’a board are prohibited from concurrently sitting on another bank’s board—whether it is an IFI or a traditional bank.[277] The Shari’a board members are not under the control or the supervision of the IFI’s board of directors; rather, they report directly and are accountable only to the SAC.[278]  Additionally, compensation of the board is specified in the charter of the IFI, as to prevent any potential conflict of interest or undue influence from an IFI’s executives.[279]  Most importantly, the Central Bank assesses and reviews Shari’a compliance and issues the appropriate Shari’a certification for all Islamic finance products issued and individual IFI Shari’a board are not permitted to deviate from those rulings.[280]

An effective legal, regulatory, and supervisory framework—such as the one currently in Malaysia—provides the foundation for the functioning of any capital market.[281]  For a potentially large Islamic Finance market like Saudi Arabia, it is imperative to ensure that an enabling and conducive regulatory environment exists to adequately regulate IFIs.[282]  Due to the unique aspects of Islamic Finance, specialized regulation is critical.[283]  Unlike Malaysia, Saudi Arabia applies exactly the same set of laws and regulations to Islamic Finance as conventional finance.[284]


The lack of regulation in the Saudi Arabian market for Islamic Finance will severely hinder the country’s potential for growth.[285]  This is alarmingly due to the fact that Saudi Arabia contains the Middle East’s largest concentration of wealth.[286] The irreconcilable differences between conventional and Islamic financing prevent the two systems from operating under the same set of laws.[287]  An Islamic capital market with a standardized and specialized regulatory framework must be established in order to support IFIs in Saudi Arabia.[288] Uniformity based on a regulatory approach such as in Malaysia would foster increased investor confidence in Saudi Arabian Islamic financial products, thus encouraging growth and demand in the market and facilitate international trading.[289] Divergent Shari’a interpretation between various IFIs impacts the development of globally accepted Islamic financial products and the growth of the Islamic financial services sector.[290] Saudi Arabia must import or model its laws after those of Malaysia to be able to compete in this growing market.[291]

* Wassem M. Amin is an Associate Attorney at Dhar Law LLP in Boston, MA.  Wassem has extensive experience in the Middle Eastern region, having worked as a consultant in the area for over 9 years.  Wassem currently focuses his practice on Corporate Law and International Business Transactions.  For more information, please visit the About Us page or 
[1] Sayed Khatab & Gary D. Bouma, Democracy in Islam 110 (2007).

[2] See The 1st Ethical Charitable Guide To: Explaining Islamic Finance, available at [hereinafter Explaining Islamic Finance].

[3] As of February 2011, the combined market capitalization of  companies listed on the Dow Jones Industrial Average was $383 trillion.  Dow Jones Industrial Average Fact Sheet, Dow Jones Indexes (Apr. 4, 2011),

[4] See Andreas Junius, Islamic Finance: Issues Surrounding Islamic Law as a Choice of Law Under German Conflict of Laws Principles, 7 Chi.J. Int’l L. 537, 538 (2007) (discussing the increasing number of Islamic financial institutions worldwide); Theodore Karasik et al., Islamic Finance in a Global Context: Opportunities and Challenges, 7 Chi.J. Int’l L. 379, 379 (2007) (noting, as of 2006, growth rates nearing 15% per year).

[5] Paul Coughlin, Islamic Finance Outlook 2010, Standard & Poor’s, 10 (2010),

[6] See infra, Part III.A.2.

[7] Id.

[8] Id.

[9] See Mushtak Parker, Petronas 5-year $1.5bn Sukuk Heralds a New Era in Malaysia, Arab News, August 24, 2009, (indicating that, as of 2009, Malaysia accounted for 63% of total Islamic bonds outstanding).

[10] Id.

[11] See infra Part III.

[12] See Parker, supra note 9.

[13] Ibrahim Warde, Islamic Finance in the Global Economy 229-30 (2000).

[14] Id.

[15] See Parker, supra note 9.

[16] See infra Part IV.

[17] Id.

[18] Id.

[19] Id.

[20] See infra Part I.

[21] See infra Part II.

[22] See infra Part III.

[23] See infra Part IV.

[24] Glossary in Structuring Islamic Finance Transactions 226, 232 (Abdulkader Thomas et al. eds., 2005).

[25] Id.

[26] Haider Ala Hamoudi, Jurisprudential Schizophrenia: On Form and Function in Islamic Finance, 7 Chi.J. Int’l L. 605, 608 (2007).

[27] Irshad Abdal-Haqq, Islamic Law: An Overview of Its Origin and Elements, 7 J. Islamic L. & Culture 27, 36 (2002).

[28]See Glossary, supra note 21, at 232.

[29] Gohar Bilal, Islamic Finance: Alternatives to the Western Model, Fletcher F. World Aff., Winter/Spring 1999, at 145,146.

[30] See Hamoudi, supra note 23, at 608.

[31] Id.

[32] Id.

[33] Khateb & Bouma, supra note 1.  The first Islamic Bank was established in a small town south of Cairo, Egypt called Mit Ghamr.  Id.  Although it was closed shortly for political reasons, it became known as the “Mit Ghamr” experiment and most modern Islamic Financial Institutions are modeled after it. Id.

[34] See Juan Solé, Islamic Banking Makes Headway, IMF Surv. Mag., Sept. 19, 2007,  (asserting that the Islamic banking industry has grown 10%-15% per year over the last ten years).

[35] Oliver Agha, Islamic Finance in the Gulf: A Practitioner’s Perspective, 1 Berkeley J. Middle E. & Islamic L. 179, 179 (2008).

[36] See Explaining Islamic Finance, supra note 2.

[37] Id.

[38] Id.

[39] Id.

[40] Theodre Karasik, Fredric Wehry, & Steven Strom, Islamic Finance in a Global Context: Opportunities and Challenges, 7 Chi.J. Int’l L. 379 (2007).

[41]  For a list compiled in the 1980s of Islamic banks and financial institutions across the world, including banks in Argentina, The Bahamas, Egypt, Saudi Arabia, Thailand and Malaysia, engaged in profit-sharing (non-interest) transactions with clients. See Hunaid Khorakiwala, The Banking Laws of India and Establishment of Profit Sharing Banks—Some Suggestions, 7 Islamic & Comp. L.Q. 59, 61-63 (1987).

[42] See Couglin, supra note 5, at 5. Paul Coughlin, Executive Managing Director of Corporate & Government Ratings at Standard and Poor’s, noting the “brisk growth [of Islamic Finance] in the past decade,” indicated that Islamic Finance has become a recognized and a specific segment of finance on its own with bright growth prospects.”  Id. at 5.

[43] See Karasik, Wehry & Strom, supra note 37, at 386.

[44] See Warde, supra note 13.

[45] Id.

[46] Id.

[47] Id.

[48] For example, Malaysia has established the National Shari’a Board to standardize Islamic Finance products and advise the Central Bank. See infra, Part III.B. Pakistan has also established a Shari’a Board within the National Bank, and the United Arab Emirates, Bahrain, and Egypt have done the same.  Id.

[49] See infra, Part III.B (outlining the various regulatory policies of Malaysia).

[50] The Institute of Islamic Research at Al-Azhar University was established in Cairo, Egypt in 1961.  Al-Azhar University is the leading authoritative source of Islamic jurisprudence in the world.  The Islamic Jurisprudence Council was established in Saudi Arabia in 1979. See generally Malika Zeghal, Religion and Politics: The Ulema of Al-Azhar, Radical Islam, and the State, 31 Int’l J. of Middle East Studies 371 (1999).

[51]  Muhammad Taqi Usmani, An Introduction to Islamic Finance, at xiv (2002).

[52] Id.

[53] Bilal Khan & Emir Aly Crowne-Mohammed, The Value of Islamic Banking in the Current Financial Crisis, 29 Rev. Banking & Fin. L 441, 458 (2010).

[54] Id.

[55] See Usmani, supra note , at xiv.

[56] Id.

[57] See generally, Michael Lewis, The Big Short: Inside the Doomsday Machine (2010); see also Khan & Crowne-Mohammed, supra note 50, at 458.

[58] See generally Lewis, supra note54 (detailing the causes and impact of the subprime mortgage crisis).

[59] See Coughlin, supra note 5.

[60] Lorenzo Totaro, Vatican Says Islamic Finance May Help Western Banks in Crisis, Bloomberg, (March 4, 2009, 3:33 EST), .

[61] See Usmani, supra note 48, at 33.

(discussing the attempt of Islamic finance to protect societal interests and divine restrictions within a market-based economy); see also Umar F. Moghul & Arshad A. Ahmed, Contractual Forms in Islamic Finance Law and Islamic Inv. Co. of the Gulf (Bahamas) Ltd. v. Symphony Gems N.V. & Ors.: A First Impression of Islamic Finance, 27 Fordham Int’l L.J. 150, 152 (2004) (recounting that Islamic finance is closely tied to Islamic religious principles).

[62] Irshad Abdal-Haqq, Islamic Law: An Overview of Its Origin and Elements, 7 J. Islamic L. & Culture 27, 36 (2002).

[63] Shahzad Q. Qadri, Islamic Banking: An Introduction, Bus. L. Today, July-Aug. 2008, at 59; see also Angela Jameson, Conventional Insurance in Conflict with Islam, Times Online, Mar. 1, 2008, finance/article3463702 (“Conventional insurance products are in conflict with Islamic beliefs for three reasons. Insurance involves an element of uncertainty, gambling and the charging of interest, which are prohibited by the Koran.”). This is not intended to be a complete list of all prohibited items in the Islamic financial system. However, these remain the most central and visible restriction on Islamic finance as it currently exists. Id.

[64] See Zaineb Sefiani, Inside View: Islamic Finance, Funds Eur., July 2009, (describing the first step in screening investments for Shari’a compliance as filtering out companies that derive more than 5% per year from forbidden business sectors).

[65] Id.

[66] Id.

[67] Id.

[68]  Whether or not this proposition is factually true is best left for another article.

[69] See Sefiani, supra note 61.

[70] Id.

[71] Id.

[72] Id.

[73] See Moiz Amjad, The Definition and the Connotation of the Term “Riba”, Understanding Islam (March 19, 1999), (explaining that Arabic dictionaries define Riba as an increase or additional amount).

[74] See Traute Wohlers-Scharf, Arab and Islamic Banks New Business Partners for Developing Countries 75-76 (1983). This controversy is likely one of the most significant factors contributing to the lack of a standard form of Islamic banking since the many different interpretations of the term riba have contributed to the numerous methods of banking and finance throughout the Islamic world. See Coughlin, supra note 5, at 10. The S&P report indicates that this differing interpretation “appear[s] to have resulted in the fragmentation and lack of integration of the market for Islamic finance products.” Id.

[75] See Traute Wohlers-Scharf, supra note 71, at 75-76.

[76] Many commercial Western promissory notes and purchase agreements contain express prohibitions against interest.  In fact, Massachusetts’ anti-usury laws require such clauses to be included in most consumer contracts.  See M.G.L.A. ch. 271 § 49.  Violation of this statute could result in fines and/ or imprisonment. Id.

[77] See Coughlin, supra note 5, at 10.

[78] Mohammed Uzair, Impact of Interest Free Banking, 1 J. Islamic Banking & Fin. 39, 40 (1984).

[79] See S.H. Amin, Islamic Banking and Finance: The Experience of Iran 15 (1986) (“Until fairly recently, the entire banking system in all Muslim countries was patterned after the Western banking system … [which] was inconsistent with Islamiclaw primarily because of disapproval or [sic] riba …”); See also, e.g., Uzair, supra note 75, at 40 (“By this time, there is a complete consensus of all . . . schools [of Islam] . . . and among Islamic economists that interest in all forms, of all kinds, and for all purposes is completely prohibited in Islam.  Gone are the days were people . . .  contended that the interest for commercial and business purposes, as presently charged by the banks, was not interest.”)

[80] See Imran Ahsan Khan Nyazee, The Concept of Riba and Islamic Banking 67 (1995). For an earlier work an interpretation of Riba and one that provides an excellent historical perspective, see generally Iqbal Ahmad Khan Suhail, What is Riba? (Rizwanullah & Zafarul-Islam Khan trans., Phoas Media & Publ’g. Pvt. Ltd. 1999) (1936).

[81] See, e.g., Usmani, supra note 48, at 141.  Usmani claims that jurists permitting prepayment rely on hadith text the authenticity and authority of which has been disputed. See id. at 142.

[82] Id. at 141-43.

[83] Id.

[84] Id.

[85] Some contemporary Islamic Jurists have allowed late charges to the extent to the costs actually incurred by the lender due to the payment being late.  Similarly, when a party defaults on its payment obligations, Islamic Law mandates that the defaulting party be required to donate a specific amount to charity in lieu of paying penalties. See Usmani, supra note 48, at 131-40.

[86] See Mohammed A. El-Ghamal, An Economic Explication of the Prohibition of Gharar in Classical Islamic Jurisprudence, at 1 (May 2, 2001), available at

[87] See Mohammad Hashim Kamali, Islamic Commercial Law: An Analysis of Futures and Options 84-98 (2004) (suggesting that the “basic concern in all discussion of gharar is with elements of risk-taking”).

[88] See El-Ghamal, supra note 83, at 1.

[89] Nabil A. Saleh, Unlawful Gain and Legitimate Profit in Islamic Law 62, 85 (1986).

[90] See, e.g., Frank E. Vogel & Samuel L. Hayes III, Islamic Law and Finance: Religion, Risk, and Return 64 (1998).

[91] Id.

[92] See, e.g., Shahzad L. Qadri, Islamic Banking: An Introduction, Bus. L. Today, July-Aug. 2008, at 59-60 (describing mudharabah, wadiah, musharakah, and murabaha as key basic concepts in Islamic Banking); Abdulkader Thomas, Introduction: The Origins and Nature of the Islamic Financial Market, in Structuring Islamic Financing Transactions 1, 7-8 (Abdulkader Thomas et al. eds., 2005) (naming mudharabah, musharakah, ijarah, and sukuk as core financing mechanisms); see also Ahmad Lutfil Abdull Mutalip & Mohd Herwan Sukri Mohammed Hussin, The Emergence of Islamic Financing Based on the Syariah Concept of Tawarruq 1 (unpublished manuscript, 2008), available at _8_&_9/Article_9_Tawarruq_00093603_.pdf.

[93] See Qadri, supra note 90, at 59.

[94] Id. at 59-60.

[95] Id.

[96] Id.

[97] Muhammad Taqi Usmani, The Concept of Musharakah and Its Application as an Islamic Method of Financing, 14 Arab L.Q. 203, 203 (1999).

[98] Husam Hourani, The Three Principles of Islamic Finance Explained, Int’l Fin. L. Rev., 46-47 (2004).

[99] Id.

[100] Id.

[101] Id.

[102] Id.

[103] Id.

[104] See infra Part III.B; see generally Lewis, supra note 54.

[105] Holger Timm, The Cultural and Demographic Aspects of the Islamic Financial System and the Potential for Islamic Financial Products in the German Market 40 (2004).

[106] Id.

[107] Id.

[108] Id.

[109] Abdulkader Thomas, Opportunities with Sukuk and Securitizations, in Structuring Islamic Finance Transactions 55 (Abdulkader Thomas et al. eds., 2005).

[110] Id.

[111] Id.

[112] Id.

[113] Jeff Black, An Unhealthy Interest?, Middle E., July 2008, at 44.

[114] Id. at 44.  LIBOR stands for the London InterBank Offered Rate, which is the interest rate at which most banks offer to lend to each other.  British Bankers Ass’n, The Basics, BBALibor, available at  The LIBOR rate is often used as the standard for quoting interest rates for many other types of loans, such as commercial loans and even student loans.  Id.

[115] Roula Khalaf, Islamic Finance Must Resolve Inner Tensions, Fin. Times, Mar. 30, 2009,

[116] Ali Adnan Ibrahim, The Rise of Customary Businesses in International Financial Markets: An Introduction to Islamic Finance and the Challenges of International Integration, 23 Am. U. Int’l L. Rev. 661, 722 (2008) (noting that “[a]cademic critique has not partnered with growing need for profound analysis [in the field of Islamic Finance]”); see generally Ali Adnan Inrahim, Developing Capital Markets in Muslim Countries: Strategies and Policies for Securities Regulation and Corporate Governance in Islamic Capital Markets (2008) (discussing the roles of corporate governance, culture, and custom in attracting foreign investment to developing markets and suggesting, that further research should be conducted in the areas or corporate governance and securities regulation).

[117] See Ibrahim, supra note 113, at 723.

[118] Id.

[119] Id.

[120] Id; see also Setting the Standard in Annual Review of Islamic Banking and Finance 28 (2010), available at (explaining the need for a global regulatory framework to govern Islamic Finance and the challenges associated therewith).

[121] See Zulfikli Hasan, Regulatory Framework of Shari’a Governance System in Malaysia, GCC Countries and the U.K., Kyoto Bulletin of Islamic Area Studies 82-115 (March 2010).  Hasan describes the various regulatory practices of different countries that house Islamic Financial Institutions.  Id.  It denotes five different approaches by various governments to Islamic Finance regulation.  Id. at 82-84.  The five models are the Reactive Approach, the Passive Approach, the Minimalist Approach, the Pro-Active Approach, and the Interventionist Approach.  Id.  Saudi Arabia falls under the Passive Approach while Malaysia has favored the Pro-active approach.  Id.

[122] Id. at 84; see also Saiful Azhar Rosly & Mod Afandi Abu Bakr, Performance of Islamic and Mainstream Banks in Malaysia, 30 Int’l J. of Social Econ. 12 (2003) (describing how the complex regulatory involvement has spurred the growth of Islamic Finance Institutions in Malaysia).

[123] See Hasan, supra note 118, at 82-84; see also J. Micheal Taylor, Islamic Banking—The Feasibility of Establishing an Islamic Bank in the United States, 40 Am. Bus. L.J. 385, 385 (2003).

[124] See Coughlin, supra note 5, at 11.

[125] See infra Part IV.

[126] Id.

[127] Id.

[128] See Rodney Wilson, Arab Government Responses to Islamic Finance: The Cases of Egypt and Saudi Arabia in Shaping the Current Islamic Reformation 154 (2009).

[129] See id. at 156.

[130] See id.

[131] Id.

[132] Id.

[133] Id.

[134] See Wilson, supra note 125, at 157. SAMA attempted to appease IFIs by hiring Umer Chapra, a well known Islamic economist, as a financial advisor. Id.  However, in practice, Chapra “spent most of his time on academic and theoretical writing, and was rarely asked for practical advice.” Id. The term “conventional banks” refers to banking institutions that use interest bearing financial instruments such as loans or credit cards. Id.

[135] See Wilson, supra note 125, at 159.

[136] Id.

[137] Id.

[138] Id.

[139] Id.

[140] R.M. Reumann, The Banking System in Saudi Arabia, 10 Arab L.Q. 207, 207-27 (1995).

[141] Id.

[142] Id.

[143] See Wilson, supra note 125, at 159.

[144] See id.

[145] See id.

[146] See id.

[147] Id.

[148] Id.

[149] See Wilson, supra note 125, at 159.

[150] Id.

[151] See Umar F. Moghul & Arshad A. Ahmed, Contractual Forms in Islamic Finance Law and Islamic Inv. Co. of the Gulf (Bahamas) Ltd. V. Symphony Gems N.V. & Ors.: A First Impression of Islamic Finance, 27 Fordham Int’l L.J. 150, n.4(2003).

[152] See id.

[153] Id.

[154] Sharia Board, Al-Rajhi Bank, available at: (last visited Feb. 25, 2011).

[155] Id.

[156] Id.

[157] Id.

[158] Id.

[159] Id.

[160] See Sharia Board, supra note 151.

[161] Id.

[162] Id.

[163] Id.

[164] Id.

[165] Id.

[166] See Sharia Board, supra note 151.

[167] Id.

[168] Id.

[169] Id.

[170] Id.

[171] Id.

[172] Id.

[173] See Wilson, supra note 125, at 154.

[174] Id.

[175] Id.

[176] Id.

[177] Id.

[178] Id.

[179] See Hasan, supra note 118, at 89.

[180] See Nohashimah Mohd Yasin, Legal Aspects of Islamic Banking: Malaysian Experience in Islamic Banking and Finance: Fundamentals and Contemporary Issues 216 (Salman Sayed Ali & Ausaf Ahmed, eds., 2007).

[181] Id.

[182] See Hasan, supra note 118, at 89.

[183] Id.

[184] Id.

[185] Id.

[186] Id.

[187] Id.

[188] See Hasan, supra note 118, at 89.

[189] Id.

[190] Id.

[191] Id.

[192] Warde, supra note 13, at 261. The SAC, also known as the Sharia Board, is formed of a number of members chosen from among jurists and individuals with an Islamic Jurisprudence and comparative law background.  Id. To ensure there is no conflict of interest, members are subject to several regulations such as, inter alia, they cannot be employed by any Islamic financial institution throughout the duration of their term.

[193] See Hasan, supra note 118, at 90.

[194] See Yasin, supra note 176.

[195] Id.

[196] See Hasan, supra note 118, at 90.

[197] See Yasin, supra note 176, at 216.

[198] Id.

[199] Id.

[200] See Hasan, supra note 118, at 90.

[201] Id.

[202] Id.

[203] See Yasin, supra note 176, at 216.

[204] Id.

[205] See Hasan, supra note 118, at 82-115.

[206] See Yasin, supra note 176, at 216.

[207] A. Hasan, Optimal Shari’ah Governance in Islamic Finance, Kuala Lumpur: BNM, available at: (last visited Feb. 25, 2011) [hereinafter Optimal Shari’ah Governance].

[208] See Hasan, supra note 118, at 82-115.

[209] See Optimal Shariah Governance, supra note 202.

[210] Id.

[211] Id.

[212] Id.

[213] Id.

[214] Id.

[215] Id.

[216] See Howard Davies, Chairman of the Financial Services Authority, Seminar on Islamic Finance (Sept. 20, 2002) (transcript available at http://

(acknowledging, implicitly, that if growth continues at 15 percent annually, Islamic banking may reach $1 trillion in 10 years).

[217] Staff, Saudi Sukuk Issuance Remain Stagnant, Emirates 24|7, Jan. 25, 2011,

[218] Id.

[219] Id.

[220] Saiful Azhar Rosly & Mod Afandi Abu Bakr, Performance of Islamic and Mainstream Banks in Malaysia, 30 Int’l J. of Social Econ. 12 (2003).

[221] Id.

[222] See Staff, supra note 212.

[223] See Ali Adnan Inrahim, Developing Capital Markets in Muslim Countries: Strategies and Policies for Securities Regulation and Corporate Governance in Islamic Capital Markets 45 (2008).

[224] Id.

[225] Id. at 50.

[226] See infra Part IV.A.

[227] Id.

[228] See infra Part IV.B.

[229] Id.

[230] Id.

[231] See Inrahim, supranote 223.

[232] Id.

[233] Id.

[234] Id.

[235] See Hasan, supra note 118, at 90.

[236] Id.

[237] See Coughlin, supra note 5.

[238] Id.

[239] See Hasan, supra note 118, at 90.

[240] Id.

[241] Id.

[242] Id.

[243] Id.

[244] Id.

[245] See Hasan, supra note 118, at 90.

[246] Id.

[247] Id.

[248] See Setting the Standard, supra note 117.

[249] Id.

[250] Id.

[251] See id.

[252] See Mushtak Parker, Petronas 5-year $1.5bn Sukuk Heralds a New Era in Malaysia, Arab News, August 24, 2009, (indicating that, as of 2009, Malaysia accounted for 63% of total global sukuk outstanding).

[253] See The Dow Jones Islamic Fund, available at (last visited Jan 15, 2011).  The Iman Fund and the Dow Jones Islamic Fund, both listed on the website, are an example of several mutual funds that cater exclusively to IFIs and their customers. See id. It is interesting to note how well these funds have performed in relation to their western counterparts, such as the S&P500.  Id.

[254] See Bilal, supra note 20, at 146.

[255] See Zamir Iqbal & Abbas Mirakhor, An Introduction to Islamic Finance: Theory and Practice 24 (2007); see also Fuad Al-Omar & Mohammed Abdul-Haq, Islamic Banking: Theory, Practice and Challenges 21 (1996).

[256] See Iqbal & Mirakhor, supra note 251, at 51.

[257] Id.

[258] Id.

[259] Id.

[260] Id.

[261] Id.

[262] Iqbal & Mirakhor, supra note 251, at 51.

[263] See Al-Omar & Abdul-Haq, supra note 250, at 21.

[264] Id.

[265] Id.

[266] Id.

[267] Id.

[268] Id.

[269] See Al-Omar & Abdul-Haq, supra note 250, at 21.

[270] See Moghul & Ahmed, supra note, at 148.

[271] Id.

[272] Gillian Tett, Top Scholar Hails Boom in Islamic Finance, Fin. Times, June 1, 2006, (last visited Mar. 20, 2011).

[273] Id.

[274] Id.

[275] Id.

[276] Id.

[277] See supra, Part III.B.1.

[278] Id.

[279] Id.

[280] Id.

[281] See supra Part III.B.1.

[282] See supra Part III.A.1.

[283] See supra Part I.C.

[284] See supra Part III.A.1

[285] Id.

[286] See supra Part III.A.1.

[287] See supra Part I.C.

[288] See supra Part IV.B.

[289] Id.

[290] Id.

[291] Id.