Where are Islamic finance indices pointing towards?. Lessons from experimental ‘pockets’ of Islamic financial regulation on international stock markets
| DOI | https://doi.org/10.1108/JFRC-03-2019-0040 |
| Pages | 267-281 |
| Date | 12 December 2019 |
| Published date | 12 December 2019 |
| Author | Mohammed El Hadi El Maknouzi,Iyad Mohammad Jadalhaq |
| Subject Matter | Financial compliance/regulation,Accounting & Finance |
Where are Islamic finance indices
pointing towards?
Lessons from experimental ‘pockets’of
Islamic financial regulation on
international stock markets
Mohammed El Hadi El Maknouzi
Department of Law, Abu Dhabi University, Abu Dhabi, United Arab Emirates and
Department of Law, Mohammed V University of Rabat, Rabat, Morocco, and
Iyad Mohammad Jadalhaq
Department of Legal Studies, Zayed University, Abu Dhabi, United Arab Emirates
Abstract
Purpose –This paper aims to survey the screening practices and regulatory arrangements that can be
gleaned from the experience of Islamic financial indices on international stock markets. Such indices can
be regarded as experimentsin the demarcation of “pockets”of Sharī‘ah-compliant securitiesexchange, in the
contextof non-Sharī‘ah-compliantstock markets. They offer valuableregulatory precedent, with a view to the
developmentof a transnational domain of Islamic financialtransactions.
Design/methodology/approach –The paper leverages the experience of Islamic financial indices for
charting the fault lines between the foundational principles of Islamic finance, and those of interest-based
investment commonly accepted on internationalfinancial markets. It subsequently reviews the most salient
regulatory arrangementsin place for discriminating betweenpermissible and forbidden securities and modes
of trading, as implemented on Islamic financial indices. These include selection criteriafor index inclusion,
and Sharī‘ahcommittees with ex ante and ex post supervisory duties.
Findings –The paper makes a case forviewing Islamic finance indices on international capitalmarkets as
capacity-buildingexperiments for the regulation of transnationalIslamic financial flows.
Originality/value –The study rejuvenates the pragmatic approach towards the development of
Islamic capital markets, by suggesting that incremental organisational innovations, as developed in
connection with Islamic financial indices, can build institutional capacity towards an economy that
abides by Islamic values.
Keywords Stock markets, Interest, Bonds, Islamic finance indices, Sharī‘ah, Rib
a
Paper type Technical paper
1. Introduction
After the onset of a dedicated commercialbanking sector, the development of transnational
Islamic capital markets has emerged as the next frontier of Islamic finance[1]. A notable
example in this regard is Malaysia’s two-tiered capital market, with an Islamic financial
market running in parallel with a stockexchange functioning on conventional (e.g. interest-
based) principles (Abdullah et al.,2014). The Dubai Financial Market is another prominent
centre of financial activity that aims to comply with the provisions of Islamic Sharī‘ah
The authors would like to thank the two anonymous referees for their helpful comments and Luigi
Russi, PhD (www.peerwith.expert/lrussi) for English language editing.
Islamic
financial
regulation
267
Received29 March 2019
Revised20 August 2019
30October 2019
Accepted31 October 2019
Journalof Financial Regulation
andCompliance
Vol.28 No. 2, 2020
pp. 267-281
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-03-2019-0040
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