Where are Islamic finance indices pointing towards?. Lessons from experimental ‘pockets’ of Islamic financial regulation on international stock markets

Publication Date22 Nov 2019
AuthorMohammed El Hadi El Maknouzi,Iyad Mohammad Jadalhaq
SubjectAccounting & Finance,Financial risk/company failure,Financial compliance/regulation
Where are Islamic nance indices
pointing towards?
Lessons from experimental pocketsof
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
Purpose This paper aims to survey the screening practices and regulatory arrangements that can be
gleaned from the experience of Islamic nancial indices on international stock markets. Such indices can
be regarded as experimentsin the demarcation of pocketsof Sharīah-compliant securitiesexchange, in the
contextof non-Sharīah-compliantstock markets. They offer valuableregulatory precedent, with a view to the
developmentof a transnational domain of Islamic nancialtransactions.
Design/methodology/approach The paper leverages the experience of Islamic nancial indices for
charting the fault lines between the foundational principles of Islamic nance, and those of interest-based
investment commonly accepted on internationalnancial markets. It subsequently reviews the most salient
regulatory arrangementsin place for discriminating betweenpermissible and forbidden securities and modes
of trading, as implemented on Islamic nancial indices. These include selection criteriafor index inclusion,
and Sharīahcommittees with ex ante and ex post supervisory duties.
Findings The paper makes a case forviewing Islamic nance indices on international capitalmarkets as
capacity-buildingexperiments for the regulation of transnationalIslamic nancial ows.
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 nancial indices, can build institutional capacity towards an economy that
abides by Islamic values.
Keywords Stock markets, Interest, Bonds, Islamic nance indices, Sharīah, Rib
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 nance[1]. A notable
example in this regard is Malaysias two-tiered capital market, with an Islamic nancial
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 nancial activity that aims to comply with the provisions of Islamic Sharīah
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.
Received29 March 2019
Revised20 August 2019
30October 2019
Accepted31 October 2019
Journalof Financial Regulation
Vol.28 No. 2, 2020
pp. 267-281
© Emerald Publishing Limited
DOI 10.1108/JFRC-03-2019-0040
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