Appendix 3.1

Appendix 3.1 Legal and Regulatory Framework for IFSI in Jurisdictions with Known IIFS Presence

Country (in alphabetical order) Supervisory Authority Financial Sectors Primary Law/Regulation for IFSI Essential Features Development of IIFS
1. ALGERIA Banque d’Algérie Banking Ordinance no. 03-11 relating to currency and credit and addresses regulations including the local currency; banking operations; required authorizations and approvals; control of banks; and exchange controls. The Ordinance is complemented by 80 regulations which themselves are also complemented and implemented by notes and instructions. All banking and financial activities in Algeria, including those by IIFS, are regulated by the Central Bank. In order to operate, IIFS in Algeria must obtain prior approval from the Central Bank pursuant to Regulation no. 93-01 of 3 January 1993 as modified by Regulation no. 2000-02 of 2 April 2000. The first IIFS is Banque Albaraka d’Algérie (1991) and it remains the only IIFS in Algeria.
2. BAHRAIN Central Bank of Bahrain Banking, insurance and capital market Prudential Information and Regulatory for Islamic Banks (PIRI), 2000. The PIRI covers areas such as capital adequacy, asset quality, management of investment accounts, corporate governance and liquidity management. The not-for-profit Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) was established in 1991 and issues standards on accounting, auditing, governance and sharī‘ah practices, with which players in Bahrain are required to comply. First IIFS was Bahrain Islamic Bank (1979). They now have more than 30 IIFS licensed in Bahrain, including full commercial banks, investment banks and offshore banking units.
3. BANGLADESH Bangladesh Bank Banking Banking Companies Act 1991 contains provisions for Islamic banking activities, following an amendment in 1993. Although the law gives specific recognition of Islamic finance modes such as mudārabah and Musharakah, generally the same banking laws as applied to conventional banks are imposed on IIFS. First IIFS was Islami Bank Bangladesh Ltd. (1983). They now have four other full-fledged IIFS, with some conventional banks operating Islamic windows.
4. BRUNEI Ministry of Finance, Brunei Banking, insurance and capital market Banking Act Cap. 95, Emergency Order (Islamic Bank) 1992 and Emergency Order (Islamic Trust Fund) 1991, Insurance and Takaful (Motor Vehicles Third Party Risk Act, Cap. 90) Islamic financial services are only offered through full-fledged IIFS. A national Sharīah Financial Supervisory Council was established in 2006. First IIFS was Brunei Islamic Trust Fund – TAIB (1991). Another IIFS is Islamic Bank of Brunei Darussalam, merged with Islamic Development Bank of Brunei.
Brunei International Financial Centre (BIFC) Authority – a segregated unit of the Ministry of Finance Offshore players at the BIFC International Banking Order, 2000 The Order defines “international Islamic banking business,” contains provision for sharī’ah law to override a conflicting provision in the Order, subject to good banking practice, and imposes a requirement for the appointment of a Sharī’ah Council. The restriction to local ownership which applies under the domestic Islamic Banking Act does not apply to the international regime. No license issued yet.
5. DJIBOUTI Central Bank of Djibouti Banking Law no. 92/AN/05 relating to opening, activities and control of Credit Institutions The provisions of this law also apply to IIFS. However, certain specific operations relating to the credit and the exchange activities carried out by the IIFS will be regulated by the Central Bank. First IIFS was Bank Albaraka Djibouti (reported to be in liquidation, 1998).
6. EGYPT Central Bank of Egypt Banking Law no. 88 of 2003 relating to the Central Bank Law and the banking & currency sectors; and the Executive Regulations issued by Presidential Decree no. 101 of 2004. All banking and financial activities in Egypt, including those of IIFS, are regulated by the Central Bank. Separate permits may be required from the Capital Market Authority to perform banking activities relating to capital markets (i.e. the creation of investment funds). The first experiment with Islamic finance was Mit Ghamr Savings Bank (1963–1967). A leading full-fledged IIFS is Faisal Islamic Bank of Egypt (1979).
7. GAMBIA Central Bank of Gambia Banking and insurance Financial Institutions Act 2003 The original FIA 1992 was amended in 1993 to allow operations of Islamic banks. The latest FIA 2003, amongst others, defines “Islamic banking business” and requires approval from the central bank before any Islamic financing instruments can be offered. First IIFS was Arab Gambia Islamic Bank (1997).
8. INDONESIA Bank Indonesia (BI) Banking Banking Law Act No. 10, 1998 and Act No. 23, 1999 contain provisions for Islamic (sharī‘ah) banking BI, through a dedicated Islamic banking directorate, has worked on, among others, regulations relating to capital adequacy and corporate governance. An Expert Panel Committee was formed to advise BI. The National Sharīah Board of Indonesian Council of Scholars (MUI) is the central fatwa-making body. By practice, each IIFS is expected to have its own sharī’ah board. There is also a Muamalat Arbitrageur Agency to assist in disputes settlement. A 10-year blueprint (2002–2011) sets out a long-term strategy for development of IFSI. First IIFS was PT Bank Muamalat Indonesia (1992). Another full- fledged IIFS is PT Bank Syariah Mandiri (converted from conventional bank in 1999). They also have more than 80 full-fledged Islamic rural banks. Conventional banks may operate sharī’ah banking units.
Capital Market Supervisory Authority and Financial Board (BAPEPAM- LK) Capital market and insurance The Capital Market Law No, 8 of 1995, and BAPEPAM-LK Chairman’s Decisions No. Kep-130/BL/2006 and Kep-131/BL/2006, Regulation No. IX.A.13 on Issuance of Sharī’ah Securities and Regulation No. IX.A.14 on contracts applicable for Issuance of Sharī’ah Securities in the Capital Market. These recent decisions would provide a clearer framework for issuance of Islamic securities (sukuk) in Indonesia, which before this have been governed by the same framework as conventional debt securities, causing many legal risks to Islamic securities issuance. The first Islamic bond, based on
mudārabah, was issued in 2002. Since then, sukuk issuance and Islamic investment funds are on the rise. Meanwhile, PT Syarikat Takāful Indonesia (Perusahaan) was
the pioneer takāful operator in 1994. Today takāful operators have increased to more than 20, especially through Islamic window operations of conventional insurers.
9. IRAN Central Bank of Iran (Bank Markazi Joumhuri Islami Iran) Banking and capital markets Law for Usury-Free Banking 1983 Under its single Islamic banking system following the 1979 revolution, all banks were nationalized, with limited plans for privatization. Modes of finance are defined by the law. There is no sharī’ah board for individual banks, only at the Central Bank.
10. JORDAN Central Bank of Jordan Banking Banking Law No. 28 of 2000 permits IIFS to operate. The Banking Law, among others, requires IIFS to form a sharī‘ah board. They also have to form the Investment Risk Reserve. First and only IIFS was Jordan Islamic Bank for Finance and Investment (1978).
Insurance Commission of Jordan Insurance Insurance Regulatory Act No. 33 of 1999 The Commission sets out prudential and solvency norms for all insurance companies, including takāful operators. First and only takāful operator was Jordan Islamic Insurance Co.
11. KUWAIT Central Bank of Kuwait Banking and capital markets Law no. 30 of 2003 on the addition of a special section on Islamic banks to Chapter III of the Law no. 32 of 1968 concerning currency, the Central Bank of Kuwait and the Organization of Banking Business The laws permits the establishment of full-fledged IIFS and prohibits conventional banks from operating Islamic banking windows. Sharī’ah board is required for each IIFS. Disputes over sharī’ah issues shall be referred to Ministry of Awqaf. The Central Bank has also issued rules and regulations concerning the opening of Islamic bank branches within and outside Kuwait, direct investment, instructions regarding financial investment policy, and regulations governing IIFS purchases of their own shares. The first IIFS was Kuwait Finance House (1977). Recently licensed IIFS are Boubyan Bank and Al-Safa Bank.
12. KYRGYZ National Bank of the Kyrgyz Republic Banking Law on Banking Transactions and Operations based on Islamic Financing Principles and Regulation on Implementation of Islamic Financing Principles (Draft 2007) The draft law provides for, amongst others, the licensing of IIFS. It imposes the requirement for IIFS to have its own sharī’ah board, and allows IIFS to follow the AAOIFI Sharī’ah Standards. It specifies a range of sharī’ah-based products to be offered by IIFS. No license issued yet.
13. LEBANON Banking Control Commission – Banque du Liban Banking and capital markets Law no. 575 of 2004 on Establishing Islamic Banks in Lebanon, Banking, as well as CBL Basic Decision no. 8828 dated 26 August 2004 and CBL Basic Decision no. 8829 dated 26 August 2004 (“Decision 8829”). In matters that are not specifically stipulated for by the Law No. 575 and relevant CBL Decisions, IIFS shall comply with the regulations that apply to commercial banks, as long as there is no conflict with the principles of Islamic banking. Lebanese laws and regulations applicable in general to banks in Lebanon include the Code of Commerce, the Code of Money and Credit, the Banking Secrecy Law and the Code of Obligations and Contracts. Law no. 575 provides a definition of Islamic banks and sets out rules for the following: licensing of domestic Islamic banks, the registration of foreign Islamic banks, applicable laws, permissible activities, exemptions from existing laws, powers of the Central Bank, minimum disclosure framework, and Shariah compliance supervision. In addition, the BDL has issued, with regard to Islamic banking products, Circular 94 8/26/2004 on Practice of Islamic Banking in Lebanon, Circular 95 8/26/2004 on Conditions of Islamic Banking Establishment in Lebanon, Circular 96 10/20/2004 on Interest Operations Carried Out with/or through Islamic and Circular 97 1/19/2005 Operations of Musharakah or The first licensed full- fledged IIFS is Arab Finance Investment House (2002), followed by Albaraka Bank (2004), Lebanese Islamic Bank (2005) and BLOM Development Bank (2006).
Sharing Executed by the Islamic Banks, CBL Basic Decision No. 8870 of 20/10/2004 regulates Murabahah operations, CBL Basic Decision No. 8954 of 19/1/2005 regulates Musharakah and Musahamah operations, CBL Basic Decision No. 9041 of 1/6/2005 regulates Islamic Mutual Investment Funds, CBL Basic Decision No. 9042 of 1/6/2005 regulates ijarah operations, CBL Basic Decision No. 9207 of 10/12/2005 regulates Sulm? operations and Central Bank Basic Decision No. 9208 of 10/12/2005 regulates Istisna’a operations.
14. MALAYSIA Bank Negara Malaysia Banking and insurance Islamic Banking Act 1983, Takāful Act 1984, Banking and Financial Institutions Act 1989 The Central Bank has established a very comprehensive framework for IFSI. This includes a national Sharī’ah Advisory Council at the Central Bank, while full-fledged IIFS are expected to have their own sharī’ah board. A 10-year Master Plan, an Interbank Islamic money market, coverage by Malaysian Deposit Insurance Corporation, friendly tax regime, and the incentives under Malaysia International Financial Centre, are among the long list of initiatives taken by the Central Bank to promote and develop the IFSI and become an international hub. The first IIFS was the Pilgrims Fund Board (1963). The first Islamic banking license was issued to Bank Islam Malaysia Berhad (1983). Malaysia now has nine full-fledged IIFS with most conventional banks, including foreign, operating Islamic windows. The first takāful operator is Syarikat Takaful Malaysia (1984), and today there are four other full-fledged takāful operators.
Securities Commission of Malaysia Capital markets SC Guidelines contains provisions relating to Islamic debt securities and Islamic mutual funds The Guidelines, amongst others, specify the sharī’ah principles allowed for fund- raising exercises, and impose requirement of a sharī’ah adviser for every Islamic exercise. The SC also has its own Sharī’ah Advisory Council. The first Islamic private debt securities were issued in 1992. Today it accounts for more than half of the private debt issued. The stock exchange lists, by majority, sharī’ah - compliant stocks, and has its own sharī’ah index.
Labuan Offshore Financial Services Authority Offshore players at the Labuan IOFC LOFSA Guidelines The Guidelines cover a whole range of Islamic financial businesses, from banking to insurance and trusts. LOFSA also has its own Sharī’ah Advisory Council. LOFSA hosts at least five full-fledged IIFS, and one full-fledged takāful operator.
15. PAKISTAN State Bank of Pakistan Banking Policies for promotion of islamic banking, detailed criteria for setting up of scheduled islamic commercial bank based on principles of sharī’ah in the private sector, detailed criteria for setting up of islamic banking subsidiaries by existing commercial banks, guidelines for opening of stand alone branches for islamic banking by existing banks, and fit & proper criteria for appointment of sharī’ah advisors. There is a long history of attempts to totally Islamize the banking sector in Pakistan, notably since the President of Pakistan’s announcement in February 1979 that interest was to be removed from the economy within a period of three years. A special Ordinance was enacted in 1980 authorizing mudārabah companies. A landmark decision in 1991 by the Federal Shariah Court called for the present financial system to be radically changed to bring it into conformity with sharī’ah. As a result, the SBP is increasing its efforts to comply with that decision. Elimination of interest from the operations of specialized financial institutions including House Building Finance Corporation, National Investment Trust, and Mutual Funds of Investment Corporation of Pakistan was done in 1979 and for the commercial banks between 1981–1985. But for a long time, IFSI still failed to really take off until recent years. The first full-fledged IIFS is Al-Meezan Bank (2002). Emirates Global Islamic Bank was first foreign full-fledged IIFS (2007). Conventional banks may operate Islamic windows via separate subsidiaries or at separate dedicated branches only.
Securities & Exchange Commission of Pakistan Insurance and capital markets Securities & Exchange Ordinance, 1969, and Takaful Rules 2005 The new Takaful Rules provide the framework for takāful operation. It allows the SECP to set up a Central sharī’ah Board, while requiring each takāful operator to have its own sharī’ah board, and ensures that sharī’ah audits are conducted. The first takāful operator, Pak-Kuwait Takaful, was licensed in 2006 while a second takāful operator, Takaful Pakistan Ltd, was licensed in 2007.
16. PALESTINE Palestine Monetary Authority Banking Banking Law no. 2 of 2002 Three full-fledged IIFS are Arab Islamic Bank, Palestine Islamic Bank, and Alaqsa Islamic Bank.
17. PHILIPPINES Bangko Sentral ng Pilipinas Banking Republic Act No. 6848 - otherwise known as the Charter of Al Amanah Islamic Investment Bank of the Philippines, and the Manual of Regulations for Banks (Appendix 44). The Manual contains regulations on Islamic banking approved by the Monetary Board through Resolutions 161 and 244 in 1996. The regulations touch on several issues: purpose of the bank, functions of the Sharī’ah Advisory Council, powers of the bank, return on investment funds, authorized operations, investment risk funds, accounting and training of personnel. The section on Islamic banking is in Appendix 44. The first and only IIFS is Al-Amanah Islamic Investment Bank (1990).
18. QATAR Qatar Central Bank Banking and capital markets Amiri Decree no. 15 of 1993. The Amiri Decree was issued for establishing the Central Bank as the monetary authority, and mandates it to formulate monetary and banking and credit policies so as to achieve certain financial and economic objectives. All commercial banks, including IIFS, are governed under this Decree. The two full-fledged IIFS in Qatar are Qatar Islamic Bank and Qatar International Islamic Bank (1991). Conventional banks – such as Commercial Bank, Doha Bank, and Qatar National Bank – offer Islamic windows.
Qatar Financial Centre (QFC) Regulatory Authority Players at the QFC QFCRA Islamic Finance Rulebook The Rulebook forms the regulatory framework for the conduct of Islamic financial business in or from the QFC. Other than requiring IIFS to have its own Sharī’ah Supervisory Board, the QFCRA also expects IIFS to apply some of the AAOIFI standards. No license issued yet.
19. SAUDI ARABIA Saudi Arabia Monetary Agency Banking and insurance Banking Control Law – Royal Decree no. M/5, 1966; Rules for Enforcing Provisions of the Banking Control Law – Ministerial Decision no. 3/2149, 1986; Cooperative Insurance Companies Control Law – Royal Decree no. M/3, 2003. All banking and financial activities in Saudi Arabia, including those by IIFS, are regulated by the Central Bank. The first full-fledged IIFS is arguably Al-Rajhi Bank (1989), which has risen to be one of the largest IIFS in the world. Other leading IIFS include Bank Al-Bilad (2004). The oldest local bank, National Commercial Bank (1953) gradually converted its whole operation to Islamic by 2006.
Capital Market Authority Capital market Regulations for Investment Funds – Ministerial Decision No. 2052 and Capital Markets Law – Chapter 6. The Capital Market Authority took over the supervisory oversight of the capital markets in 2005. Investment funds can only be offered by Saudi banks. Saudi Arabia has some very large Islamic investment funds.
20. SINGAPORE Monetary Authority of Singapore Banking, insurance and capital market Banking Act (Cap 19), 2003; Insurance Act (Cap 142), 2002; Securities and Futures Act (Cap 289), 2002 All banking and financial activities in Singapore, including those by IIFS, are regulated by MAS. Hence, IIFS interested in establishing a presence in Singapore will be assessed based on the existing admission framework. Regulations are being reviewed to accommodate and facilitate the development of IFSI. For example, in September 2005, regulations were introduced to allow banks in Singapore to offer financing based on the murabaha concept. No full-fledged IIFS yet, but Islamic banking products and services are currently offered in a few conventional banks in Singapore via Islamic windows. Prior to 2005, the only Islamic banking product available was Wadiah deposit accounts. In 2005, a slew of new products were introduced into the market, including murabaha financing facilities and sharī‘ah-compliant term products. Takāful has been successful, with over S$500 million.
takāful funds under management. MAS Annual Report 2005/6 also states that there are now about S$2 billion shari’ah-compliant real estate funds managed out of Singapore. A shari’ah-compliant pan-Asian equity index was launched in Singapore in February 2006.
21. SRI LANKA Central Bank of Sri Lanka Banking Banking Act No. 30 of 1988, amended 2005 The revised Act allows both commercial banks and specialized banks to operate on a shariah- compliant basis, including allowing “the acceptance of a sum of money in any manner or form from any person for a fixed period of time for investment in a business venture of the bank on the basis that profits or losses of the venture will be shared with the person from whom such money is accepted in a manner determined at the time the money is accepted.” The first IIFS is Amana Investment Ltd (1997), which has as subsidiaries Amana Bank Ltd and Amana Takaful Ltd (1999). A second entrant to the scene is Ceylinco Islamic Investment Corporation (2003), a subsidiary of Ceylinco Insurance.
22. SUDAN Bank of Sudan Banking and capital markets Law of the Regulation of Banking Activity 2003, the Companies Act 1925, the Khartoum Stock Exchange Act 1994, the Law on the Sale of Bank Collateral 1990, the Foreign Exchange Act 1998, the Encouragement of Investment Act 2003, the Foreign Exchange Act and the Bankruptcy Laws. Sudan has adopted a single fully sharī’ah-based financial system. All banking and financial activities in Sudan are regulated by the Central Bank together with the Board of the Stock Exchange and the Commercial Register of Companies. AAOIFI Standards are fully adopted which amongst others require separate sharī‘ah boards for each IIFS. The Central Bank has its own High Sharī’ah Supervisory Board. The first IIFS is argued to be Faisal Islamic Bank of Sudan (1977).
Insurance Commission of Sudan Insurance Insurance Act 2003 Sudan is the pioneer of modern takāful operation. The Act contains a comprehensive regulatory framework to be complied with by takāful operators. The first takāful operator is argued to be the Islamic Insurance Co. of Sudan (1979).
23. SYRIA Banque Centrale Syria Banking Legislative Decree no. 35 of 2005 on Establishment of Islamic Banks The law, among others, requires an IIFS to have a minimum capital of SP1.5 billion. It also imposes compliance with AAOIFI accounting standards, the IFSB capital adequacy standards, as well as with sharī‘ah. The first IIFS is reported to be Qatar- Syria Islamic Bank (2007). Syrian Insurance Supervision Committee has also licensed three takāful operators: Syrian Qatari Insurance Co., Nour Insurance Co. and Al Aqila Insurance Co. (2007).
24. THAILAND Ministry of Finance, Thailand Islamic banks Islamic Bank of Thailand Act 2002 The Act contains provisions relating to the establishment and capital of the bank, its purpose, governance structure, supervision, operation, control, audit, report and inspection. However, it is noted that although the Act comes under the purview of the Ministry of Finance, the general banking sector in Thailand is regulated by Bank of Thailand. The first IIFS was actually a cooperative society, Pattani Islamic Saving Cooperative (1987). By end of 2001, four other Islamic saving cooperatives were established in Southern Thailand, i.e. Ibnu Affan (Pattani), As-Siddiq (Songkhla), Saqaffah Islam (Krabi), and Al- Islamiah (Phuket). Islamic windows was introduced by Government Savings Bank (1998), followed by the Bank for Agriculture and Agricultural Coops (1999) as well as the introduction of “Islamic Branch” by Krung Thai
Bank (2001). The first full-fledged IIFS is the Islamic Bank of Thailand (2003).
25. TUNISIA Central Bank of Tunisia Banking The establishment and operation of banks in Tunisia is regulated by Law no. 2001-65 and offering of Islamic financial products requires approval under Law no. 33579. All banking and financial activities in Tunisia, including those by IIFS, are regulated by the Central Bank. The first IIFS is Bank At-Tamweel Al-Tunisi Al-Saudi of the Dallah Al-Baraka Group (1983).
26. TURKEY Central Bank of Turkey (Turkeyi Cumhuriyet Merkez Bankasi) and the Banking Regulation and Supervisory Authority Banking Banks Act No. 5411 and subsequent legislation, including the Regulation on the Establishment and Operations of the Special Finance Houses pursuant to the Banks Act No. 4389. To uphold its philosophy as a secular state, Turkey does not recognize the application of Islamic finance law with respect to operations and activities of banks. As such IIFS in Turkey have been known as “special finance houses.” All banks are required to obtain (i) the requisite approvals from the BRSA; and (ii) registration with the Turkish Trade Registry. Pursuant to a recent amendment to the Banks Act, the wording “special finance houses” has changed to “participation banks.” Accordingly, the special finance houses that are currently operating in Turkey are changing their trade names so as to include the words “participation bank.” The first IIFS was Albaraka Turk Participation Bank (1985). After the setback of the 2001 financial crisis that hit the Turkish financial industry (but which interestingly was absorbed by the participation banks without insolvencies), the sector has grown by approximately 50% over the last three years. The number of participation banks is now reduced to four: (i) Turkish origin: Türkiye Finans Katilim Bankasi and Asya Katılım Bankası (also Bank Asya – formerly Asya Finans Kurumu); and (ii) Foreign
origin: Albaraka Türk Katılım Bankası (formerly Albaraka Türk Finans Kurumu – controlled by the Gulf-based Albaraka Banking Group) and Kuveyt Türk Katılım Bankası (formerly Kuveyt Türk Evkaf Finans Kurumu – controlled by the Gulf-based Kuwait Finance House).
27. UAE Central Bank of the UAE Banking and capital markets Federal Law no. 6 of 1985 regarding Islamic Banks, Financial Institutions and Investment Companies This law provides a regulatory framework for Islamic banking in the country, with provisions on applicable laws, incorporation, permissible financial activities, internal and external sharī’ah audit. The first IIFS was Dubai Islamic Bank (1975). Other full-fledged IIFS include Emirates Islamic Bank, Sharjah Islamic Bank, Abu Dhabi Islamic Bank and Dubai Bank. Conventional banks may operate Islamic windows.
Dubai Financial Services Authority All financial and ancillary services undertaken in or from the Dubai IFC. DIFC Law No. 13 of 2004 regulating Islamic Financial Business, and the Islamic Financial Business Module of the DFSA Rulebook ISF/VER1/250/09-04. The Law creates the regulatory framework for the conduct of Islamic financial business in or from the DIFC. The Rules made and administered by the DFSA are contained in the DFSA Rulebook. The Rulebook is made up of topic-area modules which specify their scope and the audience to which they apply. The Islamic Financial Business module sets out the requirements for an authorized firm undertaking Islamic financial business. Other than requiring a sharī’ah system, the DFSA also expects IIFS to apply AAOIFI standards. Takaful Re Ltd, a full- fledged re-takāful company, was issued a license by the DFSA in 2006.
28. UK Financial Conduct Authority Banking, insurance and capital markets Financial Services and Markets Act 2000. The FCA operates under a single piece of legislation that applies to all sectors, the Financial Services and Markets Act 2000. As the FCA adopts a position that they are a financial, not a religious, regulator, all banks including IIFS are governed by the same Act on “no obstacles, no favour” basis. One of the most important issues arising from the legal definition of a deposit in the UK as “a sum of money paid on terms under which it will be First full-fledged IIFS is Islamic Bank of Britain (2004), although some High Street banks are known to have offered limited Islamic banking products much earlier. The second full-fledged
IIFS is the European Islamic Investment Bank (2006).
repaid either on demand or in circumstances agreed by the parties.” In other words, money placed on deposit must be capital certain. Hence, a conflict between the UK law, which requires capital certainty, and sharī’ah law, which requires the customer to accept the risk of a loss in order to have the possibility of a return. IIFS resolve this problem by offering full repayment of the investment but informing the customer how much should be repayable to comply with the risk-sharing formulation. This allows customers to choose not to accept full repayment if their religious convictions dictate otherwise.
29. USA The Federal Reserve, State Reserve Banks, Office of the Comptroller of the Currency (OCC) Banking The National Bank Act Although the Federal Reserve has not licensed any IIFS, Islamic finance has been present in the USA through IIFS licensed by State Reserve Banks, hence limiting more nationwide presence. The OCC, in response to queries from United Bank of Kuwait, permitted ijarah-based financing products in 1997 and murabaha-based financing products in 1999. The first IIFS is arguably the LARIBA Finance House based in Pasadena (1987). Other known players include Guidance Financial Group – Revlon; Devon Bank – Chicago; University Bank – Ann Arbor; and HSBC – New York.
30. YEMEN Central Bank of Yemen Banking Law on Islamic banks, 1996 This law provides a regulatory framework for Islamic banking in the country, with provisions on applicable laws, incorporation, and permissible financial activities. Yemen’s three IIFS are Yemen Islamic Bank for Finance & Investment (1996), Tadamon Islamic Bank (1996) and Saba Islamic Bank (1997).

Source: Nik Thani and Aida Othman, “The Effectiveness of the Legal and Regulatory Framework for Islamic Financial Services,” in Islamic Financial Services Board, Islamic Finance: Global Legal Issues and Challenges (Kuala Lumpur: Islamic Financial Services Board, 2008), 33 - 45

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