Publication:
Regulatory framework for Islamic finance: Malaysia's initiative
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Date
2016
SDG:
Abstract
The role of regulation extends beyond ensuring stability and confidence in the financial system, as it is also behavioral shaper of market players. The laws, standards, and guidelines issued are instrumental in creating an incentive structure for market players to behave in certain ways. Using incentive audit approach, this paper attempts to examine the efficacy of the evolving Malaysian regulatory and supervisory framework for Islamic banking, in preserving financial stability as well as supporting the growth of the financial system and real economy. The findings suggest that the present framework unintentionally misaligns incentives and discourages Islamic banks from fully embracing risk sharing as the underlying principle for their financial instruments.
Keywords
Risk sharing , Risk transfer , Regulatory framework , Incentive structure , Incentive audit
Citation
Lajis, S. M., Bacha, O. I., & Mirakhor, A. (2016). Regulatory framework for Islamic finance: Malaysia's initiative. In Muhamed Zulkhibri, Sutan Emir Hidayat & Abdul Ghafar Ismail (Eds.), Macroprudential regulation and policy for the Islamic financial industry: theory and applications (pp. 177-192). Switzerland: Springer International Publishing.
Publisher
Springer International Publishing
Available in physical copy and ebook (Call Number: HG 187.4 M174)