Regulatory control of Islamic banks

This article delves into the basic principles governing Islamic banking and the rules and regulations under which such banking should operate. Shari`a precepts and socioeconomic objectives are key to Islamic banking. Mudaraba is the basis of contractual relationship for the banks with investors. The risk of losing investments, however, has given rise to a conservative policy by the banks investing through mudaraba. A musharaka contract provides for sharing of losses and profits. Laws and regulations governing the banks vary from country to country. Islamic banks are governed by the same laws which are meant for the conventional banks in some lands, while they have different sets of regulations in some others. It is important to form rules specially designed for these banks, due to the unique features of their operations. Proper supervision gives confidence to the system. Maintainence of adequate liquidity, cash reserve requirements and evaluation of investment strategy are important