Banking Regulation in the Gulf Cooperation Council and Malaysia: A Model for Harmonizing Islamic Banking Law

Date of Award


Document Type

Dissertation - Closed Access

Degree Name

Doctor of Juridical Science (S.J.D.)


Duke University School of Law


Islamic banking has come of age in the last three decades. It is a banking system derived from the established norms of Islamic Law, the Shariah. Its core doctrine is promoting socio-economic justice and morality by constraining unfair transactions involving riba (largely defined as interest) and/or gharar (excessive/speculative uncertainty). Many Islamic jurists and economists have relentlessly advocated for the superiority of Islamic banking and its ability to serve the common weal if carried out in good spirit.

In lamenting the moral depravity of the conventional "mainstream" banking system, promoters of Islamic banking often describe interest as a cancer plaguing the global economy. Paradoxically, the cure envisioned by Islamic banks has taken the form of interest­like Islamic alternatives; thereby curing cancer with another form of cancer. The same economic effects of interest-based loans can be replicated using ostensibly Islamic modes of financing.

Despite its phenomenal growth, Islamic banking has been beset by a host of problems, primarily the lack of a harmonized regulatory framework. The vitality of legal harmonization is a recurrent theme in the literature on Islamic banking. This dissertation sets out to explore this theme, examine the progress in putting it into practice, identify the obstacles it faces, and propose a policy prescription for reform. To that end, it sheds light on the banking systems of the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) and Malaysia, with particular reference to the regulatory framework of Islamic banking. These jurisdictions host the global hubs and key stakeholders of Islamic banking, rendering them its main global representatives.

The regulatory divergence across these jurisdictions has prompted Islamic banks to establish standard-setting organizations in the interest of aligning the industry's policies and practices. The standards have been useful on economic, but not on religious/ ethical grounds. That is, although they have assisted in reducing transaction costs-a result that could be achieved with little modification to conventional banking standards-they have fallen short of bringing Islamic banks closer to their moral ideals. More important than aligning policies is putting them at the service of their raison d'etre.

This study contends that the existing standardization trend is doomed to failure, as it 1s based on Islamizing conventional banking standards and demanding demonstrably impractical religious/ ethical standards. It finds it perplexing that harmonization is even a concern at this stage when there is not a single authentic Islamic bank testifying to the viability of Islamic banking in its purest form, and serving as a moral exemplar for other banks to emulate. Accordingly, adopting a more fact-based approach, the study puts forth three possible models that can form the nucleus for a harmonized and authentic Islamic banking regime.

Library of Congress Subject Headings

Banking law, Banking law (Islamic law), Malaysia, Middle East--Persian Gulf Region