Regulation and Supervision of Islamic Banks

This paper aims at developing a better understanding of Islamic banking (IB) andproviding policy recommendations to enhance the supervision of Islamic banks (IBs). Itpoints out and discusses similarities and differences of IBs with conventional banks (CBs)and reviews whether the IBs are more stable than CBs. Given the risks faced by IBs, thepaper concludes that they need a legal, corporate and regulatory framework as much asCB does. The paper also argues that it is important to ensure operational independence ofthe supervisory agency, which has to be supported by adequate resources, a sound legalframework, a well designed governance structure, and robust accountability practices.