1 See Michael C. Jenson & William H. Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305, 313 (1976) (“It is important to recognize that most organizations are simply legal fictions which serve as a nexus for a set of contracting relationships among individuals. … The private corporation or firm is simply one form of legal fiction which serves as a nexus for contracting relationships and which is also characterized by the existence of divisible residual claims on the assets and cash flows of the organization which can generally be sold without permission of the other contracting individuals.”); Melvin A. Eisenberg, The Conception that the Corporation is a Nexus of Contracts, and the Dual Nature of the Firm, 24 Del. J. Corp. L. 819, 829 (1999) (“More generally, an organization consists not only of assets, persons, and relationships among persons, but of the rules that organize those assets, persons, and relationships. Some of those rules are contractual, but most are bureaucratic in the sense that they are hierarchically adopted and persist over time as persons, assets, and relationships come and go.”). Within the context of Islamic finance the American corporate form has yet to be fully tested. See infra., Section II for a detailed discussion of how Islamic restrictions, customary procedure, and Sharī'ah boards are incorporated into the American corporate form.Google Scholar

2 Sharī'ah boards will often examine in detail both the structure of a proposed transaction, or financial product, and the documentation giving effect to the actual exchange. For example, “[t]he approach most widely adopted currently is to establish independent bodies of knowledgeable agents. These bodies are usually internal to the institution and part of its governance structure. They include Sharī'ah Supervisory Boards and Sharī'ah review units.” Wafik Grais & Matteo Pellegrini, Corporate Governance and Sharī'ah Compliance in Institutions Offering Islamic Financial Services, Policy Working Paper 4054 The World Bank Financial and Private Sector Development Network, at 3 (Nov. 2006), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=940711 (last visited February 10, 2009; see also Islamic Financial Services Board, Guiding Principles on Sharī'ah Governance System 1 n.2 (Dec. 2008), http://www.ifsb.org/docs/eng_IFSB%20Exposure%20Draft%20on%20Shariah%20Governance%20System%20(Dec08).pdf) [hereinafter guiding Principles] (“Sharī'ah boards are usually comprised of a panel of Sharī'ah scholars acting as special advisers to the institutions, and may alternatively be called a Sharī'ah Committee or Sharī'ah Supervisory Board. However, in recent years there has been an increasing trend for corporate entities, including Islamic financial institutions themselves, to perform this function in the form of ‘Sharī'ah advisory firms.'”).Google Scholar

3 Grais & Pellegrini, supra note 2, at 4 (“In principle, the role of this board covers five main areas: certifying permissible financial instruments through fatwas (ex-ante Sharī'ah audit); verifying that transactions comply with issued fatwas (ex-post Sharī'ah audit); calculating and paying zakat (a tax on wealth) to charity; disposing of non-Sharī'ah complaint earnings; and advising on the distribution of income or expenses among shareholders and investment account holders. The Sharī'ah Supervisory Board also issues a report to certify that all financial transactions comply with the above mentioned principles.”).Google Scholar

4 See supra note 2–3.Google Scholar

5 Grais & Pellegrini, supra note 2, at 5 (“The functioning of a Sharī'ah Supervisory Board raises five main issues of corporate governance: independence, confidentiality, competence, consistency, and disclosure.”); see supra note 3.Google Scholar

6 Guiding Principles, supra note 2, at 7 (“An Islamic firm would want to ensure that its Sharī'ah Governance System covers the relevant ex-ante processes, namely (i) issuance of Sharī'ah pronouncements, and (ii) compliance checks before the transaction is accepted. … For good risk management the firm would want to ensure that its Sharī'ah Governance System covers the relevant ex-post processes-namely, internal Sharī'ah review and Sharī'ah governance reporting. Without such follow-up, the firm would not be able to monitor the consistency of its Sharī'ah compliance and effectively manage any Sharī'ah compliance risk that may arise over time.”).Google Scholar

7 For example, if a Sharī'ah board did not approve a transaction ex-ante that had been recommended by the board of directors, then one might ask what the proper procedural framework is for the board of directors to follow if it nonetheless wishes to conduct the transaction. See infra, Section II (giving a detailed analysis of how an Islamic corporation in Delaware would answer this question by integrating Islamic law principles of procedure into the shareholder agreement).Google Scholar

8 Ballantyne, W.M., Essays and Addresses on Arab Laws 58 (2000) (“The Sharī'ah runs like a gold thread through the jurisprudence of the Gulf States.”). The classical theory teaches that Islamic law fundamentally constitutes a pre-ordained system of God's commands relating to the duties of each Muslim. Islamic law is based on four main principles or roots ('usul al-fiqh): (1) the Qur'an; (2) the early Islamic traditions of the Prophet which are recognized and incorporated into an understanding of the textual interpretations of the Qur'an (ahadith or sunna); (3) the consensus of religious scholars within historically accepted legal schools of Islamic thought (ijma); and (4) the method of juristic inference by analogy (qiyas). See Reinhard Leopold Klarmann, Islamic Project Finance: A Legal Study with Particular Reference to the Laws of Switzerland and the United Arab Emirates 13–21 (2003) [hereinafter Klarmann, Islamic Project Finance]; see also Noel J. Coulson, Commercial Law In The Gulf States, 10–41 (1984); Hans Kung, Islam: Past, Present & Future 176–81 (2007). See generally Mahmoud A. El-Gamal, Islamic Finance: Law, Economics, and Practice 26–32 (2006) [hereinafter El-Gamal, Islamic Finance]; Lawrence Rosen, The Justice of Islam: Comparative Perspectives on Islamic Law and Society 24–37 (2000); Joseph Schacht, An Introduction to Islamic Law 10–56 (1964); Bernard Weiss, Interpretation in Islamic Law: The Theory of Ijtihad (1978), reprinted in Islamic Law and Legal Theory 273 (Ian Edge ed., 1996); Ann E. Mayer, The Shari'ah: A Methodology of a Body of Substantive Rules?, in ISLAMIC Law and Jurisprudence 177, 177–198 (1990).Google Scholar

9 Grais & Pellegrini, supra note 2, at 4; see also Islamic Legal Interpretation: Muftis and Their Fatwas (Muhammed Khalid Masud, Brinkley Messick, & David Powers eds., 1996); Wael B. Hallaq, Usul al-fiqh: Beyond Tradition, in Wael Hallaq, Law and Legal Theory in Classical and Medieval Islam (1995); Wael B. Hallaq, The Origins and Evolution of Islamic Law (2005).Google Scholar

10 See, e.g. Islamic Finance: The Challenge Ahead 173–74 (Nafis Alam & Bala Shanmugam eds. 2007) [hereinafter Alam & Shanmugam].Google Scholar

11 See Grais & Pellegrini, supra note 2, at 4. See also infra, note 12.Google Scholar

12 Fiqh is the academic discipline, implying a human activity, by which scholars describe and elaborate the Sharī'ah. Two principle types of legal writings exist in Islam: 1) 'usul al-fiqh (or the literature defining the sources of law and methodology used to deduce the rules of the divine revelation); and 2) furu al-fiqh (or jurisprudence – the form commonly used today by Islamist jurists when expounding the principles of Islamic law). Furu al-fiqh, quite simply consists of the interpretation and application of the primary sources, the Quran and Sunna. However, for any Islamic legal interpretation to carry authority it must show a respect for the traditions of the legal schools of Islam; for instance, a strict observance of the primary sources in the interpretation demonstrates such capital authority. See Klarmann, Islamic Project Finance, supra note 8, at 14–16; see also El-Gamal, Islamic Finance, supra note 8, at 6–20; Zamir Iqbal & Abbas Mirakhor, An Introduction to Islamic Finance: Theory and Practice 32–52 (2007); Yasaar, Glossary of Islamic Financial Terms, yasaar.org, http://www.yasaar.org/glossary.htm (last visited Feb. 26, 2009) [hereinafter Yasaar]; Mahmoud A. El-Gamal, “Interest” and the Paradox of Contemporary Islamic Law and Finance, 27 Fordham Int'l L.J. 108, 120–21 (2003) [hereinafter El-Gamal, Interest]; Miriam Sophia Netzer, Riba in Islamic Jurisprudence: The Role of ‘Interest,’ in Discourse on Law and State (Apr. 26, 2004) (unpublished Master thesis, Tufts University), at 13–19, available at http://fletcher.tufts.edu/research/2004/Netzer-Miriam.pdf (last visited Feb. 20, 2009).Google Scholar

13 These variations occur even though Sharī'ah scholars strive to achieve a consensus on difficult and novel issues, such as those involved in the development of new financial instruments and commercial products. See Grais & Pellegrini, supra note 2, at 4 (“A fatwa must not be mistaken for mandatory jurisprudence; it is a legal opinion and therefore should be considered as legal doctrine. … Therefore it is possible to encounter contradictory fatwa referring to the same issue.”). See also supra note 12.Google Scholar

14 See guiding Principles, supra note 2, at 17.Google Scholar

15 Juan Solé, Islamic Banking Makes Headway, International Monetary Fund (Sept. 19, 2007), available at http://www.imf.org/external/pubs/ft/survey/so/2007/RES0919A.htm (last visited Feb. 10, 2009). For a description of the Accounting and Auditing Organization for Islamic Financial Institutions, see AAOIFI – Accounting and Auditing Organization for Islamic Financial Institutions, Overview, http://www.aaoifi.com/ (“AAOIFI[ ] is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Sharī'ah standards for Islamic financial institutions and the industry. Professional qualification programs … are presented now by AAOIFI in its efforts to enhance the industry's human resources base and governance structures. AAOIFI was established in accordance with the Agreement of Association which was s registered on 27 March, 1991 in the State of Bahrain. As an independent international organization, AAOIFI is supported by institutional members … including central banks, Islamic financial institutions, and other participants from the international Islamic banking and finance industry, worldwide. AAOIFI has gained assuring support for the implementation of its standards, which are now adopted in the Kingdom of Bahrain, Dubai International Financial Centre, Jordan, Lebanon, Qatar, Sudan and Syria. The relevant authorities in Australia, Indonesia, Malaysia, Pakistan, Kingdom of Saudi Arabia, and South Africa have issued guidelines that are based on AAOIFI's standards and pronouncements.”). For a description of the IFSB see IFSB, Islamic Financial Services Board, http://www.ifsb.org/ (“The IFSB is an international standard-setting organization that promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry, broadly defined to include banking, capital markets and insurance sectors. The IFSB works closely with relevant international, regional and national organizations, research/educational institutions and market players.”).Google Scholar

16 Riba means any addition over and above the principal sum lent, and includes usury as well as interest at any rate. See El-Gamal, Interest, supra note 12, at 125–31; see also Netzer, supra note 12, at 7–19; Ballantyne, supra note 8, at 198 (“There is no doubt that the prohibition on riba stems from the Qu'ran itself, and is forbidden in the strongest terms in many verses.”).Google Scholar

17 The imprecise understanding of riba is due to variations in interpretative evidence from the primary sources of Islamic law and the contemporary practice of Islamic financial institutions. See El-Gamal, Interest, supra note 12, at 108–09 (“Almost all contemporary writings in Islamic law and Islamic finance proclaim that Islamic law [Sharī'ah] forbids interest. This statement, however, is paradoxical in light of the actual practices of Islamic financial providers over the past three decades. In fact, the bulk of Islamic financial practices formally base rates of return or costs of capital on a benchmark inertest rate such as the London Inter-bank Offer Rate ….”); see also Klarmann, Islamic Project Finance, supra note 8, at 38 (“The virtual absence of a detailed explanation of the term riba in the Qur'an combined with the uncertainty of the position as presented by the sunna which varies significantly on various riba-related issues, makes it impossible to give firm answers to many of the questions that arise as to the precise meaning of riba.”). Another area of variation is on the issue of indexation of debt. In addition to the various justifications provided in favor of positive time value of money in the context of debt, one important argument relates to inflation and the consequent decrease in the value of money. Economists argue that a debt, when repaid at a later date, has lower purchasing power due to persistent increases in the general prices of commodities. Hence, the creditor in a debt loses while the debtor gains because the debtor repays less. The rate of interest on debt includes a premium or compensation for expected inflation, according to conventional economists. Arguably, it would be unfair if the debtor is not compensated for the loss of purchasing power. A method that has been subject to considerable debate among Islamic scholars involves linking a debt directly to purchasing power of the currency or the unit of account, as measured by a macro-economic commodity price index. Should the commodity prices increase resulting in a decrease in the real value of money, an offsetting increase in the nominal value of debt would follow. However, such indexation has push-back on the ground that rules of riba or any other divine rule cannot be relaxed for man-made problems like inflation. See, e.g., Iqbal & Mirakhor, supra note 12, at 59–62; Netzer, supra note 12, at 4–9, 14; see also El-Gamal, Interest, supra note 12, at 2–3; Netzer, supra note 12, at 46.Google Scholar

18 The creative aspect of the activity of Islamic jurists is called ijtihad (or literally effort), and can be defined as “the process of recognizing the manifest meaning of the Quranic rules or deriving a novel rule by analogy therewith.” See Klarmann, Islamic Project Finance, supra note 8, at 15. The space for creativity, however, is limited considering that “the Muslim jurist never invents rules, but formulates, or attempts to formulate rules which God has already decreed and which are concealed in the sources.” See id. For example, the flexibility of ijtihad cannot extend to the express provisions of primary sources within Islamic law. While the early jurists of Islam were relatively free in their ijtihad, the possible scope of activity for the modern Muslim jurist is constrained by “[t]he fact that the classical theories have achieved a virtually canonical status” within the jurisprudence of Islamic Law. See id. In fact, in some instances, the Muslim jurist is bound to observe what are considered traditional interpretations of the primary sources by past authorities, a doctrine known as taqlid or imitation. However, numerous academic scholars cite the right of ijtihad as the key to any further development or modernization of Islamic Law. See generally Rosen, supra note 8, at 39–98; see also Netzer, supra note 12, at 13–18; El-Gamal, Islamic Finance, supra note 8, at 28–35; Yasaar, supra note 12; El-Gamal, Interest, supra note 12, at 111–18.Google Scholar

19 See supra notes 17–18 and accompanying text.Google Scholar

20 See supra notes 9–13.Google Scholar

21 See infra note 27 and accompanying text.Google Scholar

22 See generally Klarmann, Islamic Project Finance, supra note 8, at 15.Google Scholar

23 See id. at 30–38. See also guiding Principles, supra note 2, at 10–12.Google Scholar

24 See Klarmann, Islamic Project Finance, supra note 8, at 16 (“A fatwa must not be mistaken for mandatory jurisprudence; it is a legal opinion and therefore should be considered as legal doctrine. … Therefore it is possible to encounter contradictory fatwa referring to the same issue.”). See also Angelo M. Venardos, Islamic Banking and Finance in South-East Asia 99–101 (2005).Google Scholar

25 See generally notes 9–13 and accompanying text; Klarmann, Islamic Project Finance, supra note 8.Google Scholar

26 For example, a respected private national Sharī'ah board would establish regulatory standards that are ultimately accepted or rejected by the global umma (or world-wide Muslim community); as American standards are made competitive, and innovations are brought to the marketplace in the United States, the prominence of the institution and the political capital of an internationally recognized American Sharī'ah board become important assets.Google Scholar

27 See Ballantyne, supra note 8, at 200 (“Perhaps what is required in today's climate is not just a restructuring of the Sharī'ah to fit Western economic concepts, but some restricting of those concepts in order to meet the Sharī'ah.”). Therefore, Sharī'ah guidelines never impose a burden on a soul beyond its capability and have certain flexibilities in light of prevailing circumstances in a given society. For example: “Some flexibility is given to Muslims living in non-Muslim lands. The fatawa (religious edicts) issued by Ayatullah Sistani (Iraq's most prominent Shi'i cleric) seem to accommodate many forms of conventional finance for those Muslims …. Likewise, the prominent Sunni jurist Yusuf Al-Qaradawi issued a similar fatwa allowing Muslims in North America to finance their home purchases with conventional mortgages … [invoking] the rule of necessity.” El-Gamal, Islamic Finance, supra note 8, at 19. At the heart of these flexibilities is a central principle of Islamic finance (and much of Islamic jurisprudence in general) that all concepts and solutions are assumed to be permitted in Islam unless expressly prohibited under Islamic law. See Humayon A. Dar & John R. Presley, Islamic Finance: A Western Perspective, 1 Int'l J. Islamic Fin. Services 1, 1–4 (2001); El-Gamal, Interest, supra note 12, at 108–16 (2003); Netzer, supra note 12, at 7–12; see generally Kung, supra note 8, at 612–16; Iqbal & Mirakhor, supra note 12, at 32–52; Bill Maurer, Pious Property 20–33 (2006).Google Scholar

28 See Business Intelligence Middle East, Over US $7 Billion Benchmarked to the Dow Jones Islamic Market Indexes, ***, http://www.bime.com/main.php?c=3&cg=3&t=1&id=31823 [hereinafter BIME website] (“Dow Jones Indexes, a leading global index provider launched its first Islamic index in 1999 and commemorating its 10th anniversary …. Dow Jones Islamic Market Indexes were created to serve as an indication or benchmark for institutional investors when deciding their portfolio or comparing the performance of their portfolios. Today, this index family is used as benchmark and basis for many investment products as they reflect investor sentiment…. Over the past decade, the Dow Jones Islamic Market Index series has expanded to more than 100 indexes for all major established and emerging financial markets, regions and sectors. Amongst these are Islamic indexes for the ASEAN, BRIC and GCC regions as well as for global and Malaysian bluechips.”). See Mohammed Obaidullah, Islamic Financial Services 213–20 (2005), available at http://islamiccenter.kau.edu.sa/english/publications/Obaidullah/ifs/ifs.html (last visited Feb. 20, 2009) (“The Dow Jones Islamic Index appointed Mufti Taqi Usmani as head of its Sharī'ah board. The index analyzes, on a quarterly basis, all the World's main trading indices … and applies criteria by which it can identify all those companies which meet Sharī'ah criterion in a manner similar to that for property funds. This in turn allows any fund manager access to a wide range of halal (or permissible) companies which can then be considered alongside other factors such as the firm's management, the industry potential, government regulation, charging structure, timeframe for investment, and other relevant factors.”).Google Scholar

29 See Obaidullah, supra note 28, at 219 (“Islamic funds have also been using a financial screen to exclude company that rely on excessive interest-based debt and derive a significant portion of their income from interest. However, the nature of such screens has also undergone changes over time. For example, the Dow Jones Islamic Market Indexes screen in its current form appears as follows: exclude companies that have unacceptable lines of business; exclude companies if Total Debt divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%. Note: Total Debt= Short-Term Debt + Current Portion of Long-Term Debt +Long-Term Debt; if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%; if Accounts Receivables divided by Total Assets is greater than or equal to 45%. Note: Accounts Receivables = Current Receivables + Long-Term Receivables. However, major changes have taken place in the screen over recent past. One of the financial criteria initially was: Exclude a company if interest income is more than 9% of their operating income. This was subsequently changed to: Exclude a company if non-operating interest income / revenue = or >5%. Apparently, this was called for considering the anomaly that if a company has non-operating interest income but the net income is negative, it is excluded. This criterion was again replaced subsequently with: Exclude a company if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market capitalization is greater than or equal to 33%.”).5%.+Apparently,+this+was+called+for+considering+the+anomaly+that+if+a+company+has+non-operating+interest+income+but+the+net+income+is+negative,+it+is+excluded.+This+criterion+was+again+replaced+subsequently+with:+Exclude+a+company+if+the+sum+of+Cash+and+Interest+Bearing+Securities+divided+by+Trailing+12-Month+Average+Market+capitalization+is+greater+than+or+equal+to+33%.”).>Google Scholar

30 The index analyzes, on a quarterly basis, all of the world's main trading indices (such as FTSE, Dow Jones, etc.) and applies criteria by which it can identify all those companies which meet Sharī'ah criteria in a manner similar to that for property funds. See El-Gamal, Islamic Finance, supra note 8, at 16–120; Iqbal & Mirakhor, supra note 12, at 132–52; Yasaar, supra note 12.Google Scholar

31 See generally Standard & Poor's, Islamic Finance Outlook 2008 p. 57 (2007) [hereinafter S&P 2007].Google Scholar

32 Growing unanimity over the general screens used by Islamic mutual funds has enabled Islamic private equity and investment banking boutiques to thrive. Those institutions typically collect investor funds in GCC countries (investors from Saudi Arabia, Kuwait, and the U.A.E.) through local subsidiaries or partners in the West (United Kingdom being the primary destination for investment funds). See El-Gamal, Islamic Finance, supra note 8, at 116–29. Collected funds are used to acquire real estate and small companies that pass the above mentioned screens or whose debt can be restructured to pass them (often through lease-based leveraged buy-outs, a popular Western mergers and acquisitions tool of the 1980's and 1990's). See id. There are 134 registered equity funds, six hybrid funds, six sukuk funds, two Takaful funds (insurance), five leasing funds, and eight real estate funds. This allows any fund manager access to a wide range of halal (or permissible) companies which can then be considered alongside other factors, such as the firm's management, the industry potential, government regulation, charging structure, timeframe for investment, and other relevant factors. See id.; S&P 2007, supra note 31, at 8; see also Obaidullah, supra note 28, at 225–27.Google Scholar

33 See BIME website, supra note 28 (“Dow Jones Islamic Market Indexes have not only been chosen to underlie the first-ever Islamic exchange-traded funds worldwide, but have also won a total of sixteen prestigious industry awards for Islamic index innovation and excellence.”); see also Dow Jones Indexes, Dow Jones Indexes Named Best Islamic Index Provider of the Year, http://www.djindexes.com/mdsidx/html/pressrelease/press_hist2008.html#20080205 (Feb. 5, 2008) (“Dow Jones Indexes, a leading global index provider, today announced that it has been named best Islamic index provider of the year by Euromoney magazine.”).Google Scholar

34 See Obaidullah, supra note 28, at 220 (2005) (“To cite an example, opponents of the one-third debt/equity exclusionary rule, or 33% percent rule used in the screen of the Dow Jones Market Indexes, cite the following hadith: The Prophet advised Abu Bakr not to donate more than One-Third of his wealth, and commented that ‘One third is too much (Al Thuluth Katheer).’ The fol lowing fiqh rule is also cited against the rule ‘Whether a commodity that is part gold and part brass qualifies as gold for purposes of applying the rules of riba is resolved by the percentage of gold in the commodity, i.e., if greater than a third, it is ‘gold.’ Critics of the one-third rule assert that it involves an out-of-context use of the above hadith and also an out-of-context use of the above fiqh rule. Arguably, the one-third rule could be applied to other ratios as well. There is indeed an element of arbitrariness over applying the one-third rule (even if it is a correct application) to a specific ratio. … It may also be argued that replacement value of assets, and not market capitalization may be a better denominator to determine the nature of a mix.”); see also Yasaar, supra note 12; El-Gamal, Interest, supra note 12, at 108–09; Netzer, supra note 12, at 46 (using a 1) strict textualist interpretation; 2) “the invocation of higher qawa'id (social justice) principles;” and 3) darura (exigency) to “argue[] that in a time of moral corruption, given the temptation of the bank to understate profits and cheat the investor … prefixing profits as a percentage of capital [or interest] is the only way to give the Muslim investor the certainty of a fair return.”).Google Scholar

35 See Obaidullah, supra note 28, at 220 (“Islamic jurists decided to impose three financial screens: (i) exclude companies for which accounts receivables constitute a major share of their assets; (ii) exclude companies that have too much debt; and (iii) exclude companies that receive too much interest.”); see also El-Gamal, Islamic Finance, supra note 12, at 88; Yasaar, supra note 12. After experimentation with different cutoff marks for financial ratios, the set of rules selected by the Dow Jones Islamic indices became globally accepted: (i) exclude companies which have receivables accounting for more than 45% of assets and (ii) exclude companies which have a debt-to-moving average of market capitalization exceeding 33%. See Salahuddin Ahmed, Islamic Banking Finance and Insurance: A Global Overview 106–10 (2006); see also Iqbal & Mirakhor, supra note 12, at 132–52; Yasaar, supra note 12. See generally Klarmann, supra note 8, at 130–38. Many add a third rule related to the first: exclude companies which have an interest income exceeding 5% (or, for some, 10%) of total income. To invest in the shares of a company, the company must be Sharī'ah-compliant; therefore, the company must meet a set of three financial ratios concerning the permissible limits of debt, accounts receivable, and any interest income. See Ahmed, supra, at 346 (“Investment in shares of a company should comply if the debt/equity ratio is not more than 33 percent; interest derived earnings do not exceed more than 5 percent; or assets comprise cash and receivables exceeds 49 percent.”).Google Scholar

36 See Obaidullah, supra note 28, at 214 (“Shariah Fund Inc. claims to have developed innovative risk management tools that replicate options trading, short sales, and balance sheet leverage with Sharī'ah compliant equivalents. Shariah Funds, Inc. also claims to have designed a proprietary software engine that screens transactions for Sharī'ah compliance and allows real time, web interface portfolio access for monitoring purposes. Skeptics note that Islamic financiers must be aware of the dangers of creative accounting, creative structuring and of over engineering contracts for the sake of raising margins rather than efficiency gains. Innovation must be a genuine response to investor needs that reaches Sharī'ah compliance and not simply unnecessary layering of products.”).Google Scholar

37 See id. (“Though it is widely believed that Islamic hedge funds are not a possibility, some recent attempts at developing such a product are note-worthy. For instance, the Saudi Economic Development Company (SEDCO) is in the process of developing an Islamic hedge fund product that would basically use the bai-salam contract to synthesize forwards and futures based on stocks where the price of the shares is determined and paid up-front, and the shares are to be delivered at an agreed future date. It is also examining the possibility of using bai-al-urbun as an alternative to prohibited conventional options.”).Google Scholar

38 See id. at 221 (“Criteria set by the Sharī'ah Advisory Council (SAC) of Malaysian Securities Commission for Approved List of Securities. The Council excluded stocks from the approved list based on the following criteria. 1. Operations based on interest such as activities of commercial and merchant banks and financial institutions. 2. Operations involving gambling 3. Activities involving the manufacture and/ or sale of products such as liquors and pork; and 4. Operations containing element of gharar (uncertainty) such as conventional insurance business. As for companies whose activities comprise both permissible and non-permissible elements, the SAC applied several additional criteria, 5. The core activities of the company must be activities which are not against the Sharī'ah as outlined in the four criteria above. Furthermore, the prohibited element must be very small compared to the core activities; 6. Public perception or the image of the company must be good; and 7. The core activities of the company have importance and to the Muslim community and the country.”).Google Scholar

39 See Venardos, supra note 24, at 159 (“Bank Negara Malaysia established the national Sharī'ah Advisory Council on May 1, 1997, as the highest authority on Islamic banking and takaful in Malaysia. The primary objectives of the Advisory Council is to act as the sole authoritative body to advise on Islamic banking and finance, as well as analyze and evaluate compliance of new business schemes.”); Guiding Principles, supra note 2, at 6 (“In some jurisdictions, supervisory authorities have their own Sharī'ah board that works together with them in issuing standardized Sharī'ah pronouncements/resolutions, as well as aligning relevant policy and regulatory frameworks with the Sharī'ah. Although they may be known by different names … their functions are similar – i.e. to become the highest body issuing Sharī'ah pronouncements/resolutions in the country. Some of these supervisory authorities have even gone one step further, whereby they prohibit the members of the national Sharī'ah panel from sitting on a Sharī'ah board of the market players. In addition, each member of the Sharī'ah board is restricted in terms of the number of Sharī'ah boards of market players that he or she can serve. This restriction is intended not only to minimize the conflict of interest and maintain an appropriate firewall to preserve confidentiality, but also … to ensure that the members of a Sharī'ah board can dedicate adequate time and effort to each institution that they serve.”).Google Scholar

40 See supra note 38–39.Google Scholar

41 See KPMG International, Growth and Diversification in Islamic Finance 1 (2007), available at http://www.kpmg.co.id/kpmg/pdf/Growth%20and%20Diversification%20in%20Islamic%20Finance%202007.pdf (last visited Jan. 15, 2009) (“The logistics of a pooled property funds are such that investors pool their funds together collectively within a unit trust managed by a respectable firm which then issues units to the investors in exchange for their capital. These are shares in a company which in turn invests the money in providing Islamic mortgages to the general community. The repayment paid by the occupier of the mortgaged property and serves as a return to the investor on his property shares, after deducting the administration expenses of the firm running the scheme. This concept is a great way of providing true Islamic finance for homebuyers, yet simultaneously generating return on capital. The only organization in the UK currently engaged in this form of investment-based financing is Ansar Finance in Manchester. Ansar is a community based co-operative aimed at providing interest-free loans and Islamic Mortgages to its’ members. The scheme sells shares in Units of $100 with a minimum investment level of $5000. Currently Ansar holds over $400,000 in such client investments. The money is then utilized to provide compliant mortgages for members of Ansar Finance. The Ijarah based mortgages typically provide a return of around 6.5%. Ansar's expenses on this return are 2.5% which leaves a net 4% to be repaid to the investors. Ansar aims to streamline administration expenses further in an attempt to push up the net dividend received.”); see also Sufyan Ismail & Bashir Timol, Sharī'ah Compliant Investments, 1st Ethical Charitable Trust Research Paper (Jan. 1, 2007), available at http://www.lstethical.com/downloads/ShariahCompliantInvestment.pdf (last visited Feb. 28, 2009).Google Scholar

42 Manabu Hara, Japan Moves Carefully Toward Islamic Finance, RIBH Islamic Finance (Dec. 12, 2008), http://ribh.wordpress.com/2008/12/13/japan-moves-carefully-toward-islamic-finance/.Google Scholar

43 See infra note 79.Google Scholar

44 See Errico, Luca & Mitra Farahbaksh, Islamic Banking: Issues in Prudential Regulation and Supervision, IMF Working Paper 98/30 (Washington: International Monetary Fund). See infra., note 79. See also “Islamic Banking in the UK,” Briefing Note BN016/06, Financial Services Authority, 2006, available at www.fsa.com.Google Scholar

45 The regulatory dilemma in the United States is also that given both structural and constitutional limitations, the creation of a United States Sharī'ah advisory board as a “superstructure” administrative body located within the Treasury Department seems remote. In the United States, state financial regulators may appoint their own Sharī'ah experts to provide advice on the instruments and services offered by the financial institutions in their jurisdiction. Consultation with these experts would be crucial to ascertain whether the legal and tax regulations issued with regard to Islamic institutions, as well as the licensing of different activities, are compatible with Islamic principles.Google Scholar

46 For instance, since 2004, the Treasury has hosted only one in-house Islamic scholar for the $200 to $300 million invested domestically in Sharī'ah-complaint securities. See Daniel Bases, U.S. Islamic Finance Market Underserved, Reuters (Feb. 8, 2008) (“We are seeing on a daily basis [Gulf] money going to Europe, and the U.K…. due to lack of Sharī'ah-complaint product in the United States … [W]e have to catch-up.”); Shirley Chiu et al., Islamic Finance in the United States, Society 64, 66–67 (Sept./Oct. 2005) (“[T]he Treasury currently hosts an in-house Islamic finance scholar ….”); John Taylor, Under-Secretary for Int'l Affairs, Treasury Launches New Islamic Finance Scholar-in-Residence Program, U.S. Dept. of the Treasury Office of Public Affairs June 2, 2004, http://www.treas.gov/press/releases/js1706.htm (last visited Oct. 12, 2008); see also Her Majesty's Treasury Office of Public Affairs, City Minister Works With Industry to Improve Access to Retail Islamic Finance Products, Dec. 3, 2007, http://62.164.176.164/press_136_07.htm (last visited Oct. 19, 2008) (discussing the achievements in the United Kingdom from 2006–07 of the Islamic Finance Experts Group, established by Chancellor Gordon Brown in 2006, which consults on the growing $10 billion Islamic finance industry) (“The Chancellor announced in Budget 2006 a commitment to work with the financial sector to establish a High-Level Group, with senior representatives from across the financial sector, to develop and support a new strategy to promote London as the leading international Islamic financial centre. The Islamic Finance Experts Group was established as a result.”); see also Islamic Bank of Britain, Press Release, FSA Gives Approval for Launch of First Islamic British Bank, http://www.islamicbank.com/islamicbanklive/PressRelease1/1/home/1/home.jsp (last visited Oct. 15, 2008) (Iqbal Asaria, chair of the Muslim Council of Britain Business & Economics Committee states, “The Muslim Council of Britain welcomes the Islamic Bank of Britain, the first fully Islamic bank to be setup in the U.K. Its founding comes at the end of a unique partnership between the Muslim community and the regulatory authorities in the U.K. which has seen the overcoming of many misconceptions about Islamic Banking and finance.”) (internal quotations omitted). The United States is behind in developing a similar understanding and capacity in Islamic finance.Google Scholar

47 Islamic fund management came to prominence in 1996, “when the Sharī'ah scholars of the Fiqh Academy in Jeddah, Saudi Arabia issued a fatawa approving the launch of Sharī'ah compliant equity funds.” AHMED, supra note 35, at 346–49.Google Scholar

48 “Corporate governance can be interpreted as the process in which the company is administered and controlled by a few parties such as board of directors, management, auditors etc. These parties have the duty to ensure that the company is heading towards the mission as well as the vision of the company. At the same time, they are also accountable to the companies’ stakeholders (Abdul Rahman 1998; Shahul, 2000 u.p.). In Malaysia, the Finance Committee on Corporate Governance (1998) describes corporate governance as: “the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interest of other stakeholders”. It is basically the governing bodies which are responsible to the life of the institution as a whole. It takes into the consideration all the matters that affect feasibility, proficiency and ethical character of an enterprise. Detomasi (2002) suggest three independent elements to achieve effective corporate governance. First, a strong public sector governance is needed detailing how financial reporting and auditing practices are to be conducted. Second, a community of well trained managers and executives that are able to formulate and execute effective corporate strategies within the boundaries set by law and securities regulation. Finally, independent auditors capable of performing neutral and objective auditing practices of corporate behavior must complement the work of managers and legislators. Therefore, in the United States a main tension arises with respect to Islamic corporate governance that relies on the Sharī'ah board for accountability and the traditional sphere of the board of directors to determine what is in the best interests of the corporation.” Contribution of the Islamic Worldview Towards Corporate Governance, Mohamed Asri & Mohamed Fahmi, MSc Accounting Sem 2 2003/04; available at http://www.iiu.edu.my/iaw/Students%20Term%20Papers_files/Asri%20and%20Fahmi%20IslWWandCG.htm Google Scholar

49 See Michael C. Jenson, Value Maximization, Stakeholder Theory, and the Corporate Objective Function, 14 (no. 3) J. Applied Corp. Fin. 8–9 (2001) (“The main contender to value maximization as the corporate objective is called ‘stakeholder theory.’ Stakeholder theory says that managers should make decisions that take account of the interests of all the stakeholders in a firm. Stakeholders include all individuals or groups who can substantially affect, or be affected by, the welfare of the firm …. Enlightened stakeholder theory uses much of the structure of stakeholder theory but accepts maximization of the long-run value of the firm as the criterion for making the requisite tradeoffs among its stakeholders.”).Google Scholar

50 In the case of need for a default rule, anything that would change the character of the corporation this is not likely to get challenged since clearly rules exist as to compliance with covenants that are not required to be in corporate charters. See George G. Triantis & Ronald J. Daniels, The Role of Debt in Interactive Corporate Governance, 83 Calif. L. Rev. 1073, 1073–76 (1995).Google Scholar

51 See CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227 (Del. 2008) (leaving open the question of whether the procedure by which the board consults with a Sharī'ah advisory committee must be in the bylaws or corporate charter, but making clear that the less ambiguous and preferable route is to use the corporate charter.).Google Scholar

52 This Article is the first to argue that if the board wishes to act but cannot obtain the consent of any Sharī'ah advisory panel, then it should submit the issue to shareholders. See infra text accompanying note 57.Google Scholar

53 See also, US Securities and Exchange Commission, The True Value of Corporate Governance, Global Corporate Guide 58–73 (2004) (discussing the role of independent audit committees); James D. Cox & Thomas Lee Hazen, Corporations, 171–81 (2003); Franklin A. Gevurtz, Corporation Law, 498–524 (2000). See generally Edward P. Welch, Andrew J. Turezyn, Robert S. Saunders, & Rodman Ward, 1–3 Folk on the Delaware General Corporation Law (5th ed. 2006).Google Scholar

54 See In Re Oracle Corp. Derivative Litig., 824 A.2d 917, 947 (Del. Ch. 2003) (making clear that the independence inquiry is not about whether the members of the Special Litigation Committee acted consciously to favor one side or the other, but “[t]he inquiry recognizes that persons of integrity and reputation can be compromised in their ability to act without bias when they must make a decision adverse to others with whom they share material affiliations.”).Google Scholar

55 See supra note 2–5 (explaining that a Sharī'ah board should comprise at least three members); see infra., note 69.Google Scholar

56 Guiding Principles, supra note 2, at 2 (“Once a Sharī'ah pronouncement/resolution is actually implemented, it becomes a “Sharī'ah ruling” with full legal effect that binds the institution. A Sharī'ah pronouncement/resolution shall be issued only through appropriate due processes.”).Google Scholar

57 See Obaidullah, supra note 28, at 151–52 (“A majority of scholars opine that a joint stock company is basically different from a simple partnership in the classical Islamic legal sense. While in a partnership, all the actions of a partnership are rightfully attributed to each partner, the policy decisions in a joint stock company are taken by the majority. Therefore, each and every action taken by the company cannot be attributed to every shareholder in his individual capacity. By implication, if a company is engaged in a compliant business, however, it keeps its surplus money in an interest-bearing account, where from a small incidental income of interest is received, it does not render all the business of the company unlawful. As regards the issue of the company borrowing on the basis of interest, here again the same principle is relevant. If a shareholder is not personally agreeable to such borrowings, but has been overruled by the majority, these borrowing transactions cannot be attributed to him.”).Google Scholar

58 See Coulson, supra note 8, at 425–70 (discussing the procedural norms of appointment of Islamic judges for certain matters and defining the role of Islamic judges throughout the history of Islamic jurisprudence). See generally Ibn Rushd, 2 The Distinguished Jurist's Primer 553–72 (1996) (explaining the meaning of the Book of Aqdiya (or judgments) in six chapters: first, identification of persons whose judgments are permitted; second, the identification of matters in which judgment is permitted; third, identification of procedures on the basis of which judgment is rendered; fourth, identification of persons for, or against, whom judgment is rendered; fifth, the mode of judgment; sixth, the time of judgment.).Google Scholar

59 See id.Google Scholar

60 See CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227, 235 (Del. 2008) (Examples of procedural nature of bylaws, for instance 141(b) authorizes bylaws to fix the number of directors on the boards, number of directors required for a quorum, and the vote requirements for certain actions. Therefore, one reasonable conclusion is that the Board may be required to follow certain process-creating functions as outlined in the bylaws.).Google Scholar

61 See Obaidullah, supra note 28, at 57–64, 155–71 (“Musharaka aims to revive the true ideal of Islamic finance, the precise method of trading utilized by the Prophet Mohammed in his dealings with fellow traders … A joint venture based on Musharaka involves a partnership in which both the bank and its customer-client contribute to entrepreneurship and capital. It is an agreement whereby the customer and the bank agree to combine financial resources to undertake any type of business venture, and agree to manage the same according to the terms of the agreement. Profits are shared between the bank and the customer in the pre-agreed ratio. Losses are shared strictly in proportion to their respective capital contributions ….”); see also Bilal Gohar, Islamic Finance Alternatives to the Western Model, 23 Fletcher F. World Aff. 145, 145–59 (1999).Google Scholar

62 See id.Google Scholar

63 See Guiding Principles, supra note 2, at 7 (“A Sharī'ah board should have at least three members, possibly of different nationalities, or trained in different schools of jurisprudence, and to have a mix of more experienced and less experienced members. In addition to their Sharī'ah expertise, members of the Sharī'ah board should possess some exposure in the areas of commerce or finance–e.g. in retail banking or capital market products.”).Google Scholar

64 See id.Google Scholar

65 See Mohamed Asri & Mohamed Fahmi, Contribution of the Islamic Worldview Towards Corporate Governance (2003–04) (unpublished Master of Science seminar paper, International Islamic University Malaysia), available at http://www.iiu.edu.my/iaw/Students%20Term%20Papers_files/Asri%20and%20Fah mi%20IslWWandCG.htm (“The Sharī'ah board should be in balance in terms of the number of executives and non-executives directors. This recommendation is aimed at ensuring that neither particular individual nor group of people can exert their power as well as their influence to control the decision making. This will also allow the development of a sense of stewardship, responsibility and accountability to shareholders, who are the legal owners of corporations.”).Google Scholar

66 Grais & Pellegrini, supra note 2, at 5 (“In consequence, the contract or agreement could be declared (partially) void in a Sharī'ah court, or even in a U.S. court that applies Sharī'ah principles to the agreement.”).Google Scholar

67 For example, “jurists have provided the following conditions relating to investments in stocks: 1. The main business of the company is clearly not in violation of Sharī'ah principles; 2. If a company's main line of activity is permissible but it invests/ lends/ deposits its surplus funds in interest-bearing assets or borrows money on interest, the Islamic investor must express his disapproval against such dealings, preferably by raising concern against such activities in the annual general meeting of the company; 3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend earned by the Islamic investor must be given to charity; 4. Stocks of a company are negotiable only if the company owns some (preferably at least 51 percent) non-liquid assets; 5. Exclude a company if the sum of Cash and Interest Bearing Securities divided by Trailing 12-Month Average Market Capitalization is greater than or equal to 33%.” Obaidullah, supra note 28, at 219. The last restriction was developed by the internal Sharī'ah board of the Dow Jones Islamic Indexes and it is important for its’ implications on the capital structure of an Islamic firm. The genealogy of this criterion is both the one-third rule under Islamic inheritance principles and some contested interpretations of the sayings of the Prophet Mohammed or ahadith. See supra notes 33–35 and accompanying text.Google Scholar

68 See Triantis & Daniels, supra note 50, at 1073 (“Intermediation resolves the problems of free-riding and duplicative monitoring efforts.”). See generally Ilia D. Dichev & Douglas J. Skinner, Large-Sample Evidence on the Debt Covenant Hypothesis, 40 J. Acct. Res. 1091, 1091–1101 (2002).Google Scholar

69 See Raghuram G. Rajan, The Past and Future of Commercial Banking Viewed Through an Incomplete Contract Lens, 30 J. Money, Credit & Banking 524, 524–42 (1998) (explaining the importance of reputation both to borrowers, managers, and other market participants). This Article will assume that a primary agent of an Islamic firm is any individual or group of individuals who conduct compliance review, this process is commonly conducted through either an external or internal Sharī'ah board. See supra notes 2–6 and accompanying text.Google Scholar

70 See Guiding Principles, supra note 2, at 6–7 (“In line with internationally recognized corporate governance standards such as those issued by the OECD, any Islamic-American entity should exercise proper discretion in choosing Sharī'ah governance structures so that they appropriately safeguard the fulfillment of fiduciary duties including good faith, care, skill and diligence towards all their stakeholders. Each organization should consider its size and, with a view to determining the impact of the number of members upon effective decision-making, decide what size Sharī'ah board is most appropriate, taking into account the scope and nature of their operations. As far as possible, they should aim for a Sharī'ah board with a mixture of experience and competencies. In this respect, it is envisaged that the Shari'ah governance needs and requirements of different types of institutions although similar as a matter of principle, will be diverse as a matter of practice. For example, a conventional bank engaging in Islamic finance transactions on an ad-hoc basis, or an Islamic window of a conventional bank with a very limited offering of Islamic finance products, may not be expected to have an in-house Sharī'ah governance framework with the resources of a full-fledged Islamic financial institution, or an Islamic window with a very broad range of Islamic finance products. Similarly, an Islamic collective investment scheme (ICIS) or an Islamic fund management operation may require different skill-sets from its Sharī'ah board compared to what could be expected from such a board in a Takaful or insurance operation.”).Google Scholar

71 A few other supervisory authorities seem to take the view that Sharī'ah boards have a significant role to play in monitoring the health of the Islamic institution, similar to professional advisers such as lawyers, accountants and auditors. They then impose a requirement that each Islamic institution must have a certain minimum number of members of the Sharī'ah board, who must meet certain “fit and proper” criteria; similar to the assurance sought when banks are appointing their board of directors (BOD). See Guiding Principles, supra note 2, at 6.Google Scholar

72 See id.Google Scholar

73 See Financial Services Authority, Islamic Finance in the UK: Regulation and Challenges 13 (Michael Ainley, Ali Mashayekhi, Robert Hicks, Arshadur Rahman, & Ali Ravalia eds., Nov. 2007), http://www.fsa.gov.uk/pubs/other/islamic_finance.pdf (“The key point from the Financial Services Authority's perspective is that firms successfully show that the role and responsibilities of their [Sharī'ah board] are advisory and do not interfere in the management of the firm. The firms already authorized have been able to show this. The factors that the Financial Services Authority typically looks at with regards to Sharī'ah boards include the governance structure, reporting lines, fee structure and the terms and conditions of the [Sharī'ah board] contracts.”)Google Scholar

74 See id.Google Scholar

75 See id. (“The Financial Services Authority has to be clear as to whether the Sharī'ah scholars have an executive role or one that is simply advisory.”).Google Scholar

76 See id.Google Scholar

77 See id. (“One of the factors looked at is ‘competence and capability'. So, for an individual to become a Director of an authorized firm, they should have relevant experience. If, therefore, Sharī'ah scholars are seen to have a directorship role, it is possible that some of them may not meet the competency and capability requirements. Second, and assuming that Sharī'ah scholars are Directors, their role is more likely to resemble that of an Executive Director than a Non-Executive Director as it might involve active participation in the firm's business.”).Google Scholar

78 Equally important for a firm is recognizing that Sharī'ah compliance is a continuous process, this means their products and services are adequately monitored. See Solé, supra note 15 (“Unlike conventional finance, this may implications for an Islamic firm's prudential requirements as well as conduct of business—some products, if they breach Sharī'ah compliance rules, can adversely affect a firm's solvency by converting an asset into a liability on the balance sheet.”); Guiding Principles, supra note 2, at 13–14 (“In some jurisdictions the regulatory framework permits the appointment of an individual member of the Sharī'ah board to also execute the Sharī'ah monitoring function. While such an approach might be justified by the cost factor, for a reporting corporation this almost certainly would put the firm at a disadvantage in terms of the collective credibility that can be achieved, compared with a Sharī'ah panel comprising several members. Furthermore, it might be argued that the independence of an individual member of the Sharī'ah board would be more questionable in terms of monitoring and quarterly audits. Therefore, effective monitoring of Sharī'ah compliance by an Islamic firm may involve reinforcing more remote oversight through a private Sharī'ah audit process and by developing more accounting expertise from within.”).Google Scholar

79 See Alam & Shanmugam, supra note 10, at 14 (“As can be discerned from the progress of Islamic finance in many countries, there are many vital factors that ensure its successful implementation and growth. Some of these factors are proper legislation, full commitment from the government, creation of awareness among the public, focused research efforts, and innovative Islamic products and services.”). The current lack of consideration by American regulators means that, comparatively, all of those factors are increasingly underserved. For example, since 2004, the Treasury has hosted only one in-house Islamic scholar for the $200 to $300 million invested domestically in Sharī'ah-complaint securities. See Bases, supra note 46 (“We are seeing on a daily basis [Gulf] money going to Europe, and the U.K … due to lack of Sharī'ah-complaint product in the United States …[W]e have to catch-up.”); Chiu et al., supra note 46 (“[T]he Treasury currently hosts an in-house Islamic finance scholar ….”); Taylor, supra note 46. The United States is behind in developing a similar understanding and capacity in Islamic finance, the establishment of a national Sharī'ah advisory board is a necessary first step in building a similar partnership between the American-Muslim community and the American regulatory authorities.Google Scholar

80 Gordon Brown, Speech by the Chancellor of the Exchequer, the Rt Hon Gordon Brown MP, to Mansion House, London Islamic Finance and Trade Conference, Her Majesty's Treasury Office of Public Affairs (June 13, 2006), http://www.hm-treasury.gov.uk/2014.htm (last visited Dec. 30, 2008); see also Bases, supra note 46 (“The domestic U.S. Islamic finance industry needs to innovate and try to tap an underserved, generally well educated and affluent, Muslim American community.”); Chiu et al., supra note 46, at 64 (“[T]he few financial entities that offer formal Islamic finance in the United States are often motivated by grassroots demand … [R]egulatory issues have not been tested on a large scale, and decisions as to whether a bank may offer an Islamic financial product are typically determined on a case-by-case basis.”); J. Quinn Martin, City Tries to Increase Share of Sharī'ah Finances, New York Sun, Oct. 9, 2007, at Al (According to a senior Her Majesty's Treasury official, “making the U.K. and London a center for Islamic finance means putting in place the tax and legislative framework that is supportive of Islamic products.”); Treasury Hopes to Make UK ‘Gateway to Islamic Trade,' Accountancy Age, June 13, 2006, http://www.accountancyage.com/accountancyage/news/2158178/treasury-hopes-uk-gateway (last visited Oct. 9, 2008); Government Continues Commitment to London as Islamic Finance Centre, UK Trade and Investment Today, Oct. 10, 2008, http://www.ukinvest.gov.uk/OurWorld/4028763/en-GB.html (“[T]he Government also announced amendments to legislation to classify alternative finance investments bonds as loan capital for stamp duty and stamp duty reserve tax (SDRT). In addition, changes to existing corporation tax and income tax rules on alternative Islamic finance arrangements by regulation could be made if and when required.”).Google Scholar

81 Her Majesty's Treasury Office of Public Affairs, City Minister Works With Industry to Improve Access to Retail Islamic Finance Products, Dec. 3, 2007, http://62.164.176.164/press_136_07.htm.Google Scholar

82 See Lionel Laurent, Capitals of Islamic Finance, FORBES, Apr. 21, 2008, http://www.forbes.com/2008/04/21/islamic-investment-dubai-cx_ll_islamicfinance08_0421cities_tearsheet_4.html (“Ratings Agency Standard & Poor's last year called London the ‘sole non-Muslim competitor’ of traditional Islamic financial centers. The agency also said that Britain's sovereign sukok bond—when it eventually arrives—would be only the second sovereign sharia-complaint bond worldwide to get an ‘AAA rating.'”); see also KPMG International, supra note 41, at 1 (“[I]slamic bank branches increased in Malaysia from 126 in 2004 to 766 in 2006 …[I]n the U.K., for instance, two new Islamic banking license applications are currently being considered by the Financial Services Authority (FSA) following the authorization in the past three years of the Islamic Bank of Britain and the European Islamic Investment Bank.”); see also Tan Sri Dr Zeti Akhtar Aziz, Islamic Finance: A Viable Alternative in Global Finance, Malay. Bus., Dec., 2007, at 4 (showing the global Islamic financial market is now worth more than $1 trillion in net assets, comprises more than 300 international banks in London, Malaysia, Singapore, and Hong Kong, and a consulting firm named McKinsey & Co., predicts growth of at least 20% in this sector over the next five years); Tom Wright & Yayu Yuniar, Islamic Finance Widens Pitch, Wall St. J., Sept. 5, 2007, at B3.Google Scholar

83 See Michael R. Bloomberg & Charles E. Schumer, Sustaining New York's and the US’ Global Financial Services Leadership 61–78 (2007) http://www.senate.gov/∼schumer/SchumerWebsite/pressroom/special_reports/2007/NY_REPORT%20_FINAL.pdf (last visited Sept. 22, 2008) (explaining recent regulatory trends as inflexible and damaging to America's competitiveness in both the banking and financial services sector); Bases, supra note 46; Chiu et al., supra note 46, at 66 (“[T]here are no current plans to open an Islamic bank or branch in the U.S.”); Elisabeth Eaves, Islamic Finance: God and Mammon, FORBES, Apr. 21, 2008, http://www.forbes.com/2008/04/21/islamic-banking-interest-islamic-finance-cx_ee_islamicfinance08_0421intro.html (“[S]ome 200 billion dollars left the U.S…. Kuala Lumpur rivals traditional hubs like Dubai and Bahrain as a global center of Islamic finance.”). See also Ali Parsa, Current Trends in Sharī'ah Property Investment 1 (2006) (“The range of skills available in London is still providing the U.K. market with a key competitive edge in [the Islamic securities market.] Across all categories … the U.K. is seen as being the most supportive of Sharī'ah investment.”).Google Scholar

84 Eaves, Elisabeth, supra note 83.Google Scholar

85 See Baxter, Thomas C. Jr., Exec. V.P. & Gen. Counsel, NuBank, Regulation of Islamic Financial Services in the United States, Speech at the Seminar on Legal Issues in Islamic Financial Issues in Islamic Financial Services Industry, at 2 (Mar. 2, 2005), http://www.nubank.com/islamic/ROIF.pdf (last visited Oct. 15, 2008) (“[F]ederal banking regulators have provided little formal guidance with respect to Islamic financial products.”); see also Mahmoud El-Gamal, Ph.D, Chair of Islamic Economics, Finance, and Management, and Chair of Professor of Economics and Statistics, Rice University, Islamic Finance in the United States and Middle East, Prepared Statement for U.S. Senate Committee on Banking, Housing and Urban Affairs Hearings, July 13, 2005, http://banking.senate.gov/public/_files/gamal.pdf (last visited Oct. 13, 2008) (“Towards that end, more coordination with regulators and enforcement agencies, including technical assistance and involvement in development of standards, remains crucial at this time.”); Bases, supra note 79, (“I will tell you, in my conversations with Islamic institutions, they clearly tell me if Islamic finance and the creation of Islamic finance products in the U.S. was motivated and stimulated there would be definite interest in the U.S. markets.”) (internal quotations omitted); Chiu et al., supra note 46, at 66 (“U.S. financial institutions that offer Islamic finance products typically offer Murabaha, Ijara, and Musharaka financing.”). See generally Growth in Islamic Finance Spurs Need for New Risk Management Methodologies, ENP Newswire, Feb. 18, 2008; Tatyana Shumsky, How to Make Money in the Middle East, Forbes, Apr. 21, 2008, http://www.forbes.com/2008/04/21/middle-east-investing-islamic-finance-islamicfinance08-cx_ts_0421money.html (last visited Oct. 17, 2008) (“Middle Eastern economies are decoupling from the U.S. because so much of their growth is focused internally.”).Google Scholar

86 See Committee on Capital Markets Regulation, Interim Report of the Committee on Capital Markets Regulation 39 (2006), http://www.capmktsreg.org/pdfs/11.30Committee_Interim_ReportREV2.pdf (last visited Oct. 18, 2008) [hereinafter Committee on Capital Markets Regulation] (noting that, increasingly, the costs of a cumbersome U.S. regulatory structure combined with a legal environment seen as expensive and unpredictable outweighs the comparative benefits of using Wall Street's proven financial expertise); International Monetary Fund, Global Financial Stability Report: Market Development and Issues 82–85 (2005), http://imf.org/external/pubs/ft/gfsr/2005/02/ (last visited Oct. 14, 2008) [hereinafter IMF Global Financial Stability Report] (showing a steep comparative increase in real and perceived regulatory costs after passage of the Sarbanes-Oakley Act in the United States, relative to other G-8 economies).Google Scholar

87 See, e.g., Bloomberg & Schumer, supra note 83, at 10–18 (calling for reform of regulatory practice through the development of a shared vision supported by a common set of principles, for the regulation of financial institutions, these principles include: for example, cost/benefit analysis, materiality tests, collaborative rulemaking and enforcement, and an escalation process for enforcement of matters); Committee on Capital Markets Regulation, supra note 86, at 8–15 (calling for reform of the regulatory process including the systematic implementation of cost-benefit analysis when it comes to SEC proposed rules); Shayerah Ilias, CRS Report to Congress: Islamic Finance: Overview and Policy Concerns 6 (2008) (“[T]here is a debate about whether or not, or to the extent to which, regulators should apply rules on conventional products to Islamic product counterparts.”). A unique set of public offering requirements would legitimize Islamic securities being sold in the United States. Also, the American government should carefully consider how to issue sovereign sukok similar to efforts currently underway in Great Britain. See supra note 79–82 (providing examples of reforms underway in the United Kingdom).Google Scholar