Islamic Banks in Saudi Arabia: The Need for Recognition
This seminar is part of the CBLP PGR seminar series, where postgraduate students present their work and answer questions about it. This is a free event but registration is required in advance. A light lunch will be provided.
The legal system in Saudi Arabia is strongly influenced by Islamic law. According to the Basic Law of Governance, the highest law in the country, no law should contradict the sources of Islam. Many regulated activities are stated to be applied in a way that does not conflict with sharia rules and standards. When it comes to practice, however, Islamic law and the legal system, sometimes, fail to coincide. The obvious example of this is the banking system in the country. The country, in its endeavour to modernisation as a big oil producer, has adopted its banking system within which, like most of the world’s other banking systems, interest is its cornerstone. This has created a problematic situation where both Islamic and conventional banks suffer. Peter Wilson describes this situation as follows:
“The Saudi banking system has been beset by two problems that have relentlessly threatened its existence. One is the question of interest. The second is the country’s legal system”.
The seminar will highlight the first problem. The issue of recognising Islamic banks within the banking system in the country whose law is based on sharia. In this regard, a recent case of a big bank IPO, where there was controversy over whether subscriptions are permitted under Islamic law or not, will be underlined to highlight some negative impact of failing to regulate the Islamic banking industry.