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“Your Portfolio, Your Values”: Bringing Shar’ia Compliant Financial Products in the United States
Abstract by Ms. Kristina Benson On Session 003  (Your Money and Your Life)

On Thursday, October 10 at 5:30 pm

2013 Annual Meeting

Abstract
“Your Portfolio, Your Values”: Bringing Shar’ia Compliant Financial Products in the United States In the past decade, the market share of Sharia-compliant assets has grown dramatically, with a current global value of over a trillion dollars and a potential market of three to four trillion dollars. Islamic securities have even attracted the interest of Western financial institutions, and European countries are in the process of reforming tax, legal, and regulatory frameworks to accommodate Shar’ia-compliant investments. Shar’ia compliant financial products in the United States, however, remain under-available, under-developed, and under-studied due to substantial political, legal, and regulatory challenges. For example, there is no formalized system of accreditation for Muslim scholars, leading to a plurality of opinions on the ethical soundness of a given product. Given such an uncertain landscape, American regulators and institutions must simply trust that Muslim scholars are competent enough to asses the compliance of complicated financial products with Islamic law. Additional problems arise because financial institutions advertising Shar’ia-based retail products risk considerable backlash due to a growing suspicion of Shar’ia law; potential customers, meanwhile, are disincentivized by taxation schemes structured around interest—a feature that Islamic products inherently lack due to Qur’anic prohibitions on usury. Products or transactions may also end up being doubly taxed, or exempt from tax deduction and redundancies in regulation complicate the securitization of Islamic mortgages. This paper grounds its analysis in a combination of Islamic jurisprudence, federal securities law, and relevant statutory and common law to examine the harmonization of Islamic financial products with existing legal and regulatory frameworks. It includes a discussion about the benefits and drawbacks of a financially plural system that makes room for Islamic products alongside conventional securities. Attention is also paid to the various political challenges that have thwarted the growth of Shar’ia-compliant products in the United States, including standard practices in the American financial marketplace and widespread ignorance surrounding Islam.
Discipline
Law
Geographic Area
North America
Sub Area
Banking & Finance