DOES THE ISLAMIC FINANCIAL SYSTEM DESIGN MATTER?

Abstract

This paper examines the empirical works that link between the financial designs and economic development. The permissible scope of activities for banks and other financial intermediaries, however, are determined by the regulation dictating the structure of the banking industries, the financial products and services the intermediaries offer and the information disclosure requirements in the financial market.  These aspects clarify the exogenous instruments that can be used to influence financial system design. These designs in return influence the choice of financing and the capital structure of the firm. Different financial system designs will manifest themselves in different divisions of activities between financial institutions and markets.   What are those types of Islamic financial designs?  Why do we care about Islamic financial systems designs?

 

JEL classification: G21; G28;

Keywords: financial design; bank regulation; legal requirement; Islamic banks; capital structure;