The Real Shariah Risk: Why the United States Cannot Afford to Miss the Islamic Finance Moment

Abstract

In the wake of the recent financial crisis in the United States, there has been a call for greater accountability and transparency in the financial industry. The resulting regulatory initiatives have profoundly impacted numerous facets of global finance, including Islamic financial models in the United States. Islamic finance, which is largely uncharted territory for many domestic practitioners and policy makers, is a promising mode of finance that the United States should not overlook. This note examines the current regulatory hurdles that are limiting integration of Islamic financial products into the conventional financial system. Ultimately, this Note argues that financial regulations in the United States may best manage "Shariah risk" through the implementation of internal Shariah systems and controls that are audited or rated by external players. The note further argues that Islamic finance must be understood in the context of economic globalization and not as the mere traditional application of Islamic law to financial principles.