Regulating Islamic Finance in Emerging Economies

Until recently, empirical support for theories on regulatory governance has been derived from democratizing and/or democratic settings. The assumption behind the selection of these cases relies on an understanding that non-democratic systems will not be conducive to the emergence of independent and autonomous regulatory agencies. This paper questions this assumption based on recent findings from Malaysia and the United Arab Emirates (UAE), with a special focus on the development of Islamic finance industry. While none of these countries would qualify as liberal democracies by standard measures, the regulatory agencies that oversee financial exchanges in the banking industry and capital markets have enjoyed varying degrees of autonomy in regulating financial market exchanges. Problematizing how regulatory agencies respond to new market challenges, this paper suggests that political regime institutions in non-democratic settings play a more nuanced role in the governance of market exchanges.