Islamic Mortgages: A Comparative Study to Improve the Legal and Financial System of Mortgages in the Royal Kingdom of Saudi Arabia with a Regulatory Analysis of the US and UK, and Case Analyses of the UK, Sharjah, Dubai and Saudi Arabia
This research is the first comprehensive critical evaluation of the ways in which Islamic mortgages can be developed and executed in a Sharia compliant manner in order to boost the development of housing markets primarily in Saudi Arabia, with regulatory analyses of securitisation in the US and EU, and case analyses of the UK, Sharjah, and Dubai. The regulatory analyses of securitization show how the excesses of modern financial legal techniques to greatly expand opportunistic developments of mortgagebacked markets led to market failures, and that such market failure could be avoided by the use of Islamic finance principles. These case analyses have been selected to provide a spectrum of different socio-economic contexts in which to compare the Saudi Arabian system. The study also engages in the examination of the Western and Islamic legal systems and their impact on mortgaging and securitisation theory and practice. Securitisation, namely the activity involving the packaging, dividing and selling of mortgages in the primary market has in recent years become a well-established business process (with banking, financing and legal implications and aspects) for enhancing home financing and home ownership in the USA, the UK and Western Europe, all of which are subject to common law contractual processes. However, it would be natural to suppose that further development of the Saudi Arabian and other Islamic legal systems would include securitisation techniques in the near future. Indeed, certain Islamic finance structures lend themselves to securitisation processes which are investigated in depth in this work. Banking and financial activities in the Islamic countries are however governed by a mix of conventional practice, common law and Islamic law, with variations occurring in the same between different jurisdictions. This study aims to engage in a detailed comparison of the conventional (Western) banking system and the banking procedures and processes followed in Islamic jurisdictions in order to develop and recommend a standardized securitisation system for mortgages, which draws upon the best of western regulations and practices and is yet compliant with Islamic law, i.e. the Sharia. The Western banking system is based upon intermediation between entities that have money and ones that need to use it, the charging of interest and a rational decisionmaking process between banks and their clients. The Islamic system on the other hand is governed by Islamic law, which prohibits interest, speculation and any type of activity that is perceived to be oppressive. It recommends close partnerships between bankers andclients, rather than short-term transactional utility. The establishment of common ground between these two systems is undoubtedly a challenging task, particularly because of the differences in the interpretation of religious law by different clerics. This study however points out that significant common ground can be established if standardisation of legal practices and bank policies can be achieved in Islamic countries. The development of high levels of standardisation will help in the creation of securitisation processes for housing mortgages that are Sharia compliant and thus satisfy two important objectives, namely religious requirements and the expansion of the housing market.
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