islamic economic renaissance 403the general concepts, in line with the generally acceptable account-
ing principles (GAAP). One can compare the advantages and dis-
advantages of both systems, a standardised accounting system like
that of France since the mid forties and non-standardised account-
ing system like that of the United Kingdom that only became homoge-
nous after the set up of supervisory accounting boards.
Islamic banks therefore had to have their own Sharì"ah supervi-
sory boards, or Sharì"ah advisors if they are too small to have a
board, which helps Islamic banks reach decisions in conformity with
the Sharì"ah rules and meanwhile to confirm to the shareholders
and all who may be concerned that there is no infringement of
Sharì"ah in the banks operations.
The problem is that this entails extra costs to the Islamic bank
compared with the western based bank that is operating in the same
financial environment. As the western bank does not bear similar costs,
this puts the Islamic at a disadvantage when it endeavours to compete
with western banks in a competitive market. To alleviate the cost to
the Islamic bank a centralised body of Sharì"ah may be established
to provide the needed help and confirmation. The cost of the cen-
tral board may be allocated to Islamic banks in general which would
be much lower than it would be if each bank bears it individually.
Despite that, we see the OIC taking the initiative to provide central
advice through Fiqh Academy and the International Association of
Islamic Banks (IAIB) establishing a Unified Sharì"ah Commission for
the same purpose. Nevertheless, it may be quite a while before the
needed consensus is formulated on some crucial issues (ibid.).
- The second major problem is as Islamic banks are operating in
a competitive environment where both types of banking systems,
Islamic and Western, are allowed to operate, Islamic banks find
themselves having to abide by the regulation of the central bank
that is mostly suited to western style banks. The most obvious exam-
ple is the reserve ratio required by the central bank on banks deposits.
While depositors in Islamic banks are aware of the conditions of
operation in profit and loss sharing basis and make their deposits
with the intention of being fully invested, the Islamic bank has to
maintain part of these deposits as central bank’s legal reserves, which
leads to a possible return on this portion of deposits being foregone.
This may render the opportunity cost of operation to the Islamic
bank higher than that of the Western based bank if the expected rate