Issues and Challenges 377
they create to remedy this behavior and to reduce the cost of market par-
ticipation have to be stronger and more comprehensive than they are today
if they are to replicate the behavior expected of market participants who
act in compliance with Islamic rules. Such actions, policies and institutions
would include:
i. Enabling equities to compete fairly with debt - based instruments; this
means removing all legal, administrative, economic, fi nancial and regu-
latory biases that favor debt and place equity holding at a disadvantage
ii. Creating positive incentives for risk sharing via the stock market
iii. Investing in a massive campaign to educate the public on the benefi ts
of stock market participation (the kind of campaign that the Thatcher
Government ran in the UK, which increased stock market participation
substantially in a short span of time)
iv. Investing in human capital to produce competent, well - educated and
trained intermediaries — lawyers, accountants, fi nancial journalists and
Shari’ah scholars — which would entail creating world - class business
and law schools
v. Limiting the leverage (including margin operations) of non - bank
fi nancial institutions and the credit - creation ability of banks through
prudential rules that effectively cap the total credit the banking system
can create
vi. Developing a strong, dynamic regulatory and supervisory system for
the stock exchanges to continuously monitor the behavior of markets
and participants while staying a few steps ahead of those with a pen-
chant and motivation to use regulatory arbitrage to get around rules
and regulations
vii. Finding ways and means of regulating and supervising intermediaries
or, at least, mandating that they become self - regulating in order to mini-
mize false reporting or misreporting
viii. Ensuring transparent and accurate reporting of the day’s trade by all
exchanges
ix. Establishing legal requirements for the protection of the rights of minor-
ity shareholders.
While this list is by no means exhaustive, implementing its recommen-
dations will help reduce the cost of market participation, invest the mar-
ket with greater credibility, and reduce reliance on debt fi nancing. Black
(2001) asserts that enshrining the legal protection of minority shareholders’
rights alone would give countries large stock market capitalization, larger
minority shareholder participation, more publically listed fi rms relative to
the total population, less concentrated ownership, higher dividend payouts
and lower costs of capital. Black also believes the potential for develop-
ing a vibrant stock market is greatly increased if minority shareholders
can be assured of receiving good information concerning the true value of