iii. iv.

1. iii. iv. To ascertain whether or not the tools of control applied to Islamic banks in the above cases are the same as those applied to traditional commercial banks. If different, then how are they different and why? To undertake a comparison of central bank practices in regulating and controlling Islamic banks in different countries. 1.2 SIGNIFICANCE AND RELEVANCE OF THE STUDY The significance of the present research study is based on the importance of the topic with which it deals. Although some research papers, mostly dealing with various theoretical aspects of central banking in an Islamic framework, have ap- peared in the recent past, no study exists which is devoted to an examination of the current practices of central banks in the regulation and control of Islamic banks in different Countries. The relevance of this study to the member countries of the Islamic Develop- ment Bank (IDS) is obvious in that almost all Islamic banks, except a few which function in Western Europe, are located in IDB member countries. Those countries which have undertaken steps toward the Islamization of their entire banking system are also members of the Islamic Development Bank. Hence, it is reasonable to be- lieve that these member countries and other relevant institutions may be interested in the outcome of the present research. 1.3 RESEARCH METHODOLOGY This paper is divided into two parts: one dealing with theoretical issues and the other with the current practices of central banks in regulating and controlling Islamic banks. The second part is more empirical and adopts a case study approach. Two cases of the regulation and control of the Islamic banks by central banks can be distinguished. The first case is comprised of those countries where the whole banking system is being restructured along Islamic lines and where efforts are underway to develop a legal framework for the conduct of central banking in an interest free framework. In this case, the regulation and control of Islamic banks (which includes all the commercial banks operating in the country) is essentially a question of conducting monetary policy on an interest free basis. Three countries, Pakistan, lran and Sudan are included in this group and the interest free instruments of monetary management and control used in these countries are discussed. The other case consists of those countries where Islamic banks are functioning in a mixed environment, i.e. they exist side by side with interest based banks. The central banks in these countries are entrusted with the responsibility of control-ling and regulating the entire commercial banking system (including Islamic banks) and conducting the monetary policy of the country. In this case the regulation and control of Islamic banks in Egypt and Jordan have been studied. 12