Islamic finance is one of the fastest growing segments of the finance industry, and the growth of Islamic banking outpaced that of conventional banking over the past decade (Prasad, 2015). The entire Islamic finance industry has achieved an upward curve evidenced in the double-digit (17%) compound annual growth rate (CAGR) of its assets (IFSB, 2015). While such growth is certainly praiseworthy, the industry also encounters unique legal, regulatory and Sharīʿah challenges not faced by conventional finance. These challenges expose the industry to distinctive risks which, if materialized, may hamper its growth considerably. Among the notable regulatory/supervisory concerns is the decision to adopt one particular structure of Islamic banking over other available alternatives. This situation arises from the fact that Islamic banks may be established in one of the following three forms: full-fledged Islamic banks; subsidiary Islamic banks established by conventional banks; and Islamic banking windows of conventional banks. While the preference of a particular structure over the others will have its respective justification and rationale, the supervision of any of the three Islamic banking structures alongside conventional banks entails additional regulatory burden.
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