Oman bus stop theory

Finalising a regulatory framework early on may be best, but could increase financial institutions' time to market.

The Gulf has a tendency to start work on projects before the blueprints have been finalised.

The design of the Burj Dubai, which will be the tallest tower in the world for at least two years after completion, apparently allows the developers to add a few extra metres to the final height at a very late stage of construction.

But in Oman, one project has finalised its framework well in advance. Several years ago, the Sultanate set up a large network of bus stops connecting its major centres of population.

To date, it does not have any buses, but presumably they have been ordered, and when they do arrive it will be quite clear where they are required to travel.

These two examples can be loosely compared to different models of regulating Islamic finance.

The UAE, Qatar and Saudi Arabia have tended to allow their regulatory models to evolve as the industry develops. This gives financial services organisations a quicker time to market, but it also means that they may have to adapt to changing regulations later on.

Qatar is understood to be in the process of establishing a central Shariah board, but the UAE Central Bank was unwilling or unable to comment on reports that it might do the same.

This creates some uncertainty for financial institutions doing business in the Emirates.

Bahrain, on the other hand, set down a relatively concrete regulatory framework early on, which has required only minor tweaks.

As other jurisdictions try to position themselves as centres of Islamic finance, this distinction is especially important.

Malaysia is probably the leading financial centre when it comes to Shariah regulation - it has a centralised body, firm rules, and organisations operating there know that requirements are not going to change overnight.

Hong Kong looks set to follow a similar model. Despite the huge appetite for a gateway to Islamic investment in mainland China, it is taking the time to finalise its regulatory framework first.

This may have caused some financial institutions to reconsider their plans to set up shop there, as they rush to enter the market for Shariah compliant finance, but it makes sense for the former British colony to ensure its Islamic finance regulations are robust.

It has a history of strong regulation and compromising this would do its reputation a lot of damage.

Other jurisdictions, in the Middle East and beyond, considering how to regulate Islamic financial institutions need to weigh up the advantages and disadvantages of each approach to regulation.

None of which is any consolation to the people sweltering at bus stops in Muscat.

Daniel Stanton is the editor of Arabian Banking & Finance.

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