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Title: A critical analysis of special purpose vehicles in the Islamic banking industry : the Kingdom of Bahrain as a case study
Author: Alkhan, Ahmed M.
ISNI:       0000 0004 6353 0914
Awarding Body: University of Bolton
Current Institution: University of Bolton
Date of Award: 2016
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This thesis examines the concept of special purpose vehicles (SPVs) from a Shari’a (Islamic law) perspective. It thereafter investigates the practice of SPVs in the Islamic banking industry, using Kingdom of Bahrain as a case study. The review of literature explores the concept of SPVs, maqāsid al-shari’a (objectives of Islamic law), main Islamic financial principles, and main Islamic financial products used in conjunction with SPVs. This review of literature provides the theoretical foundation and understanding of SPVs in Islamic banking. Arguably one of the main Islamic financial hubs globally, the research uses the Kingdom of Bahrain as a case study. The investigation of SPV practices uses industry feedback through forty-four face-to-face semi-structured interviews, and secondary data. The secondary data consists of annual reports (which includes financial and Shari’a Supervisory Board annual reports), regulatory consultations, and a real-life executed SPV structure by an Islamic bank. A thematic analysis is used to qualitatively analyse interview responses, while a content analysis is used to qualitatively analyse the secondary data. A content analysis also led to the formulation of qualitative test questions that may be used to generally determine whether an SPV structure transaction is Shari’a compliant or not. Out of ten Islamic banks covered in this research, eight of them engage in investment transactions. Out of these eight Islamic banks, evidence tends to suggest that five Islamic banks include conventional loans within their SPV investment structures for genuine causes, while three Islamic banks use hiyal (legal stratagems) to engage in prohibited conventional activities through SPVs. This indicates that although SPVs may be used for genuine causes, there may be some sort of an abuse of SPVs by the Islamic banking industry to override Shari’a (Islamic law) requirements. Also, whether the practice was genuine or hiyal-based, evidence further tends to suggest that many SPV practices in the Islamic banking industry may have been violating at least one major Shari’a condition, which therefore negates the Shari’a compliance of the SPV transactions. This includes Islamic banks either: (1) indirectly paying for the establishment costs of the conventional SPVs, (2) managing the conventional SPVs, (3) negotiating conventional deals on behalf of the SPVs, (4) having legal control over the conventional SPVs, and/or (5) having influence over the conventional SPVs. According to the findings, the conditions that are being violated are placed by Shari’a Supervisory Boards unanimously, in one form or another. This raises a question of whether a flaw exists within the Islamic banking industry, where such violations were able to have continued without being spotted by regulators, Shari’a Supervisory Boards, and/or internal Shari’a reviewers. The research concludes that there seems to be a discrepancy between the Islamic banking theory and practice, where the theory strictly prohibits interest-based transactions, while the practice commonly includes interest-based transactions. The research further concludes that evidence suggests that due to several factors, such as the inability to spot violations or management pressure, a considerable number of internal Shari’a reviewers do not report these SPV violations. As a result, most Shari’a Supervisory Boards are not officially informed of the realistic practices taking place.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available