An analysis of the Islamic and conventional banking regulatory bodies and legislations in Thailand

Abstract

The Islamic Bank of Thailand (iBank) is the only Islamic bank in Thailand that operates under a specific act in the form of a specialised financial institution (SFI) as an economic tool of the government. Islamic banking windows are also offered through SFIs, namely Government Savings Bank and Bank for Agriculture and Agricultural Co-operatives. For the meantime, no commercial banks have provided shariah banking services, although there is a permission to do so. Consequently, the competition among Islamic banking services’ providers is absent, resulting in less efficient services, which affect the consumers and the potential growth of Islamic banking and the finance industry in Thailand. The purpose of this research is to examine the regulatory environment that Islamic banking operates in to provide solutions or recommendations in order to improve the current operational limitation. This research is carried out in the form of a documentary research through primary and secondary sources, including legislations, government and the central bank of Thailand policies and relevant studies. It was found that the iBank operating in a form of an SFI limits the bank’s true potential, as the objective is to serve the government as its economic tool without being commercialised or maximising profit. Thus, the iBank can be taken out of SFIs and treated in the same way as commercial banks. An iBank-specific act should be made applicable for all Islamic banks. However, the applicable laws need to be amended in order to be supportive of Islamic banking’s unique operational mechanism. Furthermore, the shariah governance should be at a centralised level in order to provide a standard for Islamic banking in Thailand. These would encourage commercial banks to provide shariah banking services. Hence, competition among Islamic banking services’ providers would be created and subsequently, the efficiency and growth of the Islamic Banking industry in Thailand.