Intermediate Islamic Finance. Mirakhor Abbas

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      Zamir Iqbal

      Intermediate Islamic Finance

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      Intermediate

      Islamic Finance

      NABIL MAGHREBI

      ABBAS MIRAKHOR

      ZAMIR IQBAL

      Copyright © 2016 by John Wiley & Sons Singapore Pte. Ltd.

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       Library of Congress Cataloging-in-Publication Data

      Names: Maghrebi, Nabil, 1963– | Mirakhor, Abbas. | Iqbal, Zamir.

      Title: Intermediate Islamic finance / Nabil Maghrebi, Abbas Mirakhor, Zamir Iqbal.

      Description: Hoboken: Wiley, 2015. | Series: Wiley finance series | Includes bibliographical references and index.

      Identifiers: LCCN 2015028371 | ISBN 9781118990773 (paperback) | ISBN 9781118990742 (ePDF) | ISBN 9781118990766 (ePub)

      Subjects: LCSH: Finance – Islamic countries. | Finance – Religious aspects – Islam. | Financial institutions – Law and legislation – Islamic countries.

      Classification: LCC HG187.4 .M34 2015 | DDC 332.0917/67 – dc23 LC record available at http://lccn.loc.gov/2015028371

      Cover Design: Wiley

      Cover Image: Saudi Arabia money © Eugene Sergeev/Shutterstock;

      Buildings abstract background © NPFire/Shutterstock;

      Digital business background © jijomathaidesigners/ Shutterstock

In the Name of Allah, The All Merciful, The All BeneficentTo my parents and son Mohammed Alim– Nabil Maghrebi

      Preface

      To the best knowledge of the authors, this book is the first intermediate-level addition to the class of textbooks on Islamic finance. Intermediate Islamic Finance can serve as a classroom material and professional reference book for practitioners and policymakers. The principal objective of this work is to foster a better understanding of the essence of Islamic finance. One possible and rarely explored way to achieve this aim is to present Islamic finance from an analytical perspective. Together with the rich literature of descriptive and informative exposés of the subject, the need for work that integrates the analytics of finance with the moral thrust of Islamic finance is indeed pressing.

      An analytical approach to Islamic finance is justified by the necessity of logical reasoning, as well as by the familiarity of readers with the theoretical foundations of conventional finance derived in the same approach. The present attempt to communicate the institutional and academic developments in Islamic finance using the same analytical methods poses some challenges. In contrast to advances in conventional finance theory, the literature on the analytics of Islamic finance remains scant. Efforts are made also to provide analytical perspectives while escaping excessive mathematics. A blend of analytical and intuitive arguments is thus used to draw the interest of readers toward points of possible convergence or conflict between Islamic finance and conventional finance.

      Intermediate Islamic Finance is a modest contribution to the ongoing efforts toward the preparation of textbooks for an integrated curriculum that is shaped, to one extent or another, by analytical arguments. The analytics of finance may aid in expressing the jurisprudential opinions and ideas about equity and justice, and the essence of Islamic finance in a different way. This analytical approach can also be useful in drawing parallels with conventional finance and economics. Thus, a corollary objective is to disseminate an intellectually comprehensible body of knowledge about Islamic finance for professionals who are well versed with models of asset valuation and risk analysis and hedging methods in conventional finance.

      There are excellent books about Islamic finance that provide a comprehensive synthesis of the development of the industry to meet an increasing demand for Islamic financial products. Short of an integrated theory and clear guiding principles, however, the Islamic finance industry may not be able to sustain a healthy path of development. Confusion in this regard seems to be compounded by difficulties in understanding the essence of risk sharing and the necessity of balancing tradition with innovation. This book provides a critical examination of some aspects of financial innovation in Islamic finance that are better understood within the analytical framework of conventional finance. The treatment of these topics adds more material to the usual contents of intermediate texts but it should be of greater interest to practitioners and regulators alike.

      The literature about Islamic finance is inclusive of topics that were the subject of extensive research, such as interest prohibition and the performance of Islamic banking industry, among others. But other issues of equal importance have received much less attention, such as asset pricing, risk hedging, and financial engineering. The nature of ribā (interest) and gharar (information asymmetry) are important issues in their own right, but these classical queries about what Islamic finance prohibits should not obscure the fundamental question of what it stands for. This book explains risk-sharing as the defining principle of Islamic finance, and explores its implications for financial stability, and financial regulation.

      There are also perceptions that a gap has not just begun to emerge but is rapidly widening between the practice of Islamic finance