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Islamic Finance: Political Economy, Values and Innovation (Volume 1)

Islamic Finance: Political Economy, Values and Innovation (Volume 1)

Mehmet Asutay
Abdullah Turkistani
Copyright Date: 2015
Published by: Gerlach Press
Pages: 332
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  • Book Info
    Islamic Finance: Political Economy, Values and Innovation (Volume 1)
    Book Description:

    Islamic finance has had a transformational impact on markets well beyond the Muslim world. This development has been the outcome of various stakeholders and agencies interacting to develop a political economy based on Islamic values to generate religiously and culturally authentic financial institutions and instruments. The studies presented in this volume discuss these interactions through specific examples from the GCC countries, supported by comparative perspctives, in order to articulate the development and consequences of Islamic finance.

    eISBN: 978-3-940924-15-5
    Subjects: Finance, History
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Table of Contents

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  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Introduction Constructing Islamic Banking and Finance: Political Economy Perspectives
    (pp. vii-xvi)
    Mehmet Asutay and Abdullah Turkistani

    Islamic finance emerged in the post-colonial period through the search to develop an authentic Muslim identity in response to economic and financial matters. Since the late 1950s, modern Muslim economists (as academics) have been involved in developing an Islamic economic paradigm through the proposal of an alternative Islamic system understanding with its foundational principles, institutions, working mechanisms, and economic and financial instruments. By the 1970s, it was clear that despite having Muslim states, the move into such a new paradigm was not possible due to lack of political will in these countries. Consequently, the moral economy approach based normative Islamic...

  4. 1 The Political Economy of Islamic Banking and Finance in the Gulf Cooperation Council Countries
    (pp. 1-20)
    Ashraf Mishrif

    Perhaps the most challenging question in Islamic finance is whether the current phenomenal growth in the Islamic banking and finance industry is sustainable in the medium and long-term and, if so, how the sustainability of growth in this industry impacts on the political economy of the member states of the Gulf Cooperation Council (GCC), more specifically on their economic diversification and integration projects as well as their trade and investment strategies within the region and with the rest of the world. Though this issue is hard to explore from the perspective of policy, it is evident that industry debates on...

  5. 2 Internationalization of Islamic Banks
    (pp. 21-46)
    Amr El-Husseini

    Islamic Banking, recognized as participation banking in some countries and ethical banking in others, has developed at an accelerated growth rate in the last three decades and is showing enormous potential going forward. According to a study by The Banker Magazine and Maris Strategies, the Islamic Finance industry has grown over the past five years at a rate between 15% and 20% with assets currently topping $1 trillion US dollars in over 300 financial institutions worldwide (Financial Times, 2011).

    Part of this growth can be attributed to the highly regarded underlying principles of Islamic Finance and the structure of its...

  6. 3 Legal Environment for Islamic Banks: Status in Selected Gulf Cooperation Council Countries
    (pp. 47-62)
    Habib Ahmed

    A well-developed legal framework is necessary for efficient and effective functioning of financial markets and institutions. Empirical studies show that stability and resilience of financial systems partly depend on the ability of the legal environment supporting contractual agreements used by markets and institutions. The paper aims is to identify some elements of the legal environment and its implications for Islamic banks in a selected GCC country, Saudi Arabia. IMF (2005) identifies the elements of a conducive legal infrastructure for financial systems as: legal framework, commercial laws, creditors’ and land rights, insolvency systems, access to credit and the judicial system. The...

  7. 4 Shari’ah Governance Regimes in the Gulf Cooperation Council Countries: A Comparative Study
    (pp. 63-78)
    Humayon A. Dar and Wan Nursofiza Wan Azmi

    Political action by governments in the countries where Islamic banking and finance (IBF) has emerged is essential for its sustainability and protection of all the stakeholders in the Islamic financial services industry. Such political action requires promotion of IBF as a policy tool for achieving the socio-economic goals a government attempts to achieve in a given time period. Malaysia represents an example of patronage of IBF as a policy tool to promote and protect economic interests of the ethnic Malay Muslim population. In other countries, including members of the Organisation of Islamic Conference (OIC) or its subset the Gulf Cooperation...

  8. 5 Bridging the Gulf in Islamic Finance: The Role of Institutional Investors and Dubai in Development of Global Islamic Financial Services
    (pp. 79-98)
    Harun Kapetanovic

    Islamic Finance is gaining prominence and importance in an increasingly interconnected world. Perhaps unsurprisingly, the global financial system is facing challenges that seem to be less of a temporary and more of a systemic nature. These challenges are not relating only to specific jurisdiction, assets class or financial instrument but are rather relating to financial system architecture and design.

    The role of the banking industry and financial markets in economic development is essential. The role of individual banks and overall industry is now carefully scrutinized in relation to the recent Great Financial Crisis (GFC). In addition, the role of other...

  9. 6 Alternative Ways of Developing the Gulf Cooperation Council Islamic Funds Industry: Entrepreneurial Development
    (pp. 99-116)
    Mehmet Asutay and Shehab Marzban

    Since its emergence in the 1970s, Islamic banking and finance has shown unprecedented success in terms of its growth, expansion, and diversification (both institutionally and with regard to products) on a global scale but especially in the GCC. It has, however, often been criticised for being limited in function as a high extent investment vehicle for individuals of a high net worth, rather than significantly contributing to the social and economic development of a vast majority of Muslims, who need access to capital to develop, and those who have limited capital and are looking for investment opportunities that are similar...

  10. 7 Shariʾah-compliant Sukuk Restructurings in the Gulf Cooperation Council Region
    (pp. 117-132)
    Tayyab M. Ahmed

    Sukukdefaults are a relatively recent phenomenon, and literature gaps remain on both the conceptual development and practical implementation of contemporaryShariʾah-compliant restructurings for Islamic financial transactions. This chapter helps fill these gaps under three implicit assumptions: there will be an extended recession, Islamic finance is not intrinsically recession-proof, and we therefore need contemporaryShariʾah-compliant restructurings.

    At present, the fallout from the 2008 financial crisis still afflicts the global economy in both real and financial terms. Moreover, recent systemic shocks also hinder any sustained foreseeable economic recovery: American monetary policy tools such as quantitative easing are proving ineffectual, whilst the...

  11. 8 The Development of Offshore Financial Centres for Islamic Finance in the Gulf Cooperation Council: Competitive Positions and Challenges
    (pp. 133-166)
    Salma Sairally, Marjan Muhammad and Shabana Hasan

    Wealth in the Gulf Cooperation Council (GCC) has mostly been fuelled by oil and gas revenues. These petrodollar flows have been increasing over the long term particularly with the rising oil prices. Based on average crude oil prices of USD 70 per barrel, it is estimated that the amount of oil revenue profits of the six GCC States – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – will tripple over the next 14 years (Farrell, 2005). How the GCC deploys this increasing wealth is of high interest to the world. Historically, the GCC has relied on the...

  12. 9 Searching for the Hub of Ethical Finance: Islamic Financial Services and the World City Networks
    (pp. 167-186)
    Abul Hassan

    Ethics in financial services refers to the inclusion of moral values in financial decisions. Since faith-based Islamic finance arguably has an obligation and not an option to be ethical, this is one way it differentiates itself from conventional finance. The attributes that people seem to associate with ethics in Islamic finance range from the minimum juristic requirements to the aspirational-avoiding sin industries such as alcohol and pork, abiding by the two core provisions ofriba(usury) and excessivegharar(uncertainty), promoting economic justice, widening access to finance, enhancing human welfare and caring about the environment among others. Beyond the core...

  13. 10 The Maqasid and the Empirics: Has Islamic Finance Fulfilled Its Promise?
    (pp. 187-220)
    Ercument Aksak and Mehmet Asutay

    Developments in the Islamic finance industry over the last two decades have had a significant impact on both the economies of Muslim geography and on global financial markets, to the extent that it has now established itself as an important part of the global financial system. Further, double digit annual growth during this period, combined with the potential size of the market, guarantees that this development will continue, if not increase substantially, in the foreseeable future. As a result, this solid performance demonstrated by Islamic finance appears promising in terms of achieving themaqasid al-Shari’ah.

    Theoretically, this strong development within...

  14. 11 A Comparative Analysis of the Maqasid Shariʾah of Islamic Banks in Malaysia, Indonesia and the Gulf Cooperation Council Countries
    (pp. 221-252)
    Siti Manisah Ngalim, Abdul Ghafar Ismail and Noor Inayah Yaa’kub

    The concept ofMaqasid al-Shariʾahis now widely used as a basis in vast areas such as medical, marketing, engineering, and Islamic banking and finance. It gains importance and significance as the world changes towards a more advanced way of living including the way we do business transactions as the market starts going intensely global. Islamic institutions, such as Islamic Banks, refusing to lose its religious spirit to the continuous changes which thus challenge them, try to firmly hold on to the very base of their institutions, which is theShariʾah, without being left behind in the market. However, competing...

  15. 12 Understanding the Values and Attitudes in Islamic Finance and Banking
    (pp. 253-280)
    Koji Muto, Nabil AlMaghrebi and Abdullah Turkistani

    It is undisputable that Islamic banks cannot disengage themselves from ethical and moral considerations. Theraison d’êtreof Islamic finance derives from its foundation in Islamic law, which itself has its basis in wisdom and the welfare of people. As noted byIbn al qayyim al jawziyyah, this welfare lies in complete justice, mercy, well-being and wisdom, and any retreat toward oppression, harshness, misery and folly has no basis inShariah.² Because the conduct of Islamic financial institutions is expected, according to the Islamic Financial Services Board (IFSB), to be consistent with business ethics that are reflective ofShariahprinciples,...

  16. 13 Islamic Finance and Higher Education in the Gulf Cooperation Council: An Analytical Comparative Study
    (pp. 281-300)
    Ahmed Belouafi, Abderrazak Belabes and Karima Saci

    Various aspects relating to the evolution and spread of Islamic Finance (IF) have been studied. However, the education of IF received little attention despite its crucial importance in the development of the industry. For instance the 8 th International conference on Islamic Economics and Finance that was organized by the Qatar Foundation, in December 2011, provides a typical example of that. Among the 130 papers that were presented in the conference, only three have examined issues relating to the IF education.¹ If one looks at the pleas that are coming from various stakeholders of the industry stressing the importance of...

  17. 14 Islamic Finance in the Gulf Cooperation Council Region: Human Capital Challenges and the Role of Universities
    (pp. 301-322)
    Wafica Ali Ghoul

    The recent high oil price has created a liquidity surplus and massive financial resources in the GCC region which controls a large percentage of the world’s oil and gas supply. The region is currently home to about 60% of global sovereign wealth funds (SWF) assets whose growth is expected to continue (ICMA Centre, 2008). The region has been preoccupied with planning strategies to employ the huge capital flows in a profitable manner both locally and globally. One of the consequences of these good fortunes is a rising interest in Islamic finance in GCC.

    According to a study by the ICMA...

  18. Glossary of Arabic Terms In Islamic Finance
    (pp. 323-326)
  19. About the Contributors
    (pp. 327-332)