Welcome to the Islamic Finance Resources blog, a grassroots initiative started by industry professionals and supported by practitioners from around the globe.

We constantly update this site and its overall content, and encourage you to use the various navigation tools available and welcome your feedback and comments.
A few of the resources that you can find in this site:
- Funds@Work: Network Analysis Among Sharia Scholars v 4.0
- ISRA: Islamic Finance Knowledge Repository
- IFSB-IRTI-IDB Islamic Finance and Global Stability Report
- Sukuk Reports: I, II, III, and IV
Much more available under 'Industry Reports' and 'Academic Papers' (right hand side menus)

Islamic Finance in the News

Islamic Markets on Twitter


Shariah Scholars and their Networks

This presentation from Funds @ Work gives a detailed network analysis of Shariah Scholars on GCC boards. This gives a little more colour to our earlier post on the employment of shariah-scholars by businessmen.

Similar analyses have been done for Boards of Directors and CEOs of Western firms (see e.g., the site http://theyrule.net/ or a post in this blog), showing intricate connections, many reciprocities, and a very small set of decision makers. All in all, the other analyses are not altogether flattering displays of factual information.

What can we say about Shariah Scholars? Small universe? Certainly not six degrees of separation!

New Site Layout & Functionality

We wanted to highlight a few changes that we have made to the site, hoping that this will increase functionality and ease of navigation. For instance, we have incorporated tabs at the top of the page to re-direct you to some of the core areas of focus (structures, education, external discussion forum, etc). On the other hand, we have revised the navigation boxes at the bottom and right-hand-side to make it easier to find the various structures, discussions, papers, etc. Finally, we have trimmed down other areas and components - again hoping to facilitate usability. Comments & suggestions are very much welcome, so please send us your feedback.

Introduction to Islamic Microfinance

As part of our earlier discussion on Sustainable Development from an Islamic Perspective we touched on the concept of Microfinance (or rather, how it has been sidelined by the global financial industry as the ugly duckling of ethical investing). However, we are fortunate enough to be proven wrong here - there is a substantial amount of written material and case studies available on the topic, in particular from the Institute of Microfinance and Development. Similarly, we have found very strong support and interest from different individuals and institutions across the industry - a variety of initiatives likely in the pipeline. Herewith is a good introductory package to Islamic Microfinance, and we will certainly be revisiting this and other resources on microfinance in future posts.


Introduction to Islamic Microfinance; Mohammed Obaidullah (2008), IBF Net

Islamic Microfinance Development: Challenges and Initiatives; Mohammed
Obaidullah and Tariqullah Khan (2008), Policy Dialogue Paper No.2, IRTI, IDB

Role of Microfinance in Poverty Alleviation: Lessons from Selected IDB Member Countries; Mohammed Obaidullah (2008), IRTI, IDB

Islamic Finance for Micro and Medium Enterprises; Mohammed Obaidullah and Hj Salma Abdullateef (2008) Ed., IRTI, IDB
Papers/Case Studies:
Islam, Poverty and Microfinance Best Practices; Mohammed Obaidullah (2007), Islamic Finance Today, June, Sri Lanka: Pioneer Publications

Leveraging Philanthropy: Monetary Waqf for Micro Finance; Muhammad Anas Zarka (2007), Paper Presented to a Symposium "Towards an Islamic Micro-Finance", Islamic Legal Studies Program, Harvard Law School

Tackling Urban Poverty in Sri Lanka – A Case Study for Viable Shariah Compliant Microfinance Practice; Roshan Madawela, Amjad Mohamed-Saleem (2008), Muslim Aid

Islamic Microfinance: A Practical Perspective; MHM Hannan and Abdul Kany (2007), Islamic Finance Today, May, Sri Lanka: Pioneer Publications



CW: Guidelines for Integrating Socially Responsible Investment in the Investment Process

Guidelines for Integrating Socially Responsible Investment in the Investment Process
Frank Jan De Graaf, Alfred Slager
September 2006


Islamic Wealth Management: A Catalyst for Global Change and Innovation

This is one of the newest texts published by Euromoney on Islamic wealth management. Wish to highlight it in particular since the book's editor - Sohail Jaffer from FWU Group - went to great lenghts to source for contributors - a collection of global practitioners and experts in various fields of Islamic finance. We are also working on a survey/review of industry literature, publications, and journals - which we hope to bring here as well (sooner rather than later!).

Abstract: "Islamic wealth management has evolved significantly and offers opportunities for innovation and global growth. Several providers have now diversified their offerings beyond equities and real estate. There is now available a wide choice of structured products, multimanager funds, takaful and alternative investments available from major international, regional and national financial institutions. Several leading market practitioners have shared their knowledge and expertise in this book, making this a must have valuable guide."
This text includes (use this link for the full table of contents):
• Introduction to Islamic wealth management
• The buyside
• Asset management: emerging trends and opportunities
• Takaful
• Alternative investment strategies
• Regulatory, legal and risk management


Islamic Investing in Turbulent Times

This short paper, courtesy of MSCI Barra, analyzes the performance and characteristics of the MSCI Global Islamic Indices during the market turmoil that has unfolded in the last 12 months. It focuses on the performance differentials between Islamic and conventional indices - examining sector allocations, valuations, exposures among other things. It goes further in quantifying the correlation/impact on an Islamic index of avoiding financials and maintaining low financial leverage (as compared to the conventional index).

Islamic Investing in Turbulent Times
MSCI Barra
Research Insights


The New Central Bank Act 2009 (Act 701): Enhancing the Integrity and Role of the Shari'ah Advisory Council (SAC) in Islamic Finance

The New Central Bank Act 2009 (Act 701): Enhancing the Integrity and Role of the Shari'ah Advisory Council (SAC) in Islamic Finance
Hakimah Yaacob, Researcher, ISRA
ISRA Research Paper (No. 6/2010)

"The new Central Bank of Malaysia Act 2009, known as Act 701, was gazetted on the 3rd of September 2009. Anything related to Islamic finance is thoroughly discussed in Part VII of the Act. The previous Central Bank of Malaysia Act 1958 (Act 519) only discussed the Shariah Advisory Council in one section of Part II under the heading of establishment, capital and administration of the bank, whereas the new Act provides comprehensive details for the function of the Shariah Advisory Council in Part VII. The paper reviews the anomalies surrounding the Shariah Advisory Council (SAC) prior to the amendment of the Central Bank Act and highlights the nature of the amendements made. The paper also elaborates the role of expert opinion (al-ra’yu al-khabir) from an Islamic perspective before concluding by summarizing the effect of the amendment on the industry as a whole."


Shariah Compliant Short-Selling: Mechanism 3

Short-Selling Through Salaam/Salaf

The Malaysian SC recently proposed mechanisms for short-selling through Salaam, something that has been proposed as well as the short-selling mechanism on the Newedge Platform (with presumably exactly the same mechanism), but only gaining currency within Saudi Arabia.

AAIOFI gives details to the Salaam contract in its 10th standard on Salaam sales, but states in Standard 21 Financial Paper (Shares & Bonds) that although the salaam sale may work for fungible commodities, they specifically restrict the use of the salaam sale for short-sales of shares. This judgement put a damper on the use of salaam sales for shorting, but the SC goes into some detail on the exact rationale for the use of the Salaam.

Much of it boils down to issues of fungibility and availability. The SC's justification is in three parts,
  1. when shares are not considered too specific an item ('ayn mu'ayyan), i.e., they can be specified as fungible
  2. salaam permitted provided object's category, type, and the date of delivery are described (i.e., the contract must specify terms to be fulfilled so the contact can be filled without dispute)
  3. delivery can be ascertained (i.e., there is a market for them)
All of these must be fulfilled for the case of commodity salaam, but for shares in particular there has been dispute about whether they are mal mithly (fungible items) or mal qimy (specified items).

Jurists usually specify that salaam is approved when the subject matter is mitly or homogeneous, i.e., objects that can be precisely determined in terms of quality and quantity (see e.g., Bus Fin Review, see Saiful Azhar Rosly and Hamdan Hj Ismail, Salaam as Mode of Agricultural Finance in Malaysia: An Analysis of Risk-Taking Behavior of Contracting Parties for a succinct summary of terms of salaam contracts or Md Ayub, p 244). Correspondingly, most jurists specify that salaam is disapproved for mal qimy. The problem with mal qimy and mal mithly is that objects can only be one or the other, they cannot be mithly some of the time and qimy the rest.

Surprisingly there are some jurists who see shares as mal qimy. I personally see this as wrong-headed. It is not unlike saying that dollar bills are specific since they have different serial numbers. Of course there can be specific categories/classes of shares and shares may not be fungible across classes. Nonetheless, if the salaam contract specifies 100 Class B Shares of XXX Company to be delivered 3M from now, then I would claim it is legitimate as long as the market for these shares is functioning.

They cite the example of a salaam on livestock (which I believe is considered to be mal qimy, i.e., usually nonfungible). Hanafis prohibit salaam sales of animals based on a relatively weak hadith. Malikis, Shafiis and Hanbalis allow it based on qiyas (analogy) of the Prophet (saws) allowed borrowing of a camel. These three schools allow salaam sale of animals conditioned on the specification of its genus, age, gender, color and approximate size (see for example Zuhayli, vol 1, p 251).

[Deleted in Original Posting] In other words, the SC rule that the illah or effective cause of prohibition of bay' as-salaam on certain articles is not whtether they are mal mithly or mal qimy but rather whether the article can be described in enough generality but with correct specification (or 'ayn ghair mu'ayyan) so that there is no dispute when it comes to delivery. The SC thus claim that mal mithly or mal qimy are both possible objects of sale in a salaam sale. This is a clear extension of the standard view of salaam, but it incorporates salaam on mal mithly and salaam on animals (legimated according to Hanafi, Maliki, and Shafi'i as mentioned above) under one umbrella. This qiyas (analogical ruling) gives greater possibilities when it comes to possible deliverables.

Some space is devoted to market failure. The interesting note is that short-sale through salaam will be different to a conventional (naked or otherwise) short-sale because in the former, a 'squeeze' or lack of availability means that the salaams are unwound according to prespecified conditions, i.e., there is not a possibility of a fail, while in conventional shorts, fails are a common market occurence, and squeezes can lead to extreme distortions. This is definitely an area where Islamic Finance can better its Western counterpart.

Comments, Criticisms and Corrections welcome. Please post here and not just on LinkedIn Forum.

(and, blog readers do take a look at LinkedIn group Global Islamic Funds & Sukuk for generally interesting and intelligent debate on this and many more topics)


CW: Evaluating the Performance of Ethical and Non-Ethical Funds: A Matched Pair Analysis

Evaluating the Performance of Ethical and Non-Ethical Funds: A Matched Pair Analysis
N. Kreander, R. H. Gray, D.M. Power, C. D. Sinclair
September 2005


Islamic Finance, English Law and UK Courts

Can UK Law govern Islamic contracts? Typically, the vast majority of internationally traded contracts are drafted so as to say that English Law applies. But how can English Law apply and Shariah Law apply at once?

This is not particularly new, but many in the Islamic Finance Community are not aware of the implications. In
Shamil Bank of Bahrin v Beximco Pharma and Others, the defendants argued that the financing agreements in a Murabaha contract were governed by English Law but only if they were consistent with the principles of Shariah. Moreover, the contract was so worded to provide that it was 'subject to the principles of the Glorious Sharia'a'.

But the court cited standard practices (Rome Convention on the Law Applicable to Contractual Obligations 1980), there could be no two separate systems of law governing a contract. Consequently, the judge held that even if the plaintiff (Shamil Bank) acted in contradiction of the Shariah and this may have contributed to the defendants subsequent default, it was no matter for English courts to decide and that they must decide only in accordance with English Law. (See Shari'a Compliance and the Shamil Bank Litigation for more details).

In a separate case with relatively similar circumstances, Islamic Investment Company of the Gulf (Bahamas) Ltd. V. Symphony Gems N.V. & Others (see Killian Balz, reference below), the defendants argued that the Islamic Bank did not adhere to the Shariah and that requisite deliveries of commodities which were required were not made, rendering the Murabaha agreement (or rather the 'markup' portion) entirely Ribawi. While the matters were the subject of serious deliberation (did failure to deliver the goods amount to a genuine contractual default? Was it truly a contract of 'sale' under English Law or was it a financing scheme? These and more subtleties are discussed in Balz's paper).

Again the English court decided in favour of the bank, claiming no expertise to decide matters of Shariah.
In both cases, contravention of Shariah was considered insufficient evidence to decided in favour of defendants or was deemed undecidable by English courts. The courts decided that English Law Only applied. And, in both cases, defendents, presumably expecting to act in an Islamically legitimated manner (i.e., why did they even bother entering into these more expensive and burdnsome financing arrangements unless it actually meant something to them from a moral point of view), were compelled by the courts to act in a very non-Islamic fashion.

Mahmoud El Gamal, in his essay, the Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering argues that this points to (one of the many) failings of the use of Contract Law alone as a means of enforcement and regulation of Islamic Finance. He also cites the many cases of Islamic banks who point to similarities between Islamic and conventional contracts as a reason for their seeking quick approval from regulatory authorities. How can a murabaha be merely a financing arrangement just like an interest-bearing loan in the eyes of the regulator, and yet this same arrangement is expected to be treated as trade, not riba, by the courts? In order to prevent hiyal/ruses, in order to prevent this sort of forcing "shariah compliant" into conventional pigeon holes, we should seek the establishment of strong bodies of regulation and the empowerment of appropriate regulatory institutions.

(This is not to say that Islamic countries are not without their idiosyncracies, as we saw recently with the Malaysian High Court decision declaring BBA non-compliant and the subsequent 31 March 2009 Appeals Court reversal in the case of Affin Bank Bhd vs Zulfikli Abdullah and Others.)

Although El Gamal is correct in thinking that contract-based Islamic Finance does have the (very high) likelihood of being incoherent, there are possible solutions to this, and it may be plausible if not somewhat onerous, through contract. For instance, it could be spelled out that if the bank does not take ownership for the underlying commodity, asking the client to be their agent that the bank (not complying with Shariah) is in default. While this is clearly not a mere sale, being a sale and an agency arrangement, and trade finance, etc, it can be impressed on the courts through appropriate wording (i.e., to give it a look and feel quite different from an interest-bearing loan) that any lack of adherence to the detail of the contact is truly a default. Again, all eventualities must be entirely spelled out to make it "more" likely to adhere.

Certainly the most appropriate way forward is to have a governing body of regulation such as is the case in Malaysia or Bahrain, so that all eventualities are covered by legislation and courts are compelled to uphold the Law or to have some other means of dispute resolution (see for instance,
Islamic finance dispute resolution : The need to complement litigation with expert determination or Islamic finance and the Square Mile where there is some discussion of the plausibility of Shariah-friendly arbitration under English Law).

Is this all timely? Not really. The only recent set of rulings were in the very Islamic jurisdiction of Malaysia, which ruled that BBA was not in fact a sale, later overturning it. It does go to show that even when there is a body of law specifically devoted to Islamic Finance, it is not without its glitches. But at the very least, unlike the cases decided by English Courts, it is likely that in an Islamic jurisidiction, consideration to the actual subtleties of Shariah will be given, and the overall coherence of Islamic Finance will be a subject of considerable discussion (see e.g., Dr Zeti Akhtar Akhtar Aziz: Legal & Shariah issues in the Islamic financial services industry )


Shamil Bank of Bahrain EC v Beximco Pharma Ltd and Others
[2004] EWCA Civ 19. Court of Appeals [2004] All ER 1072

Bälz, Killian,
A Muramacrbaha Transaction in An English Court - The London High Court of 13th February 2002 in Islamic Investment Company of the Gulf (Bahamas) Ltd. V. Symphony Gems N.V. & Ors Islamic Law and Society, Volume 11, Number 1, 2004 , pp. 117-134(18), DOI: 10.1163/156851904772841435

Economics of Liability: An Islamic View

As we delve deeper into the various aspects of Islamic finance, it is worth emphasizing the legal implications of applying Shariah guidelines to various financial contracts. While Islamic finance is often distinguished from the conventional financial system, in practice they both co-exist and in more than one ocassion need to be considered side-by-side. In particular, there are significant differences (i.e. treatment of liability, bankruptcy, foreclosure, etc.) that practitioners should be aware of. These go well beyond the usual introductory aspects of Islamic finance (i.e. prohibition of riba, negative screens, etc.) but are of vital importance for fund managers and product manufacturers.

The below paper provides an introduction to Islamic liability, as we aim for more ellaborate and detailed discussions on Islamic tort law and Islamic liablity law (check the upcoming discussion on Islamic bankruptcy). This paper provides a novel comparison between the American system of liability and the Islamic system of liability (and worth checking for other papers of interest available from the International Islamic University Malaysia).

Economics of Liability: An Islamic View
Monzer Kahf
Former research economist at the Islamic Research and Training Institute (IRTI)
IIUM Journal of Economics and Management

Some excerpts: "The Islamic system of liability centers on the materiality of the injury, both in its causality and in its outcome, and it provides a list of compensations. Accordingly, recognizable emotional harm is only the one that can actually be materially checked, and recognizable loss of income covers only that actually forgone income during the off work period caused by the injury."

"Predictability is one of the main characteristics of the Islamic system of civil liability. This provides the producer with better chance of planning and pricing, and while it compensates the injured it deters consumers from exaggerating their demand for compensation."