Obstacles to Islamic Economics Research

Obstacles to Islamic Economics Research
Seventh International Conference on Islamic Economics,
Islamic Economics Research Center, KAAU
April 2008

"This paper emphasizes six factors as main obstacles to progress in research in Islamic Economics. They are: Lack of proper historical studies; Lack of relevant empirical studies; Lack of adequate institutional support; Non-observance of ethical norms relating to research and publications; Poor vision of Islamic society and economy that fails to distinguish between the essential and the peripheral, and, last but not the least; Failure to distinguish between the divine and the human in the Islamic heritage. In what follows we discuss each one of these, with the existing Islamic economics literature in mind. We then suggest possible ways of removing these obstacles to further progress in Islamic economics research. wa billah al-tawfiq"

Obstacles to Islamic Economics Research

Islamic Investment: Evidence From Dow Jones and FTSE Indices

Islamic Investment: Evidence From Dow Jones and FTSE Indices
Khaled A. Hussein
IRTI - IDB

"Despite the increasing attention to Islamic investment, the empirical studies on Islamic indices and/or funds are scarce. Due to increased monitoring costs, availability of a smaller investment universe, and restricted potential for diversification, it has been argued that unscreened benchmarks should outperform Islamic (ethical) investment. This paper examines the impact of the Shari[ah screening on the performance of FTSE Global Islamic index and Dow Jones Islamic Market Index (DJIMI) using a number of performance measurement techniques. We particularly examine whether returns earned by investors who purchases shares in the FTSE Global Islamic and DJIMI indices are significantly different from their indices counterparts, both in the short-run and long-run. In order to capture the impact of the changes in the economic conditions on the indices performance, we divide the sample period into bull and bear market periods. Our findings provide strong evidence to reject the assumption that shari'ah investing offer inferior investment performance compared to unscreened portfolios."

Islamic Investment: Evidence From Dow Jones and FTSE Indices

An Islamic Pricing Benchmark

An Islamic Pricing Benchmark
Prof. Dato' Dr. Mohd Azmi Omar, Asst. Prof. Dr. Azman Md Noor, Prof. Dr. Ahamed Kameel Mydin Meera & Research Team
ISRA Research Paper (No. 17/2010)

Abstract: "The Islamic finance and banking industry has developed tremendously in recent years. The viability of this industry as an alternative method of investment can no longer be denied. As the current global economic and financial crisis laid bare the systemic problems of conventional finance, the Islamic financial system has been offered as a solution by its proponents. However, Islamic finance has been using conventional finance benchmarks, such as KLIBOR, COFI, LIBOR, etc. to determine its own cost of funds, and hence its return on financial investments. This is so because Islamic finance, if not part of the existing conventional finance, has always served as a financial intermediary for surplus and deficit units. Islamic banking, as the dominant institution in the Islamic finance industry, has gone beyond the function of a financial intermediary, for it also serves as a wakil, custodian, partner, entrepreneur, and guarantor. Nonetheless, Islamic finance has yet to come up with an alternative Islamic Pricing Benchmark (IPB) to determine its cost of capital. The need for having such an IPB for Islamic finance cannot be overemphasized; that would make it more comprehensive and independent from the conventional benchmarks that rely on interest rates, the very thing that Islamic finance abhors. Therefore, this project aims to develop an Islamic pricing benchmark model for the Islamic banking industry, more specifically for Malaysia, given its prominence in the Islamic finance industry. The project has reviewed the Shari'ah perspective on an Islamic pricing benchmark and has also examined the conventional pricing benchmark being used by banks. The paper further discusses the theoretical formulation of an Islamic benchmark. Thereafter, using sectoral industry and macroeconomic data, it tests the viability of the benchmark using simulation."

An Islamic Pricing Benchmark

Islamic Finance: An Ethical Alternative to Conventional Finance?

Islamic Finance: An Ethical Alternative to Conventional Finance?
Aziz Tayyebi
The Association of Chartered Certified Accountants
August 2008

"Whether the Islamic finance industry continues to escape the full force of current economic turmoil remains to be seen. What is clear is that the rapid growth in this area of finance and its ethical foundations make Islamic finance an increasingly serious alternative to conventional finance."

Islamic Finance: An Ethical Alternative to Conventional Finance?

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance
Shaikh, Salman
2009

"This paper suggests an alternate approach to corporate finance in an interest free economy by looking beyond practiced Islamic finance and suggesting alternatives for corporate finance in sourcing funds i.e. i) Ijara with embedded options, ii) limited liability partnership, iii) equity modes like Musharakah and Mudarabah iv) income bonds and v) convertible income bonds. It also suggests alternatives for corporate finance in using funds i.e. i) Islamic income funds, ii) Islamic REITs, iii) Treasury Bonds, iv) income bonds v) convertible income bonds, vi) foreign currency reserves, vii) making strategic expansion, and viii) equity investments in other companies. It also suggests methods of valuation by suggesting an alternate means of pricing capital in interest free economy and use of appropriate discount rate i.e. Nominal GDP growth rate in public finance and corporate finance in CAPM, dividend discount model, project valuation, calculating NPV, valuing income bonds and stocks. It also discusses how the problems of scarcity of capital will be solved and alternatives for insurance in an interest free economy."

Corporate finance in an interest free economy: An alternate approach to practiced Islamic Corporate Finance

Elimination of Interest from the Economy - A Response to Issues and Challenges

Elimination of Interest from the Economy
A Response to Issues and Challenges
By Prof. Khurshid Ahmad
Chairman, Institute of Policy Studies

"Definition of Riba: The judgement is based upon some assumptions or concepts at the conceptual level. Riba have been defined in clear terms. While doing this, the Court has taken into account the controversy that has been taking place about riba in different circles, giving due consideration that all viewpoints being presented were not insincere, many think honestly about the differences. Yet, the court has rightly come to the conclusion that riba covers all forms of interest, usury, bank interest, public utilities and government schemes if they are based on a pre-determined fixed return related to time. It is also very clear that there could be other forms of exploitation and Islam is as much against those forms of exploitation as the exploitation in the form of riba. This should not in any way make the riba concept flexible, yet extension to new situation is not ruled out."

Elimination of Interest from the Economy - A Response to Issues and Challenges

Role of Islamic Banks in Economic Development

Role of Islamic Banks in Economic Development
Shahid Saleem
University of Punjab, Pakistan - CIMA UK

Abstract: The purpose of this working paper is to give the real meaning of DEVELOPMENT from Islamic perspective. Most of Muslim countries are LDCs and using the religious and social ideology of Islam is very useful to establish institutions and to bring moral and ethical change for development in these countries. Islam appears to be the only dynamic religion and tells us about prevention of interest, similar to Christian and Jewish theologies. But at the same time gives a comprehensive setoff trade and financing modes, not easily and completely described in any other religion or social order. Even TFP, a modern concept for collective efficiency has been advised in Islam, shunning to self interest and individualism of materialistic economics. Some scholars of WEST consider use of Islamic banking more suitable for economic development, while others consider Islam as obstacle & threat to development of Muslim countries. We hope that the paper will be useful in this regard to provide another valuable theoretical dimension to this field of study.

Role of Islamic Banks in Economic Development

Profitability Determinants of Islamic Banks: A Cointegration Approach

Profitability Determinants of Islamic Banks: A Cointegration Approach
by Professor Sudin Haron and Dr Wan Nursofiza Wan Azmi
KLBS - Working Paper Series 004
December 2004

Profitability Determinants of Islamic Banks: A Cointegration Approach

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions
Zaid Ibrahim & Co.
May 2010

Demystifying Islamic Finance identifies 15 most frequent misconceptions and 10 main value propositions of Islamic finance. It highlights, among other things, that Islamic finance is not a mere replica of conventional finance. It also negates the notion that Islamic finance is superior and immune from unethical practices. The publication emphasises that Islamic finance is practical for stakeholders who wish to add depth to their financial system; enhance diverse product offerings and widen their customer base. In consequence to this, it shares the belief that the Islamic Finance opportunity will amplify avenues for investment and capital raising.

To download the complete publication click here (PDF document).
Many thanks to Madzlan Hussain from Zaid Ibrahim & Co. for sharing this with us.

Demystifying Islamic Finance – Correcting Misconceptions, Advancing Value Propositions

5th Islamic Markets Programme

5th Islamic Markets Programme (IMP) 
"Gearing Up to Meet Future Challenges"
4 - 9 July 2010, Securities Commission Malaysia, Kuala Lumpur

The program (which can be found here) aims to provide participants with the ability to evaluate issues regarding the need for clarity, certainty and sound legal and regulatory foundations surrounding capital market products based on Shariah fundamentals.


A wide variety of issues are covered and participants will gain an understanding of the ethical foundations of Islamic finance; how it differs from conventional finance and how its differences make it a more stable system; and will also be able to articulate what needs to be done to provide Islamic finance with a sustaining regulatory and legal framework and why the Malaysian approach has been resilient.

For further details, email sidc@sidc.com.my.
To register, please fill up the registration form (pdf).
Download the programme brochure (pdf).

5th Islamic Markets Programme

Derivatives and Islamic Finance

Derivatives and Islamic Finance
By Muhammad Ayub
Senior Joint Director, Islamic Banking Department
State Bank of Pakistan, Karachi

Derivatives and Islamic Finance

4th International Islamic Capital Market Forum

4th International Islamic Capital Market Forum (IICMF)
"Sukuk: Transferring the Best Practices"
1 July 2010, Kuala Lumpur

The 4th International Islamic Capital Market Forum (IICMF) will be hosted by the Securities Commission Malaysia on 1 July 2010 in Kuala Lumpur. The full program can be found here and it covers a wide range of topics:  starting with a comprehensive overview of the sukuk framework (from the regulatory, governance and and legal perspectives) to very specific issues in sukuk (industry outlook, Fiqh implications, best practices, as well as overall portfolio allocation).

For further details, email sidc@sidc.com.my.
To register, please fill up the registration form (pdf).
Download the programme brochure (pdf).

4th International Islamic Capital Market Forum

Ernst & Young's Islamic Funds & Investment Report 2010

Ernst & Young's Islamic Funds & Investment Report 2010
After quite a few press releases the 'actual' report is now available. Click here to download a copy of the report (one-time registration required on their site).

Ernst & Young's Islamic Funds & Investment Report 2010

IFSB - Published Standards

This post is long overdue, the various published standards that have been issued by the IFSB are a must-read for anyone involved in or looking to enter into Islamic banking and finance.  Even more so when they are freely available from the IFSB website.  We list the direct links below and have created a boxlet (bottom-right of the page) with the same information for ease of navigation:

• IFSB-1: Guiding Principles of Risk Management for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)
• IFSB-2: Capital Adequacy Standard for Institutions (other than Insurance Institutions) offering only Islamic Financial Services (IIFS)
• IFSB-3: Guiding Principles on Corporate Governance for Institutions Offering Only Islamic Financial Services (Excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds
• IFSB-4: Disclosures to Promote Transparency and Market Discipline for Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
• IFSB-5: Guidance on Key Elements in the Supervisory Review Process of Institutions offering Islamic Financial Services (excluding Islamic Insurance (Takaful) Institutions and Islamic Mutual Funds)
• IFSB-6: Guiding Principles on Governance for Islamic Collective Investment Schemes
• IFSB-7: Capital Adequacy Requirements for Sukuk, Securitisations and Real Estate investment
• IFSB-8: Guiding Principles on Governance For Takaful (Islamic Insurance) Undertakings
• IFSB-9: Guiding Principles on Conduct Of Business For Institutions Offering Islamic Financial Services
• IFSB-10: Guiding Principles On Shariah Governance Systems For Institutions Offering Islamic Financial Services

IFSB - Published Standards