Moral Behavior in Stock Markets: Islamic Finance and Socially Responsible Investment

Moral Behavior in Stock Markets: Islamic Finance and Socially Responsible Investment
Aaron Z. Pitluck
Illinois State University - Sociology
March 2008

Abstract: "This paper addresses the puzzle of why the inclusion of non-financial social justice or religious criteria by professional fund managers has been so popular in Malaysia and yet has had to date relatively little influence in the United States stock market. Drawing from over 125 ethnographic interviews with financial workers in Malaysia, this paper argues that moral investment behavior in stock markets is shaped primarily by 'market structure' rather than by 'mandates.' In both countries mandates are a weak form of social control of fund manager's behavior. This is because mandates are not principal-agent contracts but are primarily marketing exercises and cultural tools. Social investing in the United States is weak because it relies solely on mandates to communicate clients' ethical desires to their fund managers. Islamic and Ethical finance in Malaysia is strong because Islamic social movements have reformed the Malaysian stock market's structure. Specifically, a uniform interpretation of Islamic investing was institutionalized with the creation of a nearly-unique quasi-governmental body. As a consequence, Islamic principles systematically influence the behavior of corporations listed in Malaysia, at present narrowly, but with the potential for wider influence in future. The paper closes with implications for social investment in the United States."

Moral Behavior in Stock Markets: Islamic Finance and Socially Responsible Investment

Future of Islamic Finance

Future of Islamic Finance
Dr. Mohammad Nejatullah Siddiqi
Presented at the conference on: Leadership in Global Finance-the Emerging Islamic Horizon, organized by INCEIF
August, 2007

"Before I proceed to talk about Islamic finance in some detail, I must caution against a possible misunderstanding. The shift from individualistic amoral capitalism towards a morally oriented, socially conscious and consulting approach to economic activity that I am envisaging would not and should not come at the cost of freedom. It is not to be imposed from above by the Social Authority. I am not for dirigisme. I envisage internalization of moral values leading to a quest for balance. I also believe the ground for such internalization is prepared by spirituality."

Future of Islamic Finance

Islamic Finance in Europe

Islamic Finance in Europe
Robert Schuman Center for Advanced Studies
RSCAS Policy Papers
Prof. Rodney Wilson
February 2007

Islamic Finance in Europe

Case Study: Islamic Banking in Bangladesh

Islamic Banking in Bangladesh: Achievements & Challenges
Abdul Awwal Sarker
IBTRA
2005

Abstract: "For a continued expansion of the Islamic Banking system, however, a number of issues that pose serious problems for Islamic banks will need to be carefully addressed. This paper discusses and makes recommendations on the more pertinent of these issues, viz., the development of an Inter-Bank Islamic Money Market, activation of Shariah Supervisory Boards, enactment of a full-fledged Islamic Banking Act, development of New Financial Products in line with the Islamic Shariah, and extension of investment in line with PLS framework, especially by constituting consortium or syndication by the Islamic banks. The paper suggests that micro, small, and medium enterprises (MSMEs) should get priority in the investment decisions of the Islamic banks."

Case Study: Islamic Banking in Bangladesh

Islamic Insurance and Reinsurance: Theory and Practice

Islamic Insurance and Reinsurance: Theory and Practice
Dr. Ahmed Salem Mulhim, PhD in Comparative Jurisprudence, Jordan University
Ahmed Mohammed Sabbagh, General Manager, The Islamic Insurance Company, Jordan
Al Baraka Center for Islamic Economics

Islamic Insurance and Reinsurance: Theory and Practice

ICM Quarterly Bulletin - June 2010

Malaysian ICM Quarterly Bulletin
Securities Commission Malaysia
June 2010 Vol. 5 No. 2

The latest issue of the Malaysian ICM quarterly bulletin is here, published by the Securities Commission Malaysia (SC).  Among the featured content you will find an interesting article on the Social Dimension of Islamic Finance as well as a piece on Sukuk best practices. This and previous issues of the bulletin are available on their online archive here.

ICM Quarterly Bulletin - June 2010

Islamic Banking and Its Potential Impact

Risk Management : Islamic Financial Policies

Islamic Banking and Its Potential Impact
Thomas A. Timberg
Nathan Associates, Inc.

"Indonesia, with the world’s largest population of Muslims, has come to Islamic or shariah banking fairly late. Many of Indonesia’s Muslim leaders do not believe that commercial interest in its modern form is prohibited, although others do. After some false starts, Islamic financial institutions are developing rapidly and have the enthusiastic support of many young people and intellectuals. The work of the Shariah Bureau of Bank Indonesia demonstrates that Indonesia, especially in particular parts of the country, has considerable unmet demand for Islamic banking."

Islamic Banking and Its Potential Impact

The Compatibility of Islamic Financial Services and Microfinance

The Compatibility of Islamic Financial Services and Microfinance: A Little-Explored Avenue for Expanding Outreach
By Dahlia El Hawary, Consultant, Financial Sector Operations and Policy Department, and
Wafik Grais, Senior Advisor, Financial Sector Vice Presidency
World Bank

The Compatibility of Islamic Financial Services and Microfinance

Islamic Finance: Overview and Policy Concerns

Islamic Finance: Overview and Policy Concerns
Congressional Research Service
Shayerah Ilias
February 2009

Islamic Finance: Overview and Policy Concerns

Islamic Finance News Needs to Catch Up

Islamic Finance News Needs to Catch Up
By Rushdi Siddiqui
September 12, 2010

"The act of turning a press release into an article, and keeping to the soft questioning of executives, does not benefit the industry."

Islamic Finance News Needs to Catch Up

Corporate Governance in Institutions Offering Islamic Financial Services

Corporate Governance in Institutions Offering Islamic Financial Services - Issues and Options
Wafik Grais and Matteo Pellegrini
World Bank

Abstract: "This paper reviews Institutions Offering Islamic Financial Services (IIFS) corporate governance (CG) challenges and suggests options to address them. It first points out the importance of CG for IIFS, where it would require a distinct treatment from convention CG and highlights three cases of distress of IIFS. It then dwells on prevailing CG arrangements addressing IIFS’ needs to ensure the consistency of their operations with Islamic finance principles and the protection of the financial interests of a stakeholders’ category, namely depositors holding unrestricted investment accounts. It raises the issues of independence, confidentiality, competence, consistency and disclosure that may bear on pronouncements of consistency with Islamic finance principles. It also discusses the agency problem of depositors holding unrestricted investment accounts. The paper argues for a governance framework that combines internal and external arrangements and relies significantly on transparency and disclosure of market relevant information."

Corporate Governance in Institutions Offering Islamic Financial Services

A Primer on Islamic Finance: Definitions, Sources, Principles and Methods

A Primer on Islamic Finance: Definitions, Sources, Principles and Methods
A. Gait and A. C. Worthington
University of Wollongong
Year 2007

"Islamic finance is one of the most rapidly growing segments of the global financial system. However, despite the increasing importance of Islamic finance, particularly in developing economies in the Middle East and South-East Asia, religious and social complexity has acted against a fuller understanding by regulators, policymakers, researchers and practitioners. This paper provides a succinct and accessible analysis of the definition, sources, principles and methods of Islamic finance. This serves as a suitable starting point for further work into Islamic finance and many of the pressing regulatory, supervisory and competitive issues that remain as yet unaddressed."

A Primer on Islamic Finance: Definitions, Sources, Principles and Methods

Opalesque Islamic Finance Intelligence - Eleventh Issue

Welcome to the eleventh issue of Opalesque Islamic Finance Intelligence (download PDF version), we bring together a wide range of content that we hope you will find both timely and relevant. This month's edition explores a recurring theme, that of crossovers and frictions that are generated between the worlds of Islamic finance and traditional finance. Recent events have only reminded us of this delicate balance. We might be tempted to think that Islamic finance operates on a standalone basis, alien to the mechanics of mainstream finance (and media) and immune to the ebbs and flows of capital markets (and public perception). However, the reality is that every bank, product and service in the former exists (and co-exists) in the realm of the latter. We explore the implications across this issue.

Our editorial note discusses the interactions between Muslims and non-Muslims in the Islamic finance industry, an often taboo subject but a blatantly obvious one. We also showcase the various published standards from the Islamic Financial Services Board (IFSB) in the Featured Resource segment, arguably the most transparent and comprehensive set of prudential documentation available for the industry.

The Featured Structure section sees Nikan scrutinizing structured products as they make the journey from the turbulent waters of traditional finance to the shores of Islamic finance, with a specific focus on rolled Murabaha contracts. Lex Islamicus profiles the study by Mohammed Khnifer on the bankruptcy proceedings relating to the East Cameron Gas sukuk and the sukuk-holders priority claim on the underlying assets post-default. In addition, Toby Birch and Shahzad Siddiqui share their analysis of integrating Islamic private equity with a physical commodity component in our Allocator Interview.

The Opinion Column welcomes Rushdi Siddiqui as he shares his point of view on the proposed Muslim community center in lower Manhattan. Furthermore, the Industry Snapshot section hears from Mobasher Zein as he has explores Islamic mutual funds and recent trends as the industry awakens from the aftermath of the global financial crisis.

As always, we are keen to hear your comments & suggestions and remember that you can visit our online archive (see reference link) for access to our ever-growing databank of Opalesque Islamic Finance Briefing as well as all of the back issues of Opalesque Islamic Finance Intelligence.

Download the complete issue of Opalesque Islamic Finance Intelligence here.

Alternatively you can read each article separately in the OIFI Archive:
Editor’s Note: The Conquest of Kafiristan
Featured Resource: IFSB - Published Standards
Featured Structure: Shariah Compliant Structured Product: Consecutive or Rolled Murabaha
Lex Islamicus: When Sukuk Default - Asset Priority of Certificate-holders vis a vis Creditors
Allocator Interview: Gold Bullion and Islamic Private Equity: Protection and Production
Opinion Column: From a Mosque to a Museum
Industry Snapshot: A Study of Islamic Mutual Funds

Opalesque Islamic Finance Intelligence - Eleventh Issue