An Approach to Islamic Economics

An Approach to Islamic Economics
Dr. Mohammad Nejatullah Siddiqi
October 2007

"The subject matter of economic analysis, behavior of economic agents, is susceptible to human volition. There are no iron laws. One can do things in a manner then change to another way of doing. In one’s choice of how to behave/do things, one is influenced by a number of factors. Self- interest seems to be the most influential of these. But tradition, what the others are doing, what is the easiest course of doing, impact on others, public interest, what is morally preferable, what is spiritually higher, etc. are also involved.

Some abstraction is necessary for scientific analysis to proceed. Traditions change only in the long run and can be abstracted away in a short-term analysis. Demonstration effect and peer pressure also belong to that category, though to a lesser extent. Taking the easiest course (by maintaining the status quo, for example) leads to different paths in different cases and cannot be handled scientifically. It is better left to be taken into account at the policy level, if and when needed. The remaining four factors are of a different nature. They should not be abstracted away without careful consideration of the implications of doing so."

An Approach to Islamic Economics

Sukuk Focus - RAM

Sukuk Focus
Malaysian Islamic Capital Market: An intelligent positioning in an evolving industry

RAM Holdings
November 2010

In this issue:

Metamorphosis of the Malaysian Islamic Capital Market
Wakalah-Based Sukuk via Commodity Murabahah - the Latest Innovation
Market Statistics

Please note a free registration is required to access the document.

Sukuk Focus - RAM

Regulatory challenges posed by Islamic capital market products and services

Regulatory challenges posed by Islamic capital market products and services
Professor Rodney Wilson
University of Durham, UK
IOSCO task force on Islamic capital market

"This paper explores some of the issues that arise in the regulation of Islamic capital market products and services. As many of the products are distributed to retail clients by Islamic banks and through the Islamic windows of conventional banks, it is also pertinent to deal with the regulation of these institutions, not least because of the distinctive liability and asset structures of Islamic banks. Liquidity and capital adequacy are considered, as well as questions of product information disclosure and transparency. Islamic banks and the Islamic windows of conventional banks offer brokerage facilities for securities trading. How should such facilities be regulated, and are there any unique issues that arise because of the need for shariah compliance? Islamic banks also use Islamic sukuk securities for liquidity management. How does the status of such assets compare with their conventional equivalents? This is likely to become a major issue confronting regulators in the years ahead given the rapid growth of these securities".

Regulatory challenges posed by Islamic capital market products and services

Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering

Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering
Mahmoud A. El-Gamal
Rice University
Duke Islamic Studies Center

May 2007

Abstract: "Islamic financial jurisprudence has always had the stated aim of enhancing human welfare, and therefore prohibitions must be seen through the lens of welfare-enhancing regulation of financial practices. In today’s age of financial engineering, utilizing many of the legal and financial advances of the past two decades, it is quite easy to synthesize the contracts that classical and contemporary jurists forbade from the ones that they have permitted. This financial engineering approach was always possible to some extent, but recent advances have reduced transaction costs substantially. In premodern societies, when transaction costs of ruses to circumvent prohibitions were substantial, prohibitions could serve their intended regulatory purpose, albeit imperfectly. In today’s age of low-cost financial engineering, the regulatory substance of prohibitions, contract conditions, and other contract-based juristic rulings has been diluted to the point of rendering the contract-based jurisprudence incoherent".

Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering

Islamic Finance and Structured Commodity Finance Techniques

Islamic Finance and Structured Commodity Finance Techniques: Where The Twain Can Meet

UNCTAD secretariat
May 2006

"This study discusses Islamic trade and project financing techniques, and draws parallels with conventional finance. It is hoped that the discussion will inspire conventional bankers to incorporate Islamic financing structures into their credit packages, and Islamic bankers to adopt some of the innovations of structured finance to expand their lending and investment possibilities."

Islamic Finance and Structured Commodity Finance Techniques

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam
Compiled & classified by: Dr. Ahmed Mohieddin Ahmed
Reviewed by: Dr.Abdul Sattar Abu Ghuddah
Al Baraka Center for Islamic Economics

Shariah Opinion (Fatwa) On Istisna', Contracting & Salam

Opalesque Islamic Finance Intelligence XIII

Welcome to the thirteenth edition of OIFI (download PDF version), we hear from various parts of the world and this reflects how the industry has been growing and evolving over time. So many efforts and initiatives might seem local or market-specific but they are all contributing their grain of sand to the dissemination of Isamic finance globally. The Editorial Section discusses Islamophobia and how it affects the Islamic finance industry. Our Featured Resource is a compilation of material relating to Islamic microfinance, this includes various industry reports, empirical studies and some discussions on possible models as well.

The Featured Structure section is a continuation of Nikan's previous discussion on Istijrar, as he focuses on the sale at market price which highlights the need to understand price uncertainty and how it is viewed by Scholars. We also welcome Monem Salam of Saturna Capital in our Fund Manager Interview as he shares some insights into the history of their Amana funds.

Furthermore, the Industry Snapshot contains an in-depth analysis of stock screening, as Mehdi Popotte explores the mechanisms behind it and some of the issues that arise when establishing an equity screening solution. Joy Abdullah shares his views on how Islamic finance can expand its appeal to a wider market in the Opinion Column, with some revealing insights and suggestions.

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: Islam Süss
Featured Resource: Islamic Microfinance
Featured Structure: Istijrar Revisited - Bay' bi Sir' al Suq
Fund Manager Interview: Monem A. Salam, Director of Islamic Investing, Saturna Capital
Industry Snapshot: Opening the Black Box of Shariah Stock Screening
Opinion Column: Islamic Finance - Niche or Ubiquitous

Opalesque Islamic Finance Intelligence XIII

Incentive Compatible Contracts: The Islamic View

Incentive Compatible Contracts: The Islamic View (A Discussion Paper)
Issam Tlemsani
Robin Matthews
Kingston Business School
2001

Abstract: "The twentieth century has witnessed resurgence in the observance of fundamental Islamic practices around the world. The Islaimization of the financial sectors of many Muslims countries was a natural consequence of this resurgence, and the degree of Islamization varied dramatically across countries with Muslims populations. The Islamic Republic of Iran and Pakistan are at one extreme, where the entire financial sector has been made officially Islamic according to their central banks. Malaysia, Saudi Arabia, and some other Arabs countries have developed a hybrid financial system where Islamic banks coexist with regular financial institutions, and the monetary authorities of those countries regulate both types of financial institutions. This increase in the practice of Islamic banking transformed Islamic economics from a sub-field of Islamic jurisprudence and comparatives systems into one which interacts positively with mainstream economics theory. In this paper we present a basic theoretical understanding of the concept of Riba/interest, the key principle of Islamic banking. We explore the basic principles of Islamic banking, the tools of interest free banking and how Islamic banking can be implemented in a hyper-competitive environment."

Incentive Compatible Contracts: The Islamic View

The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study

The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study
Maher Hasan and Jemma Dridi
Monetary and Capital Markets Department & Middle East and Central Asia Department
September 2010

For an additional discussion of this paper please check Blake Goud's analysis on the SharingRisk.Org blog.

Abstract: "This paper examines the performance of Islamic banks (IBs) and conventional banks (CBs) during the recent global crisis by looking at the impact of the crisis on profitability, credit and asset growth, and external ratings in a group of countries where the two types of banks have significant market share. Our analysis suggests that IBs have been affected differently than CBs. Factors related to IBs‘ business model helped limit the adverse impact on profitability in 2008, while weaknesses in risk management practices in some IBs led to a larger decline in profitability in 2009 compared to CBs. IBs‘ credit and asset growth performed better than did that of CBs in 2008–09, contributing to financial and economic stability. External rating agencies‘ re-assessment of IBs‘ risk was generally more favorable."

The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study

Islamic finance: the tax adviser’s role

Islamic finance: the tax adviser’s role
Mohammed Amin and Imran Suleman

Tax Adviser

September 2008

Mohammed Amin and Imran Suleman argue that it will pay tax advisers to become familiar with the concepts of Islamic financial transactions and with the applicable UK tax legislation.

Islamic finance: the tax adviser’s role