Islamic Banking. and Fi na nee. An Integrative Approach. Zubair Hasan OXPORD UNIVERSITY PRESS

Transcription

1 Islamic Banking and Fi na nee An Integrative Approach Zubair Hasan OXPORD UNIVERSITY PRESS

2 Contents Oxford Advisory Board Dedication Preface Structure of the Book Acknowledgements About the Author Contents V i//'/' ix xi xvii xix xxi CHARTER 1 Introduction to Islamic Finance What is finance? The significance of finance in modern economies Money and economies Money and prices Price ievei changes Money supply and price level Islamic approach to finance The distinctive features of the Islamic approach to finance Why ban interest? The rationale for prohibition Overview: the origin and evolution of Islamic finance The rise of Islamic banking A brief historical overview 21 Summary 26 Glossary 27 Key concepts 28 Case studies 28 Test questions 29 Web exercise 30 What next? 30 CHARTER 2 Money Creation and Control What works as money? Law and money Money supply: the principles Currency notes Methods of note issue Fiscal policy and money supply 38

3 XXII I CONTENTS 2.5 Credit (money) creation by banks State Intervention Credit creation and Islamic banks Central banks and credit control Bank rate policy Statutory reserve variations Profit-interest linkage Open market Operations Moral suasion The ailment and the eure 50 Summary 54 Glossary 55 Key concepts 56 Case studies 56 Test questions 58 Web exercise 59 What next? 59 CHARTER 3 Value of Money and Society 61_ 3.1 Background Socio-monetary development Inflation Definition and types Inflation growth and employment What causes Inflation? The impact of Inflation Deflation Consequences of deflation Islam and cyclical fluetuations Islamic banks and the financial crisis 76 Summary 78 Glossary 80 Key concepts 81 Case studies 81 Test questions 83 Web exercise 83 What next? 83 CHARTER 4 Islamic Finance - The Basics Islamic finance: why and forwhom? System convergence For whom the bell tolls? Objectives and principles of Islamic finance Linkage to the real economy Participatory finance Time value of money S/zar/'a/j-compliant versus Shari'ah-based instruments Conclusion Internationalization The Performance of Islamic banks Relative efficiency and strength 101 Summary 102 Glossary 104

4 CONTENTS I xxiii Key concepts 105 Case studies 105 Test questions 106 Web exercise 107 What next? 107 CHARTER 5 Direct Modes of Islamic Finance Contracts and instruments Legal maxims Participatory modes Profit-sharing: the theory Islamic requirements The conventional model Ownership transfer to the customer The MMP model atwork Recap 127 Summary 128 Glossary 129 Key concepts 130 Case studies 130 Test questions 132 Web exercise 133 What next? 133 CHARTER 6 Indirect Modes of Islamic Finance Direct and indirect modes Murabahah Murabahah and home financing The markup issue Leasing or ijarah Hire purchase and rent sharing Salam Parallel salam Istisna' Parallel istisna' Combining modes The BBA structure Tawarruq Benevolent loan (qard hasan) 149 Summary 150 Glossary 151 Key concepts 152 Case studies 152 Test questions 158 Web exercise 158 What next? 158 CHARTER 7 Investment Sukuk- Islamic Bonds The origin and meaning of sukuk Bonds, equity shares and sukuk Structuring the sukuk 165

5 XXiV I CONTENTS Mudarabah sukuk Musharakah sukuk Ijarah sukuk Murabahah sukuk Salam sukuk Istisna'sukuk Sukuk across countries Benchmarking 175 Summary 176 Glossary 177 Key concepts 178 Case studies 178 Test questions 181 Web exercise 183 What next? 183 CHARTER 8 Markets for Short-Term Financing Financial markets: introduction Islamic finance potential Financial intermediation Defining financial mediation Maturity transformation Types of financial market and their role The money market The cash or spot market The market for derivatives The Interbank market Over-the-counter (OTC) markets The Islamic money market 197 Summary 199 Glossary 200 Key concepts 201 Case studies 201 Test questions 203 Web exercise 204 What next? 204 CHARTER 9 Long-Term Financing: Capital Markets Islam and capital markets Stock markets Share price determinants Speculation Need for regulation Instruments for Investment Equity shares Investment sukuk 220 Summary 223 Glossary 224 Key concepts 224 Case studies 225 Test questions 226 Web exercise 227 What next? 227

6 CONTENTS I XXV CHARTER 10 Risk Management Risk profit and finance Islam and financial risks Risk treatment Risk exposure and management Risk management requirements Types of risk Risk management framework Derivatives and risk management Guidelines of Islamic Financial Services Board 246 Summary 248 Glossary 249 Key concepts 249 Case studies 250 Test questions 251 Web exercise 252 What next? 252 CHARTER 11 Takaful - Islamic Insurance Insurance: concepts and evolution The evolution of insurance Basic principles Utmost good faith Insurable interest Indemnity Proximate cause Beneficiary issue Underwriting Islam and insurance Takaful versus insurance Forms of takaful Takaful contracts and models Wakalah or the agency model The mudarabah or partnership model The waqf-wakalah model Cooperatives Model selection Finance risk valuation He-takaful 272 Summary 273 Glossary 274 Key concepts 275 Case Studies 276 Test questions 278 Web exercise 278 What next? 278 CHARTER 12 Law, Regulation and Governance Dominance of diversity Law and Islamic finance Islamic windows and subsidiäres Regulations: need, complexity and progress Shari'ah-based framework 291

7 XXVi CONTENTS The key issues Companies' Shari'ah Screening 12.4 Governance of Islamic financial institutions Definition and scope Shari'ah governance Participatory finance Summary Glossary Key concepts Case studies Test questions Web exercise Selected Bibliograph^ A Comprehensive Glossary of Terms in Islamic Banking and Finance Index