Islamic Finance Law, Economics, and Practice

ISBN-10: 0521741262

ISBN-13: 9780521741262

Edition: 2009

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This book provides an overview of the practice of Islamic finance and the historical roots that define its modes of operation. The focus of the book is analytical and forward-looking. It shows that Islamic finance exists mainly as a form of rent-seeking legal-arbitrage. In every aspect of finance -- from personal loans to investment banking, and from market structure to corporate governance -- Islamic finance aims to replicate in Islamic forms the substantive functions of contemporary financial instruments, markets, and institutions. By attempting to replicate the substance of contemporary financial practice using pre-modern contract forms, Islamic finance has arguably failed to serve the objectives of Islamic law. This book proposes refocusing Islamic finance on substance rather than form. This approach would entail abandoning the paradigm of "Islamization" of every financial practice. It would also entail reorienting the brand-name of Islamic finance to emphasize issues of community banking, micro-finance, and socially responsible investment.
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Book details

Copyright year: 2009
Publisher: Cambridge University Press
Publication date: 11/24/2008
Binding: Paperback
Pages: 240
Size: 5.75" wide x 8.75" long x 0.50" tall
Weight: 0.726
Language: English

Mahmoud A. El-Gamal is Professor of Economics and Statistics at Rice University, where he holds the endowed Chair in Islamic Economics, Finance, and Management. Professor El-Gamal has also served in the Middle East Department of the International Monetary Fund (1995-6), and was the first Scholar in Residence on Islamic Finance at the U.S. Department of the Treasury in 2004. He has published extensively in the areas of econometrics, finance, experimental economics, and Islamic law and finance.

List of Illustrations
Glossary and Transliteration
Finance without Interest?
Distinguishing Features of Islamic Finance
Prohibition-Driven Finance
Jurists, Shari'a Boards, and Innovation
Lawyers and Regulatory Arbitrage
Islamic Transactions Law as Common Law
Precedents, Analogies, and Nominate Contracts
Tradeoff between Efficiency and Legitimacy
Limits and Dangers of Shari'a Arbitrage
Risk of Mispricing
Legal and Regulatory Risks
Jurisprudence and Arbitrage
Islamic Law and Jurisprudence
The Canon: Qur'an, Tradition, and Consensus
Juristic Inference (Ijtihad) and Benefit Analysis
From Classical to Contemporary Jurisprudence
Jurisprudence, Revival, and Codification
Institution of Fatwa and Islamic Finance
Arbitraging Classical Jurisprudence
Shari'a-Arbitraging Classical Property Law
Arbitraging Classical Contract Conditions
Arbitrage, Ruses, and Islamic Finance
Two Major Prohibitions: Riba and Gharar
The Prohibition of Riba
Canonical Texts on Riba
Economic Substance of the Prohibition of Riba
The Prohibition of Gharar
Definition of Gharar
Economic Substance of Prohibition
Insurance and Derivatives
Bundled vs. Unbundled Credit and Risk
Sale-Based Islamic Finance
Basic Rules for Sales
Trust Sales: Murabaha, Tawliya, Wadi'a
Currency Exchange (Sarf)
Same-Item Sale-Repurchase ('Ina)
Same-Item Trading in 'Ina and Tawarruq
Custody Sale (Bay' Al-'uhda) and Sukuk Al-ijara
Cost of Funds: Interest-Rate Benchmarks
Opportunity Cost for Conventional Fund Providers
Viability of Islamic Benchmark Alternatives
Derivative-Like Sales: Salam, Istisna', and 'Urbun
Prepaid Forward Sale (Salam)
Parallel Salam
Conventional and Synthesized Forwards
Commission to Manufacture (Istisna')
Down-Payment Sale ('Urbun)
'Urbun as Call Option
Leasing, Securitization, and Sukuk
General Lease Conditions
Flexible-Rate Financing
Subleasing, Repairs, and Insurance Costs
Asset-Backed Securities
Leasing and Securitization
Receivable Securitization and Sale of Debt
Bundling Asset-Based and Debt-Based Securities: A Paradox
Asset-Backed Leasing Bonds (Sukuk)
Credit-Rating Issues
Reward Pledges and Gifts Revisited
Usufruct Sukuk
Sukuk Al-Salam
Partnerships and Equity Investment
Classical Types of Partnership
Silent Partnership: Theoretical Workhorse of Islamic Finance
Valid and Defective Silent Partnerships
Common-Stock Ownership
"Islamic Screens" and Their Shortcomings
Cleansing Returns
Positive Screens and the Islamic Brand Name
Islamic Financial Institutions
Banking and Islamic Banking
Theoretical Structure: Two-Tier Silent Partnership
Deposits vs. Loans: Trust and Guaranty
Insurance and Takaful
Two Sides of the Two Debates
Shari'a Arbitrage vs. Islamic Prudential Regulation
Generic Agency Characterization of Financial Institutions
Governance and Regulatory Solutions in Mutuality
Rent-Seeking Shari'a Arbitrage and Absence of Mutuality
Potential for Mutuality in Islamic Banking
Need for Mutuality in Takaful
A Call for Mutuality in Banking and Insurance
Mutuality in Banking
Mutuality in Insurance
Beyond Shari'a Arbitrage
Shari'a Arbitrage and Criminal Finance
Shari'a Arbitrage at the Limit
Benchmarking ad Absurdum
Hedge-Fund Instruments - Shari'a-Arbitrage Style
Self-Destructiveness of Shari'a Arbitrage
Declining Shari'a-Arbitrage Profit Margins
Dilution of the "Islamic" Brand Name
Toward a New Islamic Finance Identity
Macroeconomic Substance: Privatization Sukuk
Mosque-Based Network of Financial Mutuals
Positive Screens, Ethical Investment
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