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Islamic finance is growing at an astonishing rate and is now a 1200 billion industry, with operations in over 100 countries. This book explains the paradox of a system rooted in the medieval era thriving in the global economy. Coverage is exhaustively comprehensive, defining Islamic finance in its broadest sense to include banks, mutual funds, securities firms and insurance (or takaful) companies. The author places Islamic finance in the context of the global political and economic system and covers a wide variety of issues such as the underlying principles of Islamic finance, the range of Islamic financial products, and country differences. He also discusses a number of economic, political, regulatory and religious concerns and challenges. This second edition has been completely revised and updated to take into account the great changes and developments in the field in recent times. It includes the impact of the 9/11 and 7/7 terrorist attacks on the industry, the new forms of interaction with Western financial institutions, the emergence of innovative products such as sukuk, attempts by a broad range of financial centres - including Kuala Lumpur, London, Singapore, Bahrain and Dubai - to become global hubs of Islamic finance, and the repercussions of the 2008 global financial meltdown on Islamic institutions.

This second edition has been completely revised and updated to take into account the great changes and developments in the field in recent times. It includes the impact of the 9/11 and 7/7 terrorist attacks on the industry, the new forms of interaction with Western financial institutions, the emergence of innovative products such as sukuk, attempts by a broad range of financial centres - including Kuala Lumpur, London, Singapore, Bahrain and Dubai - to become global hubs of Islamic finance, and the repercussions of the 2008 global financial meltdown on Islamic institutions.

A second edition of Islamic Finance in the Global Economy, substantially revised and updated to take into account the recent developments in the field.

What is Islamic finance? Definitions range from the very narrow (interest-free banking) to the very broad (financial operations conducted by Muslims). A useful definition is the following: Islamic financial institutions are those that are based, in their objectives and operations, on Islamic law (the Shariah). They are thus set apart from “conventional” institutions, which have no such preoccupations. This definition goes beyond simply equating Islamic finance with “interest-free” banking. It allows operations that may or may not be interest-free, but are nonetheless imbued with certain Islamic principles to be taken into account: the avoidance of riba (in the

Most definitions reduce Islamic banking to “interest-free” banking. While the injunctions against riba are indeed the cornerstone of Islamic finance, debates persist as to the exact significance of the word. Since the early days of Islam, the majority of scholars have adopted a restrictive definition: any form of interest constitutes riba. The debate is nonetheless still lively. This chapter starts with the riba debate, its origin, and significance. It later discusses gharar, a lesser known yet in the contemporary world of finance equally significant prohibition; the moral economy of Islam; a broader approach focusing on the spirit, as opposed

The rapid growth experienced by Islamic finance is likely to last for at least a few more years, driven by the opportunities presented by a huge Islamic market that is only partially tapped. But the picture is not all rosy. The Islamic financial market is increasingly competitive, and growing pains accompany rapid growth. This chapter focuses on the strategic, managerial, and cultural challenges facing Islamic banks. Some of the issues discussed here are common to emerging markets in general and are not exclusive to Islamic banks or even Islamic countries. Indeed, even the most “advanced” markets are not, as

Insofar as “money is the only good that trades against all other goods,” the financial sector “is unique in the degree to which its markets, prices, institutions, and policies impinge upon all others.”¹ More specifically, in any modern economy, financial systems are central to long-term economic development in that: (1) they facilitate trade: at the most rudimentary level, money minimizes the need for barter and thereby encourages commerce and specialization; (2) they facilitate risk management, by pricing risk and providing mechanisms for pooling, ameliorating, and trading risk; (3) financial intermediaries mobilize resources from disparate savers to investment

There are major differences across countries in the role, the importance, the status, and the characteristics of Islamic financial institutions. Their role in national economies ranges from essential to insignificant. Their “special character” may or may not be recognized by regulators. In some countries, they are strongly encouraged by the authorities; in others they are barely tolerated. One of the themes running through this book is that of the diversity of Islamic finance. Even those countries that have fully Islamicized their financial systems – Pakistan, Iran, the Sudan – did so under different religious, political, economic, and cultural circumstances.

When it first appeared in the mid-1970s, Islamic finance was generally dismissed as an inconsequential epiphenomenon of the oil boom. Introducing the religious factor in what was perceived as a quintessentially secular area struck many as bizarre, and many critics asserted that the growth of Islamic banks was bound to remain stunted.¹ In reality, for most of its existence, Islamic finance experienced growth rates in the double digits. In fact, the rate of growth accelerated from an average of 14 per cent a year in 1994–2002 to 26 per cent a year in 2003–2009.² The overall record