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Islamic Finance in the Global Economy

267 Pages · 2009 · 1.41 MB · English

  • Islamic Finance in the Global Economy

    Islamic Finance in the


    Global Economy


    Ibrahim Warde


    EDINBURGH UNIVERSITY PRESS ABBREVIATIONS i


    Islamic Finance in the Global Economy


    Warde/Prelims 1 20/11/99, 2:12 pm ii THE ARABIC GRAMMATICAL TRADITION


    This page intentionally left blank


    Warde/Prelims 2 20/11/99, 2:12 pm ABBREVIATIONS iii


    Islamic Finance


    in the Global Economy


    Ibrahim Warde


    EDINBURGH UNIVERSITY PRESS


    Warde/Prelims 3 20/11/99, 2:12 pm iv THE ARABIC GRAMMATICAL TRADITION


    © Ibrahim Warde, 2000


    Edinburgh University Press


    22 George Square, Edinburgh


    Typeset in Baskerville


    by Koinonia, Bury, and


    printed and bound in Great Britain by


    Redwood Books, Trowbridge, Wilts


    A CIP record for this book is available


    from the British Library


    ISBN 0 7486 1216 5 (hardback)


    The right of Ibrahim Warde


    to be identified as author of this work


    has been asserted in accordance with


    the Copyright, Designs and Patent Act (1988).


    Warde/Prelims 4 20/11/99, 2:12 pm ABBREVIATIONS v


    CONTENTS


    Acknowledgements x


    A Note on Transliteration and Dates xi


    Abbreviations xii


    Introduction: Islamic Finance in the Global Economy 1


    1 Islamic Finance in Theory and Practice 5


    2 Islam, Economics and Finance 32


    3 Riba, Gharar, and the Moral Economy of Islam in Historical and


    Comparative Perspective 55


    4 The Evolution of Modern Islamic Finance 73


    5 Islamic Finance and the Global Political Economy 90


    6 Country Differences 112


    7 Financial Products and Instruments 132


    8 Strategic, Managerial and Cultural Issues 151


    9 Economic Issues: Islamic Finance and Development 169


    10 Regulatory Issues and Challenges: Global Norms and Religious


    Constraints 180


    11 Islamic Finance and Politics: Guilt by Association 205


    12 Religious Issues and Challenges: Defining Islam and


    Interpreting the Shariah 226


    Conclusion 240


    Glossary 242


    Index 244


    Warde/Prelims 5 20/11/99, 2:12 pm vi ISLAMIC FINANCE AND THE GLOBAL ECONOMY


    ANALYTICAL TABLE OF CONTENTS


    Acknowledgements x


    A Note on Transliteration and Dates xi


    Abbreviations xii


    Introduction: Islamic Finance in the Global Economy 1


    1 Islamic Finance in Theory and Practice 5


    1.1 Defining Islamic Finance 5


    1.2 About Statistics and Performance Assessments 6


    1.3 The Literature 9


    1.3.1 The Problem of Authorized Literature 9


    1.3.2 The Geoeconomics of Islam 10


    1.3.3 Religious, Financial and Legal Reductionism 11


    1.3.4 Islamic Banking from Commitment to Implementation 11


    1.4 Perceptions, Labels and Classifications 12


    1.4.1 Common Perceptions of Islam and Islamic Finance 12


    1.4.2 The Diversity of Islam 15


    1.4.3 ‘Fundamentalism’ and Other Labels 17


    1.4.4 Traditionalism and Modernism 19


    1.4.5 Oversimplification and its Consequences 21


    1.5 Capturing the ‘Big Picture’ of Islamic Finance 22


    1.5.1 An Emphasis on Context 23


    1.5.2 A Historical Approach 24


    1.5.3 A Comparative Approach 27


    1.5.4 An Interdisciplinary Approach 28


    2 Islam, Economics and Finance 32


    2.1 Historical and Religious Background 32


    2.2 Islamic Economics 38


    2.3 Adapting to Changing Circumstances 41


    2.4 Reconciling Homo Islamicus and Homo Economicus 44


    2.5 Reconciling Islam and Finance 48


    Warde/Prelims 6 20/11/99, 2:12 pm ANALYTICAL TABLE OF CONTENTS vii


    3 Riba, Gharar, and the Moral Economy of Islam in Historical


    and Comparative Perspective 55


    3.1 Riba 55


    3.2 Gharar 59


    3.3 Contemporary Interpretations: Religious and Secular Experts 60


    3.4 The Moral Economy of Islam 62


    3.5 A Historical and Comparative Approach 63


    4 The Evolution of Modern Islamic Finance 73


    4.1 Precursors 73


    4.2 The First Aggiornamento 74


    4.3 The Changing Context of Islamic Finance 78


    4.4 New Forms of Islamic Finance 80


    4.5 The Growing Pains of Islamic Banks 84


    4.6 Toward a Second Aggiornamento 85


    5 Islamic Finance and the Global Political Economy 90


    5.1 The Political and Economic Context of the First


    Aggiornamento 90


    5.1.1 Pan-Islamism 90


    5.1.2 The Petrodollar Windfall 92


    5.1.3 Relations with the US and the West 93


    5.2 Islamic Finance in the Global Economy 95


    5.2.1 The Global Economy and its Ideology 96


    5.2.2 The Transformation of Banking and Finance 99


    5.2.3 The Rise of Islamism 103


    5.2.4 The Concern with Ethics 106


    5.3 Embeddedness, Convergence and Fusion 107


    6 Country Differences 112


    6.1 Pioneers of Full Islamicization: Pakistan, Iran and the Sudan 112


    6.1.1 Pakistan 112


    6.1.2 Iran 117


    6.1.3 The Sudan 120


    6.2 The Special Case of Malaysia 123


    6.3 Offshore Islamic Centres: The Case of Bahrain 128


    7 Financial Products and Instruments 132


    7.1 Murabaha and Other Mark-up Schemes 133


    7.2 Leasing 134


    7.3 Profit-and-loss Sharing 135


    7.4 Stocks, Bonds, Commodities and Foreign Currencies 138


    7.5 Derivatives and New Financial Products 139


    7.6 Islamic Mutual Funds 141


    Warde/Prelims 7 20/11/99, 2:12 pm viii ISLAMIC FINANCE AND THE GLOBAL ECONOMY


    7.7 Development Banking 143


    7.8 Zakat-related Products, Instruments and Practices 144


    7.9 Micro-lending or Micro-finance 146


    7.10Insurance 147


    8 Strategic, Managerial and Cultural Issues 151


    8.1 Competitive Challenges 151


    8.1.1 The Islamic Banking Franchise 152


    8.1.2 Profitability and Social Goals 153


    8.2 Management, Control, and the ‘Islamic Moral Hazard’ 154


    8.3 Marketing Issues and Challenges 158


    8.4 Problems of Liquidity 160


    8.5 Cultural Issues and Challenges 161


    9 Economic Issues: Islamic Finance and Development 169


    9.1 Islam and Economic Liberalism 170


    9.2 The Mobilization of Savings 171


    9.2.1 The Special Role of Banks 171


    9.2.2 Informal Finance 172


    9.2.3 Assessing the Performance of Islamic Banks 174


    9.3 Islamic Banks and Economic Development 174


    9.4 Islamic Capital Markets 175


    9.5 Macro-economic Policies 177


    10 Regulatory Issues and Challenges: Global Norms and


    Religious Constraints 180


    1o.1 Financial Regulation 180


    1o.2 The Ideological Debates on Financial Regulation 181


    1o.3 The Changing Paradigm of Financial Regulation:


    From National Control to Global Supervision 183


    1o.4 The Making and Enforcement of the New Global Norms 185


    1o.5 Recent Developments in Global Financial Regulation 188


    1o.5.1 Capital Standards and Risk Management 188


    1o.5.2 The Core Principles of Bank Supervision 191


    1o.5.3 Free Trade in Services 192


    1o.6 Applying the New Norms in the Islamic World 193


    1o.7 The Supervision of Islamic Financial Institutions 196


    1o.7.1 Prudential Regulation 196


    1o.7.2 The Question of Dual Regulation 196


    1o.7.3 Deposit Insurance and the Lender of Last


    Resort Issue 198


    1o.8 Conclusion 200


    Warde/Prelims 8 20/11/99, 2:12 pm ANALYTICAL TABLE OF CONTENTS ix


    11 Islamic Finance and Politics: Guilt by Association 205


    11.1 Business, Finance and Politics 206


    11.2 Domestic Politics: The Power of Islamic Business and


    Finance 207


    11.2.1 Saudi Arabia: Islamic Finance and the Possible


    Delegitimation of the State 207


    11.2.2 Turkey: the ‘Dangerous Relationships’ between


    ‘Finance Houses’ and Islamic Fundamentalists 208


    11.2.3 Iran: The Historical Ties between the Bazaar and the


    Ulema 209


    11.2.4 Egypt: The Tensions between Secularism and


    Islamism 210


    11.2.5 The Sudan: Islamicization of Politics, Politicization


    of Finance 212


    11.2.6 Indonesia: Co-optation and Pre-emption 213


    11.3 Islamic Finance and International Politics 214


    11.3.1 ‘The Islamic Threat’ and the New World Order 214


    11.3.2 Saudi Finance and Sudanese Politics 220


    11.4 Guilt by Association 221


    11.4.1 Rogue States, Rogue Banks and Rogue Financiers 221


    11.4.2 The Impact on Islamic Finance 222


    12 Religious Issues and Challenges: Defining Islam and Interpreting


    the Shariah 226


    12.1 Interpreting the Shariah 226


    12.2 Religious Diversity 230


    12.3 Finance and Religion in Comparative Perspective 234


    Conclusion 240


    Glossary 242


    Index 244


    Warde/Prelims 9 20/11/99, 2:12 pm


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