Fundamentals of Islamic finance and banking

315 Pages·2018·2.014 MB·English

by  Habib, Syeda Fahmida

Fundamentals of
Islamic Finance
and Banking
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Fundamentals of
Islamic Finance and
Banking
SYEDA FAHMIDA HABIB
This edition first published 2018
© 2018 Syeda Fahmida Habib
Registered office
John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ,
United Kingdom
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Library of Congress Cataloging-in-Publication Data
Names: Habib, Syeda Fahmida, author.
Title: Fundamentals of Islamic finance and banking / by Syeda Fahmida Habib.
Description: Chichester, West Sussex, United Kingdom : John Wiley & Sons,
2018. | Series: Wiley finance series | Includes bibliographical references
and index. |
Identifiers: LCCN 2018014020 (print) | LCCN 2018014740 (ebook) | ISBN
9781119371045 (pdf) | ISBN 9781119371038 (epub) | ISBN 9781119371007 (pbk.)
Subjects: LCSH: Finance—Religious aspects—Islam. | Finance—Islamic
countries. | Banks and banking—Religious aspects—Islam. | Banks and
banking—Islamic countries.
Classification: LCC HG187.4 (ebook) | LCC HG187.4 .H33 2018 (print) | DDC
332.0917/67—dc23
LC record available at https://lccn.loc.gov/2018014020
Cover Design: Wiley
Cover Images: © Denis Burdin/Shutterstock; © Aun Photographer/Shutterstock; © Wang An
Qi/Shutterstock; © Pichu/Shutterstock
Set in 10/12pt SabonLTStd by SPi Global, Chennai, India
Printed in Great Britain by TJ International Ltd, Padstow, Cornwall, UK
10 9 8 7 6 5 4 3 2 1
This book is dedicated to my parents, my friend and husband
Anwar Habib, my daughter Anika and son Ishraq, my sister
Fauzia and my many, many students, who have always
inspired and motivated me. Thank you all for being my
family and for being there for me always, with your love
and trust in me.

Contents
List of Figures xv
List of Tables xvii
Acknowledgements xix
About the Author xxi
Preface xxiii
About the Website xxv
CHAPTER 1
Introduction to Islamic Finance and Islamic Economics 1
Introduction 1
Creation of Money and Conventional Finance and Banking 2
Definition of Islamic Finance and Banking 3
Distinctive Features of Islamic Finance 3
Economics and Islam 4
Economics in Ancient Times 4
Modern Economics 5
Islamic Economics 6
History of Islamic Economic Thought 6
Principles of Islamic Economics 7
Islam’s Solution to the Classic Economic Problem 7
Islam and the Welfare Economy 8
Property Ownership in Islamic Economics 8
Zakat and Sadaqah 8
Ban on Interest versus Cost of Capital in Islam 9
Conventional Economics versus Islamic Economics 9
Evolution of Islamic Finance 11
Early Days 11
Birth of Modern Islamic Finance 12
Institutional Developments During the Revival of
Modern Islamic Finance 12
vii
viii Contents
The Mit Ghamr Experiment 13
Tabung Haji 13
Islamic Development Bank 14
Dubai Islamic Bank 14
Rapid Growth of the Islamic Finance and Banking Industry 14
Islamic Finance and Banking in Muslim Communities and Countries 15
Islamic Finance and Banking in Non-Muslim Countries 16
Sub-sectors in the Islamic Finance and Banking Industry 16
Current Status of Modern Islamic Finance and Banking 17
Timeline of Development of Contemporary Islamic
Finance and Banking 18
Key Terms and Concepts 21
Chapter Summary 21
CHAPTER 2
Shariah Law and the Shariah Supervisory Board 27
Introduction to the Islamic Law – Shariah 27
Sources of Shariah 28
Schools of Islamic Jurisprudence 29
Ethics in Shariah-Compliant Business and Finance 30
Major Shariah Prohibitions and Principles and their Implications 31
Prohibition of Interest or Riba 31
Prohibition of Uncertain Dealings or Gharar 32
Prohibition of Speculative Behaviour or Maysir 33
Shariah Supervisory Board (SSB) 34
Introduction to the SSB 34
Formation of the SSB 35
Status of the SSB Within the Industry 36
Functions of the SSB 36
Corporate and Shariah Governance 38
Shariah Governance Process 38
Key Terms and Concepts 39
Chapter Summary 39
CHAPTER 3
Islamic Banking versus Conventional Banking 47
Introduction to Islamic Banking 47
Islamic Banking versus Conventional Banking 49
Similarities Between Conventional and Islamic Banks 49
Differences Between Conventional and Islamic Banking 49
Relationship with the Central Banks 50
Risks of Banks – Generic and Specific to Islamic Banks 51
Generic Risks 51
Risks Specific to Islamic Banks 52
Financial Intermediation 54