Islamic Financial Products: Principles, Instruments and Structures

443 Pages·2019·4.704 MB·English

by  Mohd Ma’Sum Billah

Mohd Ma’Sum Billah
Islamic Financial
Products
Principles, Instruments
and Structures
Islamic Financial Products
Mohd Ma’Sum Billah
Islamic Financial
Products
Principles, Instruments and Structures
Mohd Ma’Sum Billah
Islamic Economics Institute
King Abdulaziz University
Jeddah, Saudi Arabia
ISBN 978-3-030-17623-5 ISBN 978-3-030-17624-2 (eBook)
https://doi.org/10.1007/978-3-030-17624-2
© The Editor(s) (if applicable) and The Author(s) 2019
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This book is dedicated to the memories of my most beloved parents, Allamah
Mufti Nur Mohammad (r) and Ustazah Akhtarun Nisa’ (r), who have
nourished me with their love and wisdom. May Allah (swt) shower them
with His Love and Mercy and grant them Jannat al-Ferdaus Nuzulah. I
also like to dedicate this book to my lovely wife, Dr. Khamsiah Nawawi,
and our children, who bring joy to our hearts, Dr. Ahmad Mu’izz Billah,
Ahmad Mu’azz Billah, Ahmad Muniff Billah and Akhtarun Naba’
Billah, for their continuous support and sacrifices. May they all be blessed
with Muwaddau Wa Rahmah, Qurratu A’yun and Mardhaati Allah (swt)
in this life and the next.
This book is also dedicated to the Ummah, the whole of humanity
and other creatures.
Mohd Ma’Sum Billah
F
oreword
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Contemporary Islamic financial activities began in 1963, since which
time Islamic finance has been blessed by having secured a significant
global platform. It is not merely confined within Muslim countries, but
has been warmly welcomed in the non-Muslim world. Islamic finan-
cial assets stand at almost US$2.5 trillion and the annual growth rate is
about 18%, a significant achievement when compared to in the achieve-
ments of conventional counterparts.
Islamic financial products and services are not a new dimension in the
modern economic era; they have been growing rapidly in different classes
of the global market despite the numerous shortcomings of the situa-
tions in which they operate.
Worldwide, and particularly in Muslim communities, people are
expecting niche Shari’ah compliant financial products to meet the
demand in multi-dimensional markets. It has been observed that no ade-
quate customer friendly Islamic financial products are yet available. It is
worth noting here that there are numerous product developers claiming
to have designed sufficient Shari’ah financial products; this may apply in
certain areas but is not the case globally.
vii
viii FoREWoRd
Although there are books, articles and other research on Islamic
finance, there is still a lack of comprehensive Islamic financial product
solutions and structures with which to meet the global demand of aca-
demia, industries, professionals and policy makers.
The initiative of Prof. dr. Mohd Ma’Sum Billah of Islamic Economics
Institute, King Abdulaziz University, in producing this book Islamic
Financial Products - Principles, Instruments and Structures is timely
with regard to meeting the demand of the modern world to benefit
from Shari’ah compliant financial products and structures. This book
addresses the subject with comprehensive analyses, intellectual discus-
sions and empirical solutions, and stands as a pioneering work alongside
the guides and references for academia, researchers, professionals, indus-
trialists, customers, entrepreneurs, decision-makers, promoters, program-
mers, students and people in general who are involved with, or have
interest in, Shari’ah compliant financial products and structures.
It is my honour and privilege to write the Foreword for this prestig-
ious title. May we all be blessed with true knowledge and its rightful
practices.
Jeddah, Saudi Arabia H.E. dr. Abdullah omar Nasseef
President of the Muslim World Congress
Former Vice-President of the Saudi Arabia
Shura Council
Former Secretary-General
of the Muslim World League
P
reFace
There is a great deal of literature available concerning Islamic finance
but, sadly, no comprehensive literature exists that exclusively addresses
Islamic financial products and their structures. This causes significant
confusion not only within the industry, but also for customers, promot-
ers, professionals and even academia. This book is therefore a timely
contribution to the literature, discussing as it does a series of Islamic
financial products and their structures that are applicable in the real-
ity of modern socio-economics. This title, comprising 30 chapters and
presented in three parts, is specifically focused on Shari’ah compliant
financial product solutions as practised in and applicable to modern
socio-economic reality. It contributes to the literature applied Islamic
financial product solutions, their policies, structures, mechanisms and
empirical analyses.
Part I provides an overview of the Islamic financial system, and con-
sists of three chapters addressing different core issues. Chapter 1 pre-
sents the Islamic financial system in a nutshell, clearly demonstrating
that Islamic finance is not merely a product with a commercial objec-
tive. Rather, it is an integrated system with spiritual, moral, economic
and humanitarian values that benefit all mankind and encourage a wor-
thy universal ethos. Chapter 2 provides a case study of the role of the
organisation of Islamic Cooperation (oIC) in the effective development
of Islamic financial products and services in a way that shows care for
humanity, both globally and among oIC member nations in particular.
ix
x PREFACE
Chapter 3 focuses on the dynamic and sustainable evolution of Islamic
financial products and services that may be an essential element with
which to attract the market.
Part II focuses on the governing principles and strategies of Islamic
financial products and services. Chapter 4 focuses on various aspects of
Islamic financial policies and enforcement. Chapter 5 analyses the role
and functions of the Islamic Financial Services Board (IFSB) with regard
to the regulation of Islamic financial industries. Chapter 6 analyses the
controversial doctrine of Bay’ al-Ina and its impact on financial prod-
ucts and services. Chapter 7 goes on to analyse various classes of Shari’ah
instrument that facilitate Islamic financial products and services. Chapter
8 analyses the pricing techniques of Islamic financial products and ser-
vices within Maqasid al-Shari’ah. Chapter 9 provides a comprehensive
analysis of remedies available for the breach of any financial contract
under Shari’ah.
Part III deals with the various classes of Islamic financial product,
along with structures, mechanisms and empirical solutions. Chapter 10
analyses Islamic equity financing mechanisms applicable in today’s finan-
cial world. Chapter 11 discusses the Shari’ah compliant interest free
debt financing model. Chapter 12 analyses the Islamic trade financing
model, its facilitating instruments and operational mechanisms. Chapter
13 contributes a Shari’ah framework for a trade financing model.
Chapter 14 analyses an international trade financing model and struc-
ture under Shari’ah principles. Chapter 15 discusses the practicality of
Islamic international trade and shipping. Chapter 16 analyses how an
Islamic accepted bill functions in modern international trade. Chapter 17
focuses on an Islamic model of lease financing (al-Ijarah) and its struc-
ture. Chapter 18 discusses the model of Islamic leasing leading to own-
ership (al-Ijarah tantahi bi al-tamleek). Chapter 19 addresses the Islamic
hire-purchase model (al-Ijarah thumma al-Bay’). Chapter 20 discusses
the Islamic manufacturing model (al-Istisna’). Chapter 21 analyses the
Islamic manufacturing contract (’Aqd al-Istisna’). Chapter 22 discusses
the Islamic venture capital model and structure. Chapter 23 contributes
a sukuk model and structure. Chapter 24 discusses the Shari’ah model
for a loan (al-Qardh). Chapter 25 analyses the Halal model of financial
wealth management. Chapter 26 goes on to analyse Islamic financial
planning. Chapter 27 addresses the Islamic model of unit trust applicable
in today’s world. Chapter 28 analyses Islamic financing for sustainable
PREFACE xi
development goals (SdG). Chapter 29 contributes the model structure
of Islamic fin-tech and digital financial product. Chapter 30 presents an
Islamic model of cryptocurrency to benefiting everyone.
Finally, exclusive research on Islamic financial products focusing on
Shari’ah compliant financial products to meet the demands of academia,
researchers, industrialists and professionals for specific solutions is not yet
widely available. Thus, this book may be among the pioneers on the sub-
ject to offer possible academic, empirical and hypothetical solutions that
may be a guide for academia, researchers, practitioners, decision-mak-
ers, programmers, professionals, promoters and students in their future
research, and support the development of specific financial products
under Shari’ah. Should this book contain any shortcomings, we would
be grateful to any reader that shares their observations with us so that we
may further improve this work.
Jeddah, Saudi Arabia Mohd Ma’Sum Billah