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New Issues in IslamicFinance and Economics:Progress and Challenges
New Issues in IslamicFinance and Economics:Progress and Challenges
Hossein Askari, Zamir Iqbal,and Abbas Mirakhor
John Wiley & Sons (Asia) Pte. Ltd.
Copyright © 2009 by John Wiley & Sons (Asia) Pte. Ltd.Published in 2009 by John Wiley & Sons (Asia) Pte. Ltd.2 Clementi Loop, #02-01, Singapore 129809
All rights reserved.
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Library of Congress Cataloging-in-Publication Data
ISBN 978-0-470-82293-7
Typeset in 10.5/13pt Palatino by Laserwords Private Limited, Chennai, India.Printed in Singapore by Markono Print Media Pte. Ltd.
10 9 8 7 6 5 4 3 2 1
In the Name of Allah, the All Merciful, the All Beneficent
Contents
Acknowledgment ix
Glossary of Arabic Terms xi
1 The Development and Progress of Islamic Finance 1
2 Issues and Challenges 47
3 Islamic Finance and Globalization: Convergence and aBoost for Rapid Growth? 75
4 Globalization and Its Implications for Muslim Countries 111
5 Expanding Financial Frontiers 129
6 Reputational Risk for the Islamic Financial Industry 149
7 The Design of Benchmarks for Asset Pricing 179
8 Qard-ul-Hassan-based Microfinance 197
9 Developing the Theoretical Foundations of Economics in Islam 211
10 Islam and Economic Development 243
11 Taxation and Public Expenditure in Islam 263
12 The Scope of the Social Safety Net in Islam: A Case Study 293
References 327
Index 363
vii
Acknowledgment
We acknowledge the contributions of Dr. Nadeem ul Haque andDr. Kazem Sadr in Chapters 7 and 8 respectively. We are also gratefulto our research assistant, Shahrzad Daneshvar, for her excellent work.
ix
Glossary of Arabic Terms
ahadith Plural of hadith (for meaning, see hadith).ahkam Plural of hukm (for meaning, see hukm).ajr-un-kareem A generous reward.al-adl Justice.al-ghurm bil
ghunmThe principle that one is entitled to a gain only
if one agrees to bear the responsibility for theloss. For example, if someone gives finance tosomeone else, he is only entitled to a share inthe profit resulting from the use of thatfinance if he is also prepared to bear anyresultant loss.
al-kharaj bildaman
The principle in Islamic jurisprudence thatentitlement to return or yield (al-kharaj) isfor the one who bears the liability (daman)for something, say an asset, and one whodoes not bear the liability has no claim to theyield.
al mal Wealth, property.al-mu’minun Those who believe through the heart.amanah Trust.awqaf Plural of waqf (for meaning, see waqf ).ayah A verse of the Qur’an.bay’ Stands for ‘‘sale.’’ It is often used as a prefix in
referring to different sales-based modes ofIslamic finance, such as murabahah, istisna’,and salam.
bay’ al-’ayan Sale of tangible objects such as goods (asopposed to sale of services or rights).
bay’ al-dayn Sale of debt. According to a large majority offuqaha’, debt cannot be sold for money,except at its face value, but can be sold forgoods and services.
bay’ al-kali bilkali
A sale in which both the delivery of the objectof sale and the payment of its price aredelayed. It is similar to a modern forwardsale contract.
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xii Glossary of Arabic Terms
bay’ al-’inah The sale of something to someone at a givenprice (usually on credit) and then the purchaseback from the buyer, at the same time, at adifferent price (usually lower but cash). Thiskind of sale and buyback is prohibited becauseit effectively means exchanging a givenamount of money with a different amount ofmoney, which amounts to riba. It can be usedas a subterfuge for riba dealings.
bay’ bithamanajil
A sales contract where payment is made ininstalments after delivery of goods. Sale couldbe for long-term and there is no obligation todisclose profit margins.
bay’ al-mudaf A sales contract in which delivery of both thecommodity and the payment is deferred—forexample forward sales in modern times.Such contracts are not permitted by theShari’ah.
bay’ al-mulamasah
A form of sale prevalent in the days of theProphet (peace be upon him) in which thesales contract was finalized by the simple actof touching the object of sale. The prophet(peace be upon him) prohibited this kind ofsale since the buying party did not have a fairchance of inspection and hence the practiceinvolved gharar.
bay’ al-munabazah
A form of sale prevalent in the days of theProphet (peace be upon him) in which thesales contract was finalized by the simple actof throwing the object of sale towards thebuying party. The prophet (peace be uponhim) prohibited this kind of sale since thebuying party did not have a fair chance ofinspection and hence the practice involvedgharar.
bay’ al-salaf An alternative term for bay’ al-salam.bay’ al-salam A sale in which payment is made in advance by
the buyer and the delivery of the goods isdeferred by the seller.
bay’ al-sifah A sale based on a detailed description of theobject of sale.
Glossary of Arabic Terms xiii
bay’ bi thamanal-’ajil
Another term used for bay’ mu’ajjal.
bay’ mu’ajjal Sale on credit, that is, a sale in which goods aredelivered immediately but payment is deferred.
bay’muzayadah
Sale by auction.
buyu’ Plural of bay’ (for meaning, see bay’).daman Guarantee, security.Dar al-Islam The world (or the abode ) of Islam.darar Damage, harm, injury.darurah Necessity. (Usually used for the ‘‘Doctrine of
Necessity,’’ whereby something otherwiseprohibited becomes temporarily permissible).
dhimmah Liability, responsibility.faqih Jurist who gives rulings on various juristic issues
in the light of the Qur’an and the sunnah.fasad Mischief, troublemaking, corruption.fatwa Religious verdict by fuqaha’.fatawi Plural of fatwa (for meaning see fatwa).fiqh Refers to the whole corpus of Islamic
jurisprudence. In contrast to conventional law,fiqh covers all aspects of life—religious,political, social, commercial, and economic.Fiqh is based primarily on interpretations ofthe Qur’an and the sunnah and secondarily onijma’ (consensus) and ijtihad (individualjudgement) by the fuqaha’. While the Qur’anand the sunnah are immutable, fiqhi verdictsmay change due to changing circumstances.
fiqhi Relating to fiqh.fuqaha’ Plural of faqih (for meaning, see faqih).gharar Literally, it means deception, danger, risk, and
uncertainty. Technically, it means exposingoneself to excessive risk and danger in abusiness transaction as a result of uncertaintyabout the price, the quality and the quantity ofthe countervalue, the date of delivery, theability of either the buyer or the seller to fulfiltheir commitment, or ambiguity in the termsof the deal—thereby, exposing either of thetwo parties to unnecessary risks.
