Islamic Finance: A Practical Guide

Citation

Ali, R. (2008), "Islamic Finance: A Practical Guide", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1 No. 4, pp. 345-346. https://doi.org/10.1108/17538390810919646

Focus on the practical aspects of Islamic financial decision‐making

It is fair to say that this modern and lucid work is written with the requirements of the practitioner very much in mind. The topics covered, coupled with the manner in which they are approached, make the volume a highly recommended piece of reading for all those involved in the main sub‐sectors of the Islamic finance industry, especially those pertaining to asset management, project financing, issuance of sukuks, and Islamic insurance (takaful).

The book's emphasis on practical aspects is reflected strongly by over 30 illustrative graphs, and several tables. One table stretches over six pages, looking in detail at points of difference between takaful and conventional insurance.

Perhaps, the critical ingredient in the strident march of the Islamic finance industry is the availability of dedicated and qualified human resources. This requires training, as well as the availability of appropriate learning resources, such as the volume under review.

Expert contributions

Apart from the editor, a group of 16 authors have made contributions to the work, each in their own field of expertise. Despite a clear focus on how things are actually done, the book does outline the rationale for the chief principles underlying Islamic Sharia, as well as making some interesting comparisons with corresponding instruments in conventional banking and finance. For instance, the authors explain the reasons for the veto placed by Islam on pure gambling and by implication any financial dealings that smack a heavy dose of speculative content.

Another example is the difference between a “murabaha” contract and a contract for sale financed with debt and lump‐sum interest. Quite appropriately, the authors point out that a key difference here is that under murabaha, the financier “actually acquires and temporarily holds legal title to the asset. Along with the title to the asset, the financier therefore bears the risk in that asset for the defined period.” (p. 12).

Yet a third example is illustrated by the fairly thorough details in spelling out the process of Sharia‐screening, for the purpose of investing in equities. Among the rules in this regard are the 5 per cent limit placed on the portion of business revenues coming form activities that are clearly prohibited (such as “riba”) and the 10 per cent threshold on portions of revenues involving a prohibited element, such as interest income from fixed deposits placed in conventional banks.

Main sections

In all, the volume is divided into six main sections, of varying length. While the first section presents an overview of Islamic finance, the second looks at equity investments and collective funds, while the focus of the third is on financing, particularly with regard to legal aspects of syndication, project and trade financing.

A fourth section is devoted to capital markets, with three main chapters. These deal with the fast growing Islamic‐oriented capital markets, issue of sukuks, and related legal considerations.

The fifth section looks somewhat deeply on Islamic insurance (takaful) and how it compares with conventional insurance. The sixth and last section considers prospects for new developments, especially in view of the increasing number of Islamic financial institutions, as well as the expanding customer base and the urge for new innovative products.

As the author of the final chapter, Rafe Haneef, remarks, the Islamic finance industry has achieved a high level of sophistication, whereby it now offers a “wide range of products and services, often comparable with those in the conventional finance world”. Haneef adds:

Islamic structured bonds, convertibles, exchangeables, equities, alternative assets, project finance and private equity are now offered by most Islamic finance institutions. The quality of service has also increased tremendously over the last few years. Islamic financial institutions are now able to offer their customers a comprehensive service ranging from personal and corporate finance to wealth and investment banking, and the list is expanding rapidly (p. 161).

Kadom Shubber

Westminster Business School,

London, UK