Islamic Finance and Economic Development: Risk, Regulation, and Corporate Governance

Praise for Islamic Finance and Economic Development The authors have succeeded in producing a much appreciated, valuable, and constructive contribution in the field that deserves serious consideration by policy makers, financial practitioners, and those interested in accessing a readable, balanced, and competent view of the present and evolving new financing method. Applying the recommendations of the book is sure to produce a more resilient finance and allow smoother transition to the ideal Islamic finance. Professor Abbas Mirakhor, PhD, First Holder of INCEIFs Chair in Islamic Finance, former IMF Executive Director and Dean of the Board Significance of regulatory environment and lapses in governance were highlighted as the key factors contributing to the financial crisis. This volume by Dr. El Tiby and Dr. Grais is very timely since both of these factors have direct relevance to Islamic financial industry. This volume reflects the authors vast experience and deep understanding of issues concerning regulations and governance of Islamic financial industry and offers valuable perspectives for the regulators and policy makers. Although others have dealt with the issue of governance, this volume provides an alternative and practical approach. The authors deserve congratulations on this valuable contribution. Zamir Iqbal, PhD, Lead Investment Officer with the Quantitative Strategies, Risk and Analytics department in the Treasury of the World Bank, Washington, DC Islamic Finance and Economic Development is a great addition to a library on this growing alternate mode of investment and banking. The book has unique features including in–depth analysis of the present state of Islamic finance industry; the role of International Islamic Infrastructure institutions in the orderly development of the industry; new perspectives on regulatory arrangements; as well as approaches to corporate governance. It touches also on episodes of stress experienced by the industry. The book is a useful and timely addition to the literature on Islamic finance. I am confident it will be of great benefit to its readers. Ijlal Ahmed Alvi, CEO, International Islamic Financial Market This book addresses some of the most current and pressing topics of regulation and governance that are peculiar to any Islamic financial institution. Being seasoned bankers, the authors have their fingers on the pulse of the industry and are able to discuss how the industry should respond to the changing needs, and how the regulation should assist in steering its further growth. I believe the book will benefit the industry significantly. Adnan Ahmed Yousif, President and CEO of Al Baraka Banking Group I wish to welcome this seminal addition to the library of Islamic Finance and Risk Management books. The book gives clear perspectives about the development, modes, and philosophical basis for Islamic finance. I found the narrative to be very clear and analytical. The book explains well issues of risk management in Islamic financial institutions. Professor Ali Soliman, PhD, Economics, British University in Egypt, former CEO of the Islamic Corporation for the Development of the Private Sector (ICD)

Preface ix Acknowledgments xv Acronyms xvii About the Authors xxi PART ONE Emergence of Modern Islamic Finance 1 CHAPTER 1 History and Core Principles of Islamic Finance 3 CHAPTER 2 Islamic Finance: Opportunity for Egypt’s Development 19 PART TWO Managing Systemic Risks 51 CHAPTER 3 Risks, Spillovers, and Distress 55 CHAPTER 4 Coping with Crises: Policies, Institutions, and Markets 67 PART THREE Regulatory Challenges 93 CHAPTER 5 The Dilemma of Tailor–Made versus Mainstream Regulation 95 CHAPTER 6 Toward an Enabling Framework 107 PART FOUR Corporate Governance 121 CHAPTER 7 Financial Fiduciary Governance 123 CHAPTER 8 Corporate Governance and Shari’a Compliance 145 CHAPTER 9 Toward a Systemic Shari’a Governance Framework 181 APPENDIX Islamic Finance: The International Landscape 205 References 217 Index 231

AMR EL TIBY earned his B.A in Commerce from Cairo University in 1980, majoring in Business. He earned his Diploma in Finance from Cairo University in 1985 and his MA in Economics from The American University in Cairo in 2003. In 2009, he earned his PhD from The American University in London. Dr. El Tiby has over 30 years of banking experience in the Middle East and the Gulf Region in both conventional as well as Islamic finance. His area of research focuses on banking risk and regulations. He is also the author of Islamic Banking, published by Wiley in 2011. WAFIK M. GRAIS is senior international adviser on finance, investments and public policy. He was founder and chairman of Viveris Mashrek Financial Advisors. He held senior positions at the World Bank in Washington, DC, where he notably managed country programs on countries of the Middle East and North Africa as well as Europe and Central Asia. He has been published on the subjects of finance, corporate governance, Islamic finance, macroeconomic policy, and energy policies. He holds a PhD in Economics and degrees in Mathematical Economics and Political Science from the University of Geneva.