Intermediate Islamic Finance

Praise for Intermediate Islamic Finance

"This is an excellent book for those who yearn to discover the roots of Islamic finance. Whilst scores of books have been written on the branches and trunk of Islamic finance, this appears to be the first book that neatly links the branches and the trunk to its roots. The book traces the epistemological origins of both conventional and Islamic finance systems and convincingly argues that both systems ought to have grown along risk–sharing models, in line with their original concept of morality and justice as part of an embedded ethical framework in finance. This book is a compulsory read for regulators, policy makers, practitioners, teachers, students, and others who dream of a more equitable and sustainable financial system."
Rafe Haneef, Chief Executive Officer and Executive Director, HSBC Amanah Malaysia Berhad

"This book opens a window on vital chapters in the important research issues related to essential features of Islamic finance. Researchers, as well as students, in particular, who are interested in and confused by the difference between the theory of neoclassical finance and Islamic finance, will be able to find a way to proceed further to the next steps. The authors have presented a superb guide for making progress in the theory of global finance."
Kazuhiko Nishina, former Vice–President and Professor Emeritus, Osaka University

"This book is an excellent intermediate–level treatment of the theory and practice of Islamic finance. Arguments are laid out in lucid and engaging prose, and the analytical approach brings forth clearly the essence of Islamic finance and its relation to conventional finance. This must–read book for students, practitioners, regulators, and researchers also offers a platform for productive debate on the origins of financial crises, the complexity of financial regulation, and the scope of derivatives."
Moosung Kim, former President, Korea Derivatives Association; Professor of Finance, Pusan National University, Korea

"Given that Islamic banking and finance is being taught at many universities worldwide, this book is an important contribution providing new theoretical perspectives on Islamic finance and fills a gap in literature catering to the academic world."
Habib Ahmed, Sharjah Chair in Islamic Law and Finance, Durham University Business School

Preface

About the Authors

Chapter 1: Epistemology of Finance

Epistemology of an ideal conventional financial system

Epistemology of an ideal Islamic financial system

Risk sharing finance in a world of uncertainty

Summary and conclusions

Chapter 2: Finance and Ethics

Embedded ethical issues in financial theory

Cases of ethical issues in finance

Virtue ethics model

Islamic framework of business ethics

Summary and conclusions

Chapter 3: The Analytics of Finance

The theory of interest

The concept of time value

Utility theory, risk aversion and risk premium

The individual s optimal consumption and portfolio choices

Market efficiency and the random–walk hypothesis

Risk–sharing in finance

Summary and conclusions

Chapter 4: Equity, Efficiency and Firm Behaviour

Theories of firm behaviour in Islamic economics

The profit–sharing principle

Theoretical construct of equity and allocative efficiency

Summary and conclusions

Chapter 5: Asset Pricing and Corporate Finance

Capital asset pricing model

Arbitrage pricing theory

Capital structure theory

Summary and conclusions

Chapter 6: Scope of Financial Engineering and Derivatives

Risk–hedging with forward and futures contracts

Properties of options contracts

Option valuation theory

Applications of option pricing theory in Islamic finance

Scope of financial engineering and risk–hedging in Islamic finance

Summary and conclusions

Chapter 7: Financing Models and Ownership Transfer

Structure and dynamics of outstanding balances

Financing schemes and ownership transfer

Hybrid financing models based on risk sharing

Summary and conclusions

Chapter 8: Securitisation and Structured Finance

Risk transfer with credit default swaps

The mechanics of securitisation and structured finance

Complexity of contract structures

Securitisation, structured finance, and completeness of contracts

Securitisation, risk transfer with waa d structures, and options strategies

Summary and conclusions

Chapter 9: Financial Stability

Financial system and the real economy

Financial crises and debt–financing

Stability of the Islamic financial system

Summary and conclusions

Chapter 10: Financial Regulation

The economics of financial regulation

The complexity of financial regulation

The regulatory framework under Islamic finance

The regulatory challenges in Islamic finance

Summary and conclusions

Appendix A

Appendix B

References

Index

Nabil Maghrebi is Professor of Finance at Wakayama University, Visiting Professor at Osaka University, and previously Research Fellow at the International Institute for Advanced Studies, Kyoto, Japan. His publications focus on international financial markets and Islamic finance.

Abbas Mirakhor is the First Holder of the Chair of Islamic Finance at the International Centre for Education in Islamic Finance (INCEIF). He is the author of An Introduction to Islamic Finance, Risk Sharing in Finance, and The Stability of Islamic Finance.

Zamir Iqbal is Lead Financial Sector Specialist at the Finance and Markets Global Practice of the World Bank and heads the World Bank Global Islamic Finance Development Center in Istanbul. He is co–author of An Introduction to Islamic Finance, Economic Development and Islamic Finance, and Risk Sharing in Finance.