Introduction to Islamic Banking and Finance

Author/Publisher:  Spiramus Press
Descriptions: This book on Islamic Banking and Finance is intended to provide a practitioner’s view of the subject.

Although the basic concepts are, of course, explained, it is not meant to be either a theoretical or academic piece of work but rather a practical overview that will hopefully interest and inform a wide range of readers.


Although a young segment of the financial industry, Islamic finance has gone through an exceptional growth period. Over the past 10 years the industry has grown at a rate of 15 – 20% per annum. This level of growth is expected to continue for the coming years and by far exceeds the anticipated rate of growth in conventional finance. The increase in wealth resulting from the rise in oil prices and the subsequent requirements for investments in oil producing countries is a large contributor to the expansion of the Islamic finance industry. Coupled with relatively high returns, this attracts banks and investors alike. The number of fully sharia’a compliant banks is increasing worldwide, and sharia’a compliant financial products are not only offered by Islamic banks, but equally by conventional banks using different distribution channels. Although the term “conventional” is often associated with conservative and low risk, in the context of this book the term “conventional” bank is used to identify the financial institutions that have formed part of the financial infrastructure for a long time and are not specifically based on Islamic principles. As we have seen in the recent period since the end of 2007, these can by no means be labelled conservative. Then again, neither can this in all cases be said for the Islamic financial instruments as the events that have occurred in Dubai during the last quarter of 2009 show.


The book sets out the principles that form the basis of Islamic finance, which are old and can be traced back through time to the profit and loss sharing principles in the Code of Hammurabi in the 18th century BCE. Over the centuries, philosophers and theologians alike have debated the issues surrounding justness of exchange and the charging of interest. Charging of interest is long seen as damaging to individuals as well as the economy by the majority of theologians and philosophers. The modern day history of Islamic finance starts in the early 1960’s with a small mutual savings project in Egypt, has grown to a multibillion dollar industry in 2008 and is still going strong. Although it is too early to say whether Islamic finance will become mainstream, it certainly provides a viable alternative to other banking services.


Before going into detail of the individual transaction types, this book looks at the history of finance and economics in general and how Islamic finance fits within that framework. The prohibitions in sharia’a such as riba (interest), gharar (unnecessary uncertainty) and maysir (gambling) are explained. The book maintains its focus on Islamic finance and does not go into detail on the different schools of thought within Islam and does not make any religious statements on differences or implementation. Other sources may have to be reviewed for further detail on the religious aspects of the prohibitions.
The book then follows on with a generic explanation of the most well known Islamic financial products. The transaction types are divided into four main categories; partnership contracts; instruments with predictable returns; other instruments; and bond like instruments.


After a succinct review of the theoretical background of the different transaction types and how banks bring these to market, their application in retail finance, treasury, corporate finance and private equity are described in further detail. Some overlap occurs between the theoretical description and the practical uses described later in the book, which makes it easier to use this book as a reference text and prevents the reader from having to go back and forth between the different chapters too often. The role of the London Metal Exchange and the Metal warrants is explored in some more detail which removes some of the existing misconceptions regarding the underlying assets used for commodity murabaha transactions. The practical implementation section finishes with an overview of the types of Islamic fund structures that can be applied to Asset management and a practitioner’s view on equity trackers versus actively managed funds.
This overview of products and services and how they are offered provides useful guidance to Islamic finance in practice without getting embroiled into the particulars of the Islamic religion. Although it is recognised that the basic principles are taken from Islam, they are universally accepted and have been debated in the light of different religions and ethics for a long time.
The final sections of the book provide some useful insight in risk and regulatory issues. It looks at how risks compare and contrast with risk in conventional banks, the workings of the Sharia’a Supervisory Board (an additional organ of governance), additional regulatory issues, taxation and capital adequacy. Finally, a brief overview is provided of bank valuation mechanisms, and more importantly the valuation of an Islamic bank from an outsider’s perspective, and an idea of what the future may have in store for Islamic finance.
This book has successfully attempted to make the subject of Islamic finance accessible to a large audience, and appeals to Muslims and non-Muslims alike. Non-Muslims might be interested in Islamic finance but do not have the religious affiliation. On the other hand, Muslims may have a deep understanding of Islam, but are not necessarily au-fait with financial instruments. It is clear and concise in its description and certainly a worthwhile read for anyone with an interest in this field.

Book orders to: Turpin Distribution Services, Pegasus Drive, Stratton Business Park, Biggleswade SG18 8TQ. Tel: 01767 604 951. E-mail custserv@turpin-distribution.com

Introduction to Islamic Banking and Finance - by Natalie Schoon

Published by Spiramus Press. Price £125.00. ISBN 978 1904905 11 0.