fm JWBK508-Hassan February 2, 2011 19:23 Printer: Yet to ......Islamic capital markets : products...

P1: TIX

fm JWBK508-Hassan February 2, 2011 19:23 Printer: Yet to come

P1: TIX


Islamic Capital Markets

i

P1: TIX


For other titles in the Wiley Finance Seriesplease see www.wiley.com/finance

ii

P1: TIX


Islamic Capital Markets

Products and Strategies

M. Kabir HassanMichael Mahlknecht

A John Wiley and Sons, Ltd., Publication

iii

P1: TIX


This edition first published 2011© 2011 John Wiley & Sons, Ltd

Registered officeJohn Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom

For details of our global editorial offices, for customer services and for information about how to apply forpermission to reuse the copyright material in this book please see our website at www.wiley.com.

The right of the author to be identified as the author of this work has been asserted in accordance with theCopyright, Designs and Patents Act 1988.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, inany form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by theUK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not beavailable in electronic books.

Designations used by companies to distinguish their products are often claimed as trademarks. All brand names andproduct names used in this book are trade names, service marks, trademarks or registered trademarks of theirrespective owners. The publisher is not associated with any product or vendor mentioned in this book. Thispublication is designed to provide accurate and authoritative information in regard to the subject matter covered. Itis sold on the understanding that the publisher is not engaged in rendering professional services. If professionaladvice or other expert assistance is required, the services of a competent professional should be sought.

Library of Congress Cataloging-in-Publication Data

Hassan, M. Kabir.Islamic capital markets : products and strategies / M. Kabir Hassan, Michael Mahlknecht.

p. cm. — (The wiley finance series)Includes bibliographical references and index.

ISBN 978-0-470-68957-81. Banks and banking—Islamic countries. 2. Capital market—Islamic countries. 3. Finance—Islamic countries. I.Mahlknecht, Michael. II. Title.

HG3368.A6M36 2011332′.0415091767—dc22

2010050394

A catalogue record for this book is available from the British Library.

ISBN 978-0-470-68957-8 (hardback), ISBN 978-1-119-99137-3 (ebk),ISBN 978-1-119-97081-1 (ebk), ISBN 978-1-119-97082-8 (ebk)

Typeset in 10/12pt Times by Aptara Inc., New Delhi, IndiaPrinted in Great Britain by Antony Rowe Ltd, Chippenham, Wiltshire

iv

http://www.wiley.com

P1: TIX


Contents

About the Contributors xv

Preface xxv

PART I GENERAL CONCEPTS AND LEGAL ISSUES 1

1 Rahn Concepts in Saudi Arabia: Formalization and a Registration andPrioritization System 3Michael J.T. McMillen1.1 Introduction 31.2 The Mortgage Law 4

1.2.1 General Observations 41.2.2 Specific Provisions 6

1.3 Conclusion 13Notes 13

2 The Shariah Process in Product Development and Approval in ICM 23Ahcene Lahsasna and M. Kabir Hassan2.1 Introduction 232.2 Product Development, Financial Engineering, and Innovation in

Islamic Finance 232.2.1 Principles to be Considered in Product Development,

Innovation, and Financial Engineering 242.2.2 Area of Product Development, Innovation, and Financial Engineering 252.2.3 Failure of Innovation and Financial Engineering 25

2.3 The Shariah Framework in Product Development and Approval 262.3.1 Sources of Shariah Law 262.3.2 Maqasid al Shariah 312.3.3 Legal Maxims 332.3.4 Regulators and Standard-Setting Organizations: Regulations,

Standards, and Parameters for Islamic Finance (AAOIFI, IFSB,and Others: Shariah Standards, Corporate Governance, andPrudential Regulations) 34

v

P1: TIX


vi Contents

2.4 The Types of Product in Islamic Finance 372.4.1 Shariah-Based Products 372.4.2 Shariah-Compliant Products 39

2.5 Process of Product Development in Shariah-Based Products 392.5.1 Example of Product Development in Shariah-Based Product:

Ijarah Muntahiah Bittamlik (Leasing Ending with Ownership) 402.6 Process of Product Development in Shariah-Compliant Products 412.7 The Framework and Process Flow of Product Approval in

Islamic Finance 432.7.1 The Flow of the Process of Approval of the New Product:

From the Product Owner to the Market Place 432.7.2 Mechanism for Obtaining Rulings 462.7.3 Position of the IFI with Regard to the Resolutions of SSB and

IFSB Principles Governing the SSB 472.8 The Methodology Used in the Approval Process 49

2.8.1 The General Rules and Standards Governing the ProductApproval in Islamic Finance 50

2.8.2 Methodology and Standards of fatawa in Islamic FinancePrior to Issuing a fatwa and Resolutions 50

2.8.3 Methodology of fatawa in Islamic Finance in Issuing theIslamic Ruling 50

2.8.4 Methodology of Presenting fatawa in Islamic Finance 512.8.5 Methodology of Empowering the fatwa in Islamic Finance 52

2.9 Product Approval in Securities in Islamic Capital Markets 522.9.1 Shariah Criteria for Listed Securities 532.9.2 Primary Activities Criteria 532.9.3 The Product Approval of Securities in Mixed Companies 542.9.4 Image as Criteria for Listed Securities 562.9.5 Quantitative and Qualitative Approach in Screening Process

in Capital Market 562.9.6 Image with Benchmark 572.9.7 Image without Benchmark 572.9.8 Fundamentals of Shariah Assessment on Image Analysis 572.9.9 Relationship of Image and Principle of Shariah 57

2.10 Applying the Shariah Advisory Council Methodology 602.10.1 Case 1: Wawasan Holding 602.10.2 Case 2: Gemada Berhad 61

2.11 Other Methodology of Shariah Screening Process for Securities 622.11.1 FTSE Shariah Index Screening Methodology 622.11.2 Yasaar Shariah Index Screening Methodology 632.11.3 DJIM Shariah Screening Process 63


3 Integration of Social Responsibility in Financial Communities 69Sayd Farook and Rafi-Uddin Shikoh3.1 Introduction 69

P1: TIX


Contents vii

3.2 The Conflicting Ideologues within Islamic Finance 703.3 Core Motivations of Conventional Business Models and Their Social

Responsibility Mandates 713.4 Islam, Business, and Social Responsibility 73

3.4.1 “Taqwa-Centricity” (God Consciousness) and Human Beingsas Vicegerents on Earth 73

3.4.2 Primary Responsibilities: To Educate and Establish Justice 743.4.3 Ability-Based Focus 753.4.4 Individual vs. Institutional Responsibility 753.4.5 Existing Paradigms of Social Responsibility Discourse in Islam 76

3.5 Case for Broader Social Responsibility Mandate 763.5.1 IFIs’ Special Obligation 773.5.2 Religious and Financial Obligations 783.5.3 New Realities 783.5.4 Different from Charities 79

3.6 Current Challenges and Recommended Approach to IslamicSocial Responsibility 793.6.1 Regularize a Framework of Mandatory and Recommended

Social Responsibilities 793.6.2 Mandatory Forms of Social Responsibility 803.6.3 Recommended Forms 81

3.7 Disclosure as a Means of Accountability 843.8 Lessons from Current Socially Responsible Business Practices 85

3.8.1 Key Lessons from Current Practices 853.9 Concluding Thoughts 86

Notes 86References 88Further Reading 89

4 The Dispute Resolution Framework for the Islamic Capital Marketin Malaysia: Legal Obstacles and Options 91Umar A. Oseni and M. Kabir Hassan

4.1 Introduction 914.2 The Legal Framework of the Islamic Capital Market in Malaysia 92

4.2.1 Relevant Legislations Regulating ICM in Malaysia 924.2.2 Guidelines and Practice Notes 95

4.3 The Nature of Disputes Among Market Players 964.4 Constraints and Concerns Over the Current Legal Framework 97

4.4.1 Jurisdiction of the High Court vs Shariah Court of Appeal 974.4.2 Shariah Dispute Resolution in the Malaysian ICM 984.4.3 Inadequacy of the Existing Legal Reforms 101

4.5 Dispute Resolution Models for the Capital Markets 1024.5.1 The Saudi Arabian Model 1024.5.2 United Arab Emirates Dispute Resolution Framework for the

Capital Market 1044.5.3 A Hybrid Model for the Malaysian Islamic Capital Market 105

4.6 Conclusion 106

P1: TIX


viii Contents

Case Studies 107Notes 113References 113

5 The Small World of Islamic Finance: How Good Governance can Assistin Taking the Islamic Finance Industry to the Next Level 115Murat Unal5.1 Introduction 1155.2 Shariah Scholars in the GCC – A Network Analytic Perspective 1165.3 Good Governance-Related Points 1185.4 Summary 123

References 124

6 The Alpha and Omega of Abrahamic Finance 125Mufti Talha Ahmad Azami and Shahzad Siddiqui6.1 Introduction 1256.2 Jewish Funds 1266.3 Catholic Funds 1276.4 Socially Responsible Investing (SRI) Funds 1276.5 Islamic Funds Redux 1286.6 Alpha: Quantitative Results of Abrahamic Funds 1326.7 Amana and the Benchmarks 1356.8 Conclusion 136

Appendix: The Abrahamic Family Tree 137Notes 137References 142

PART II GLOBAL ISLAMIC CAPITAL MARKET TRENDS 145

7 Islamic Derivatives: Past, Present, and Future 147Priya Uberoi and Ali Rod Khadem7.1 Introduction 1477.2 Formal Shariah Objections and Solutions 148

7.2.1 Forwards and Futures 1487.2.2 Options 1497.2.3 Swaps and Currency Transactions 151

7.3 Substantive Shariah Objections and Resolutions 1537.3.1 Existence, Ownership, Possession 1547.3.2 Speculation, gharar, and maysir 1557.3.3 Trading Obligation for Obligation 158

7.4 Islamic Swaps and Currency Transactions 1587.4.1 Cross-currency Swap 1587.4.2 Profit Rate Swap 1617.4.3 FX Option 1637.4.4 Total Return Swap 164

P1: TIX


Contents ix

7.5 ISDA/IIFM Tahawwut Master Agreement, Published 1 March 2010 1667.6 Conclusion 167

Notes 167

8 Overcoming Incentive Problems in Securitization: IslamicStructured Finance 171Andreas A. Jobst

8.1 Introduction 1718.2 Incentive Problems of Conventional Securitization 1728.3 The Rise of Islamic Finance 1758.4 The Case of Islamic Securitization 176

8.4.1 Definition of Islamic Securitization 1768.4.2 Current Market Situation 1778.4.3 Sukuk – The Good Side of Securitization? 1798.4.4 Economic Challenges 1818.4.5 Legal Challenges – Regulatory Consolidation and

Supervisory Harmonization 1818.5 Conclusion 182

Notes 182References 183

9 The Evolution of Takaful Products 185Mervyn K. Lewis

9.1 Insurance under Islam 1859.2 Organizational Structures and Operational Models 188

9.2.1 Mudaraba Model 1909.2.2 Wakala Model 1919.2.3 Hybrid Model 1929.2.4 Waqf Model 192

9.3 Product Development and Prospects 1939.3.1 Products 1939.3.2 Prospects 195

Notes 198References 198

10 A New Model for Options in Islamic Law 201Valentino Cattelan10.1 Looking for Islamic Derivatives: A Legal Oxymoron? 20110.2 Options, Western Law, and Islamic Justice 20310.3 Khiyar ash-shart. and al-’urbun as Islamic Analogues to Options:

Critical Elements 20410.4 In Search of a Shariah-Based Substitute: The ijara wa-hiba

Structure 20610.5 Trading ijara wa-hiba Options? Clearing House, Issuance of S. ukuk

al-manfa‘a, and Lack of Speculation 211

P1: TIX


x Contents

10.6 Pricing S. ukuk al-manfa‘a in Relation to the Rental Rateof Return 213

10.7 ijara wa-hiba Options and the Path towards Legitimacy 215References 215

PART III NATIONAL AND REGIONAL EXPERIENCES 219

11 Building up an Islamic Capital Market: The Malaysian Example 221A. Usama DeLorenzo11.1 Introduction 22111.2 The Beginnings of Shariah-Based Finance in Malaysia 222

11.2.1 The Securities Commission Malaysia 22211.2.2 The Shariah Advisory Council (SAC) 223

11.3 The Islamic Capital Market in Malaysia 22511.3.1 The Capital Market Master Plan 22511.3.2 The Current State 22611.3.3 Malaysian Sukuk 22611.3.4 Malaysian Shariah-Compliant Equities and Fund Management 22711.3.5 Government, Regulation, and Taxation 22911.3.6 Promoting International Linkages 23011.3.7 Development of Skills in the Islamic Capital Market 231


12 Islamic Finance in Germany: Trends, Opportunities, and Potential 235Azadeh Farhoush and Nicolas Schmidt12.1 Introduction and Background 235

12.1.1 Brief Background on Islamic Finance 23512.1.2 Development and Market Potential of Islamic Finance 23612.1.3 Economic Relevance of Germany 23812.1.4 Immigrants and the Muslim Community in Germany 23812.1.5 Products and Services Focused on the Muslim Community

in Germany 23912.1.6 Status Quo of Islamic Finance and Shariah-Compliant

Products in Germany 24012.1.7 One Clear Objective is to Attract Major Muslim Investors 241

12.2 Research and Studies on the Muslim Population in Germany 24212.2.1 Research and Studies on Financial Services and Islamic

Finance 24412.3 Analysis of the Attitudes and Preferences of the Muslim Population

in Germany Towards Financial Products 24612.3.1 Research Questions and Assumptions 24612.3.2 Methodology and Approach 24612.3.3 Description of the Dataset 24712.3.4 Quantitative Results 248

12.4 Conclusion and Practical Implications for Financial Institutionsin Germany 26012.4.1 An Offer of Shariah-Compliant Products According

to Needs 262

P1: TIX


Contents xi

12.4.2 Improvement of Financial Education and Consultancy 26212.4.3 Elaboration of Marketing Activities 262Notes 263References 265

13 Islamic Finance in France: An Emerging Market? 267Ibrahim-Zeyyad Cekici and Laurent Weill13.1 Legal Aspects 267

13.1.1 The Positions of Public Authorities 26813.1.2 The Trends 271

13.2 Economic Dimensions 27213.2.1 The Demand Side 27313.2.2 The Supply Side 275Notes 277References 277

14 Islamic Finance in the United States 279Blake Goud and M. Kabir Hassan14.1 Introduction 27914.2 The United States as a Destination for Shariah-Compliant Investment 280

14.2.1 The Development of an Ijara-Istisna’a Contract for RealEstate Construction 280

14.2.2 The First Entrants 28214.2.3 The Entry of Private Equity 28314.2.4 Growth Accelerates 28614.2.5 Conclusion 290

14.3 Wholesale Islamic Finance within the United States 29114.4 Mutual Funds and Exchange Traded Funds 29514.5 Legal, Tax, and Regulatory Issues in Islamic Finance 29714.6 Sukuk Issued by US-Based Companies 30014.7 Conclusion 302

Notes 303

15 An Analysis of Global Trends and Regional Pockets in the Applicationof Islamic Financial Contracts in Malaysia and the GulfCooperation Council 307Anne-Sophie Gintzburger15.1 Regional Pockets and Global Trends 30915.2 The Influence of the Shariah Framework 31015.3 The Function of Shariah Boards 31115.4 The Role of Shariah Boards in Malaysia 31415.5 The Role and Function of Shariah Boards in the GCC 31615.6 Convergence Between the GCC and Malaysia 31715.7 Slight Divergence in Interpretations 31815.8 The Impact of the Regulatory Dimensions of the Jurisdictions 31915.9 The Role of the Creation of International Hubs in Harmonizing Views 327


P1: TIX


xii Contents

16 Developments in Islamic Finance Practice: The Experience of Australia 341Abu Umar Faruq Ahmad and M. Kabir Hassan

16.1 Introduction 34116.2 State of the Australian Economy in the World 342

16.2.1 The Australian Economy 34216.3 Potential Problems in the Development of Islamic Finance in

Australian Market 34316.3.1 The Acceptance of Interest 34416.3.2 A Wait-and-See Approach 34416.3.3 The Size of the Muslim Community 34416.3.4 Doubt Concerning Shariah-Compliant Finance and

Investment Products 34416.3.5 Lack of Understanding on Islamic Finance 34516.3.6 Risk Analysis and Balance Sheet Management 34516.3.7 Absence of a Standard Rate of Return 34516.3.8 Difficulty in Classifying Risk Sharing Funds 34616.3.9 Problem of Accounting Standards 346

16.3.10 International Perspective 34616.4 Prospects of Islamic Finance in Australia 347

16.4.1 Opportunities for Introducing Islamic Banking 34916.4.2 Prospects of Islamic Banking and Finance in the

Academic Sphere 34916.5 Summary, Findings, and Recommendations 355

16.5.1 Summary and Findings of the Study 35516.5.2 Suggestions and Policy Recommendations for the Study 355

References 356

PART IV LEARNING FROM ISLAMIC FINANCE AFTER THE GLOBALFINANCIAL CRISIS 359

17 The Current Financial Market Crisis: Lessons Learned, Risksand Strengths of Islamic Capital Markets Compared to theConventional System 361Rasem N. Kayed, Michael Mahlknecht, and M. Kabir Hassan

17.1 Introduction 36117.2 Causes of the Global Financial Crisis 36217.3 Some Implications of the Global Financial Crisis 365

17.3.1 Implications for the Global Economy 36517.3.2 Implications for Islamic Finance 366

17.4 Can Such Crises Occur Under an Islamic Financial System? 36717.4.1 Islamic Theory of Finance and the Global Financial Crisis 36717.4.2 The Current Financial Crisis Would not have Occurred

Under an Islamic Financial System 37017.4.3 A Systemic Trade-off Between Risks and Returns 373

17.5 The Prohibition of “Bad” Risks in Islamic Finance 37517.5.1 Types of “Bad” Risks 37517.5.2 Individual vs. Systemic Effects of “Bad” Risks 377

P1: TIX


Contents xiii

17.6 Lessons Learned 37817.6.1 Reputational Risk and the Recreation of Trust 37817.6.2 Real vs. Virtual Transactions: sukuk and the Escape from

the Debt Trap 37917.6.3 The Need for Clearing Houses 380

17.7 Conclusions and Outlook 38017.7.1 Main Challenges for Real-life Islamic Finance 38117.7.2 Convergence Between Conventional and Islamic

Financial Industry 381Notes 382References 383

18 An Islamic Perspective of Financial Engineering 385Sami Al-Suwailem and M. Kabir Hassan18.1 Introduction 385

18.1.1 Financial Engineering and Financial Innovation 38518.2 Financial Engineering: Definition and Concept 386

18.2.1 Value of Innovation 38618.2.2 Shariah and Creativity 38718.2.3 Regulatory Arbitrage 38718.2.4 State of Financial Innovation 388

18.3 Principles of Islamic Financial Engineering 38818.3.1 Principle of Balance 38918.3.2 Principle of Acceptability 39018.3.3 Principle of Integration 39218.3.4 Principle of Consistency 393

18.4 Strategies for Product Development 39418.4.1 Imitation 39518.4.2 Mutation 39618.4.3 Satisfaction 397

18.5 Challenges in Financial Engineering in Islamic Finance 39818.5.1 Fragmented Approach to Shariah 39818.5.2 Product Development Process in Islamic Financial

Institutions 39918.5.3 Specialized Institutions and Advanced Markets 399

18.6 Concluding Remarks 399Note 399References 399

19 Shariah-compliant Portfolio Management: Processes, Methodologies,and Performances 401Shehab Marzban19.1 Introduction 40119.2 Shariah-compliant Portfolio Management Process 402

19.2.1 Shariah Issues in Investment Policy Analysis 40219.2.2 Shariah Issues in Financial Analysis 40419.2.3 Shariah Issues in Portfolio Construction 404

P1: TIX


xiv Contents

19.2.4 Shariah Issues in Performance Analysis andPortfolio Revision 405

19.3 Shariah Guidelines 40519.3.1 Shariah Compliance of Asset Classes 40519.3.2 Shariah Screening 40719.3.3 Purification 410

19.4 Fund Performance 412Notes 413References 414

20 Islamic Microfinance: The Way Forward 415Mohammed Obaidullah

20.1 Modes of Islamic Microfinance 41520.1.1 Replication of Conventional Models 41620.1.2 Indigenous Models 416

20.2 Instruments of Islamic Microfinance 41720.2.1 Instruments for Mobilization of Funds 41720.2.2 Instruments of Financing 41820.2.3 Instruments of Risk Management 418

20.3 Islamic Microfinance Projects Across the Globe 41820.3.1 Middle East North Africa (Mena) 41920.3.2 South Asia 41920.3.3 South East Asia 42020.3.4 Rest of the World 420

20.4 Product Development in Islamic Microfinance Sector 42020.4.1 Shariah Compliance 42020.4.2 Divergent Perceptions 42220.4.3 Agency Problems 422

20.5 Meeting Funding Requirements of Islamic Microfinance Sector 42420.5.1 Linkage with Banks 42420.5.2 Rating Services 42520.5.3 Islamic Microfinance Fund 42520.5.4 Securitization 425

Notes 427References 427Further Reading 427

Index 429

P1: TIX


About the Contributors

Dr Abu Umar Faruq Ahmad is an Islamic legal expert in Shariah advising, research andteaching and with experience in Islamic banking, finance, microfinance, comparative jurispru-dence, Islamic studies and case studies of Islamic financial services providers. Dr Ahmadreceived his LLM (Honours) in Islamic banking and PhD in Islamic finance at the Univer-sity of Western Sydney, Australia, with two prestigious university-wide research scholarshipsfor his doctoral study in which he earned an ‘A’ (high distinction) for the quality of hisresearch. Currently he is an Assistant Professor of Islamic Finance at Hamdan BinMohammed e-University, Dubai. He has published over 12 research articles in academicrefereed journals. He is author of Theory and Practice of Modern Islamic Finance: The CaseAnalysis from Australia (ISBN: 1599425173, pp. 322) and Developments in Islamic Bank-ing Practice: The Experience of Bangladesh (ISBN: 1599428288, pp. 228). Besides, he haspublished book chapters and conference proceedings, and presented papers at over 30 profes-sional forums held in Asia, Australia, America, Europe and Africa. Dr Ahmad has been onthe Editorial Advisory Board of International Journal of Islamic and Middle Eastern Financeand Management, Journal of Islamic Accounting and Business Research and The Open LawJournal. In addition, he acts as an ad hoc reviewer of American Journal of Islamic SocialSciences, Thunderbird International Business Review, Review of Islamic Economics, IslamicEconomic Studies and African Journal of Business Management.

Dr Sami Al-Swailem was educated in the USA, earning his MA in Economics from SouthernIllinois University, Carbondale, in 1990 and his PhD in Economics from Washington Universityin 1995. He was a Chief Consultant and subsequently Research and Development Manager inAl-Rajhi Bank during 1995–2004. Since 2004, he has been a Senior Economist at the IslamicResearch and Training Institute (IRTI), IDB Group. He has published several papers on IslamicEconomics and Finance

Mufti Talha Ahmad Azami is a Principal at BMB Islamic. A seasoned and dynamic UK-basedShariah scholar with a specialization in Islamic Commercial Law, Mufti Talha serves as thein-house Shariah scholar for BMB Islamic and plays an instrumental role in the managementof the firm’s Shariah advisory services. Mufti Talha is responsible for Shariah structuring,screening and monitoring, research, and publications. Prior to BMB Islamic, he worked inIslamic Academia with prominent scholars from India for more than ten years. Mufti Talhaholds a BA in Arabic and Quranic Sciences and an MA in Islamic Law from Nadwa Universityin Lucknow, where he studied under a number of leading Islamic jurists and Muslim thinkers.

xv

P1: TIX


xvi About the Contributors

He also has an MA in Hadith Sciences from Islamic University in Deoband and an MA inIslamic Banking and Finance Management from Loughborough University in the UK. He is thegeneral editor of the Global Islamic Finance Report 2010 published by BMB Islamic, Shari’a-Compliant Private Equity: A Primer for the Executive, forthcoming for Euromoney Booksand a co-author with Shahzad Siddiqui of SS Law Corporation on several works including“Fruits” of the Orchard: Endowments for Mosques and Islamic Charitable Organizations inWestern and Muslim Lands, also published by Euromoney.

Dr Valentino Cattelan, LLM, MSc, holds a PhD in Banking and Financial Law from theUniversity of Siena and he is currently Post-Doctoral Research Fellow at the School ofEconomics of the University of Rome Tor Vergata. He is qualified as a lawyer in the EU, andhe actively contributes to seminars, workshops and conferences in Islamic law and finance.His major fields of research are comparative law methodology, Islamic law of contracts, and itsapplication to structure innovative financial instruments, especially in the derivatives market.In relation to his expertise, he has been awarded by the European Commission a grant fora teaching module on “Integrating Islamic finance in the EU market”, to be developed overthe next three years (September 2010–August 2013). Among his recent publications: IslamicFinance and Ethical Investments. Some Points of Reconsideration, in Khan, M.F., and Porzio,M. (eds) (2010) Islamic Banking and Finance in the European Union. A Challenge, EdwardElgar, pp. 76–87 and “From the Concept of h. aqq to the Prohibitions of riba, gharar andmaysir in Islamic finance”, in International Journal of Monetary Economics and Finance(2009) 2(3/4), 384–97.

Ibrahim-Zeyyad Cekici is a teacher and researcher in the Business School EM Strasbourg,University of Strasbourg. He is in charge of the Master’s Degree Islamic Finance and theresearch programme on Islamic Banking and Finance. He is at present a PhD candidateand his topic is the Islamic credit operation in French law. He has two Master’s degrees:one on European Comparative Law on Religion and another on Banking and Finance Law.He has written a number of papers on the compatibility of Islamic finance and French law.He has launched a review named Les Cahiers de la Finance Islamique.

A. Usama DeLorenzo is currently serving as Project Leader in the office of the executivedirector for Strategy and Development for the Securities Commission Malaysia. Prior toworking with the Securities Commission, DeLorenzo helped with the launch of the firstShariah-compliant exchange traded fund to be listed on the New York Stock Exchange.DeLorenzo has worked with Shape Financial as a consulting analyst, with Oppenheimer andCo. as a trader, and with Saturna Capital, investment advisor to the Amana Mutual FundTrust, as an investment manager. Prior to his work in finance, DeLorenzo worked in theinformation technology sector with work ranging from software development to cartographicanalysis. He has spoken about Islamic finance and investments at many industry conferencesand universities, as well as at many educational panels for the communities in which he haslived. He also served as Treasurer on the board of directors for the Council for AmericanIslamic Relations in New York City.

Azadeh Farhoush is presently working for BNP Paribas Lease Group S.A., a subsidiaryof BNP Paribas, as an Underwriter in the Wholesale Finance Department. She was bornin Teheran, Iran, and emigrated to Germany in 1984. Ms Farhoush studied Economics andBusiness Information Systems at the University of Cologne where she earned a Masters Degree.Additionally, she successfully completed a semester in Indonesia. Her diploma thesis focused

P1: TIX


About the Contributors xvii

on Islamic Leasing (Ijarah), comparing the banking and financial systems of Iran, Dubai, andGermany. Ms Farhoush recently completed a two and a half year course in Islamic Studiesand she is a prospective PhD student in the field of Islamic Banking and Finance. AzadehFarhoush has published the article “Leasing as a Sharia compliant Financial Instrument”.

Dr Sayd Farook is mandated with the responsibility to lead the development of the nextgeneration Islamic capital markets transactions platform at Thomson Reuters. As GlobalHead, Islamic Capital Markets, Dr Farook is the principal architect of Thomson Reuters’vision of a global interconnected and diversified Islamic finance and capital markets withoutborders. Dr Farook joins Thomson Reuters from Dar Al Istithmar where he was responsible forStructuring and Legal compliance as a Senior Consultant. Prior to his time at Dar Al Istithmar,Dr Farook worked in a number of roles at the Centre for Islamic Finance - Bahrain Instituteof Banking and Finance (BIBF), Accounting and Auditing Organisation for Islamic FinancialInstitutions (AAOIFI), Hong Kong Shanghai Banking Corporation (HSBC) and lectured onBusiness Analysis, Valuations and Islamic Finance at several prominent universities andinstitutes globally. He holds a Phd in Islamic Finance, Business and Law degrees from theUniversity of Technology Sydney, and is a Certified Islamic Professional Accountant (CIPA)from AAOIFI. Sayd’s papers are widely published in peer-reviewed journals, magazines, andas chapters in edited books, while he has also been invited to present his research and views at anumber of renowned international gatherings on Islamic Finance. Sayd is on the internationaleditorial board of the Journal of Islamic Accounting and Business Research (Emerald Insight).

Anne-Sophie Gintzburger was awarded an MPhil at the Australian National University inMarch 2010 on the topic of Islamic finance. Her chapter is a snapshot of her research onregional contractual differences in the Gulf Cooperation Council (GCC) states and Malaysia.Her research, based on fieldwork in Malaysia and the UAE, is the subject of her forthcomingbook to be published by Edward Elgar Publishing. Of both French and Australian citizenship,Anne-Sophie Gintzburger is currently a doctoral candidate in France at the Ecole NormaleSuperieure, is working at Altran CIS financial services, and is project manager for the newedition of Failaka Advisor’s Shariah Report.

Blake Goud is the founder of SharingRisk.org, a think tank on Islamic finance based inPortland, Oregon. He is also the Chief Compliance Officer for Marquam Capital, a registeredinvestment advisor, and is a registered representative at HP Securities, Inc. He graduatedfrom Reed College with a BA in Economics in 2003 and has several years’ experience in thefinancial industry. In April 2008, he co-authored a paper, “The development of Shari’ah-basedmicrofinance using the Grameen group financing methodology” which he presented at thepre-forum workshop on Islamic microfinance at the 8th Harvard University Forum on IslamicFinance. A similar paper was published in 2009 in the Journal of Islamic Banking, Economicsand Finance. He writes regularly for several Islamic finance publications and has been involvedin an advisory role with two Islamic microfinance development projects. He also serves as theEditor of Publications for the Usury Free Association of North America (UFANA).

Dr M. Kabir Hassan is a financial economist with consulting, research, and teaching experi-ence in development finance, money and capital markets, Islamic finance, corporate finance,investments, monetary economics, macroeconomics, and international trade and finance. Hehas provided consulting services to the various governments and multilateral developmentagencies. Dr Hassan received his BA in Economics and Mathematics (Phi Beta Kappa) fromGustavus Adolphus College, Minnesota, USA, and his MA in Economics and PhD in Finance

P1: TIX


xviii About the Contributors

from the University of Nebraska-Lincoln, USA, respectively. He is now a tenured Professorin the Department of Economics and Finance at the University of New Orleans, Louisiana,USA. He has more than 100 papers published in refereed academic journals to his credit.Dr Hassan has supervised 27 doctoral theses, and many of his students are now well placedin academic, government, and private sectors. He is editor of Journal of Islamic Economics,Banking and Finance, and co-editor of Journal of Economic Cooperation and Development.Dr Hassan has edited and published many books along with articles in refereed academic jour-nals. Dr Hassan is co-editor (with M.K. Lewis) of Handbook of Islamic Banking and IslamicFinance, The International Library of Critical Writings in Economics (Edward Elgar, 2007),and co-editor (with Michael Mahlknecht) of Islamic Capital Market: Products and Strategies(John Wiley and Sons Ltd, forthcoming 2010). He is co-author of Islamic Entrepreneur-ship (Routledge UK, forthcoming 2010). A frequent traveller, Dr Hassan gives lectures andworkshops in the US and abroad, and has presented over 100 research papers at professionalconferences.

Rasem N. Kayed is currently head of the Business Administration and Marketing Depart-ments – Faculty of Administrative and Financial Sciences at the Arab American Universityin Palestine. Prior to his recent appointment at the AAUJ, he was a lecturer in InternationalBusiness at the College of Business at Massey University, and an adjunct senior lecturer atthe New Zealand School of Export – New Zealand. Dr Kayed received his both undergraduatedegrees as well as his MBA degree from Jacksonville State University – USA, and his PhDin Development Studies from Massey University – New Zealand. His doctoral thesis exploredthe entrepreneurial phenomenon from an Islamic perspective and argued for Profit and LossSharing (PLS) contracts as viable alternatives to the conventional interest-based financinginstruments. Dr Kayed is co-author of Islamic Entrepreneurship (Routledge UK, 2010). Hehas published a number of peer reviewed papers in preferred academic journals and chaptersin edited books. He also participated in several seminars, forums and workshops and presentedvarious academic as well as research-based papers at several high profile international confer-ences. Dr Kayed’s research activities are currently twofold: while the first research activity isset to explore the developmental role that entrepreneurship could play in advancing the well-being of the Muslim ummah; the second major research theme that he is pursing is focused onthe current global financial crisis and the resilience of the Islamic financial services industry,and its ability to present itself as a more reliable alternative to the conventional financialsystem.

Ali Rod Khadem is the founder of New Orient Advisors, where he provides consulting servicesrelated to Islamic finance, Islamic law and politics, and the China-Middle East investmentcorridor. Ali Rod is currently a PhD candidate in Islamic Law at Harvard University. AliRod launched his career at Andersen Consulting in 1999, prior to accepting a role in SiliconValley as a business development and strategy manager for two companies in the Idealab,Inc. portfolio. From 2004 to 2009, Ali Rod worked as an Islamic finance and private equitylawyer for King & Spalding LLP and DLA Piper LLP. Since founding New Orient Advisorsin 2009, Ali Rod has consulted with clients such as a Shanghai-based placement agent seekingto build a China-GCC investment platform, a Dubai-based financial services company seekingto structure a Shariah-compliant exchange traded gold fund, and an East Asian governmentregulatory body seeking to revise its domestic securities and tax regulations in order to allow forcorporate sukuk issuances. Ali Rod received his Bachelor’s degree with Honors in 1999 fromthe University of California at Berkeley, where he double-majored in International Relations

P1: TIX


About the Contributors xix

and Environmental Biology. In 2004, Ali Rod earned two further degrees from UC Berkeley: aJuris Doctor (JD) and a Master’s Degree in Islamic Law. While in law school, Ali Rod was aneditor of the California Law Review, and subsequently, he clerked for the Honorable CeciliaM. Altonaga of the United States District Court. Ali Rod has given numerous presentationsand has published on the topics of Islamic finance, Islamic law and politics, and comparativelaw. His article, “The Doctrine of Separation in Islamic Jurisprudence”, was published in theUCLA Journal of Near Eastern and Islamic Law (2005). Ali Rod is fluent in formal Arabic,Farsi, and English, is proficient in French, and knows Mandarin.

Andreas (Andy) Jobst is a mid-career economist at the Monetary and Capital MarketsDepartment (MCM) of the International Monetary Fund (IMF) in Washington, DC. His workfocuses on structured finance, risk management, sovereign debt management, financial regu-lation, and Islamic finance. As a member of IMF Article IV missions, he has been responsiblefor the financial sector coverage of several large mature and emerging market economies. Herecently completed the stress test of the US financial sector for the IMF’s Financial StabilityAssessment Programme (FSAP), and he will lead the upcoming stress tests for Germany andthe United Kingdom. Mr Jobst is one of the main authors of the Global Financial StabilityReport (GFSR) published by the Monetary and Capital Markets Department. He also con-tributes to both the early warning and vulnerability exercises (for both advanced and emergingeconomies) in collaboration with the Financial Stability Board (FSB) and teaches courseson banking regulation, risk management, derivatives, and systemic risk analysis at the IMFInstitute. He holds a PhD in Finance from the London School of Economics (LSE).

Dr Ahcene Lahsasna is currently a lecturer at the Shariah and Legal Studies department atthe International Centre for Education in Islamic Finance (INCEIF) and the Graduate StudiesAcademic advisor at the same university. He received his Bachelor’s degrees in Islamiclaw and Islamic Jurisprudence from Algeria, and his Master’s and PhD degrees in IslamicLaw & Islamic Jurisprudence (Fiqh and Usul Fiqh) from IIUM (Malaysia). He lecturedat several universities in Malaysia including the Islamic Science University of Malaysia,Faculty of Business and Accountancy at University of Malaya (MBA and BBA), School ofInternational Business and Finance at the University of Malaysia Sabah, Labuan, and the OpenUniversity Malaysia on Islamic finance courses for MBA. He was attached to the industry andworked for several years at the Manufacturer and Exporter group of companies in Malaysiaas International Marketing Manager, and head of the documentation department. Currently heis a Shariah Advisory Board member at Maybank Islamic and Etiqa Takaful in Malaysia, andShariah advisory member for the Malaysian Financial Planning Council (MFPC. Malaysia). Hepublished books and articles in Arabic and English in Qatar, Egypt and Malaysia. In additionhe is actively participating in presenting papers and conducting workshops and training in thearea of Islamic banking and finance locally and internationally.

Mervyn K. Lewis is Professor of Banking and Finance in the School of Commerce at theUniversity of South Australia. Previously he was Midland Bank Professor of Money andBanking at the University of Nottingham, and Course Director of the MBA in FinancialStudies. He was also a Consultant to the Australian Financial System Inquiry, Visiting Scholarat the Bank of England, inaugural Securities Commission-University of Malaya, VisitingScholar in Islamic finance, and has been visiting professor at the Universities of Cambridge,Melbourne, Vienna, Wuhan, Mauritius, Goettingen, and Euromed Marseilles. In 1986 he waselected a Fellow of the Academy of the Social Sciences in Australia.

P1: TIX


xx About the Contributors

Professor Lewis has authored or co-authored 21 books, 65 articles, and 75 chapters. Recentvolumes are The Economics of Public Private Partnerships (2005), Reforming China’s State-owned Enterprises and Banks (2006), Handbook of Islamic Banking (2007), Islamic Finance(2007), and Untangling the U.S. Deficit: Evaluating Causes, Cures and Global Imbalances(2007). His book, Public Private Partnerships: The Worldwide Revolution in InfrastructureProvision and Project Finance (2004), co-authored with Darrin Grimsey, won the 2005 BlakeDawson Waldron Prize for Business Literature. The latest volume is An Islamic Perspectiveon Governance (2009), written with Zafar Iqbal. In addition, Professor Lewis is Series Editorof New Horizons in Money and Finance and Studies in Islamic Finance, Accounting andGovernance.

Michael Mahlknecht is a consultant in the areas of risk management, capital markets, andIslamic finance. He regularly holds presentations and gives university lectures about Islamicfinance, for instance in the Islamic finance programme at institutions, such as the Ecole deManagement Strasbourg, the Philipps-Universitat of Marburg (Germany), and others. He cur-rently lives in Hamburg, Germany. Michael has written several papers about Islamic banking,insurance, and capital markets, as well as on issues as diverse as graphical analysis methods,financial hedging, structured products, and credit risk management, which have been publishedin various national and international magazines, such as the Capco Journal of Financial Trans-formation, Islamic Business & Finance, Banker Middle East, and Private Equity and HedgeFunds Middle East. Michael Mahlknecht is the author of the introductory German handbookIslamic Finance: Einfuhrung in Theorie und Praxis (Wiley, 2008) and of the Executive ReportIslamic Capital Markets and Risk Management (Incisive Media/RISK Books, 2009). Michaelis co-editor (with Prof. M. Kabir Hassan) of Islamic Capital Markets: Products and Strategies(Wiley, 2010). He may be reached via his private e-mail address: [email protected].

Dr Shehab Marzban is an expert in computer-based financial services with consulting,research, and teaching experience in finance, Islamic finance, Operations Research andDecision Support Systems. As the domain expert in Islamic Fund Management and Screening,Dr Marzban joined IdealRatings, the market leader in screening Islamic equities, as ProductDevelopment Director and Head of Research in August 2008. Prior joining IdealRatings hereceived his PhD – magna cum laude – entitled “Strategies, Paradigms and Systems for Shariah-compliant Portfolio Management” from the University of Cologne in Germany where he alsoworked as researcher and project manager for global research and partnership programmes.His extensive research in Islamic Fund Management, Shariah Screening, and Purificationresulted in some innovative results presented in international conferences and published ina number of papers and articles that appeared in highly ranked international journals andmagazines, such as the Journal of Banking and Finance, Harvard Islamic Finance ForumProceedings, International Journal of Islamic and Middle Eastern Finance and Management,as well as the Islamic Banking and Finance magazine. Dr Marzban is in parallel a VisitingFellow at Durham University in the UK and a guest lecturer in various European Islamicfinance programmes as well as a frequent speaker at international Islamic finance events andconferences.

Michael J.T. McMillen is a member of the bar of the State of New York and works in theareas of Islamic finance (since 1996) and project finance and structured finance (since 1983).He has been a partner of major international law firms. He teaches Islamic Finance at theUniversity of Pennsylvania Law School and the Wharton School of Business. Dr McMillen

P1: TIX


About the Contributors xxi

has twice served as Chairman of the American Bar Association Islamic Finance Section, wasthe founding Chairman of that Section, and currently serves as Senior Adviser to that Section.He has twice received Euromoney’s award for Best Legal Advisor in Islamic Finance (Global)and has also received the Sheikh Mohammed Bin Rashid Al Maktoum Award for Best IslamicFinance Legal Advisor for North America. Euromoney Magazine featured him as one of the12 pioneers of Islamic finance. He has worked on transactions in over 25 countries and hasdeveloped many of the Islamic finance structures currently used in North America, Europe, theMiddle East, and South East Asia. Michael received his Doctor of Medicine from the AlbertEinstein College of Medicine in 1983, his Juris Doctor from the University of WisconsinSchool of Law in 1976, and his Bachelor of Business Administration from the University ofWisconsin in 1972.

Dr Mohammed Obaidullah is the Founder of IBF Net: The Islamic Business and FinanceNetwork and the International Institute of Islamic Business and Finance (IIIBF), India. Hecurrently serves the Jeddah-based Islamic Development Bank as a Senior Economist spe-cializing in microfinance and poverty alleviation. Dr Obaidullah has also served the IslamicEconomics Research Center, King Abdulaziz University, Jeddah, Saudi Arabia, and taughtat the International Islamic University Malaysia, the Xavier Institute of Management, India,as an Associate Professsor. He has also served the International Association for Islamic Eco-nomics as its Secretary General. He is the author of Islamic Financial Services (ScientificPublishing Centre, King Abdulaziz University, Jeddah, 2005); Teaching Corporate Financefrom an Islamic Perspective (Scientific Publishing Centre, King Abdulaziz University, Jeddah,2006); Role of Microfinance in Poverty Alleviation: Lessons from Experiences in Selected IDBMember Countries (IRTI, IDB, 2008); Islamic Microfinance Development: Challenges andInitiatives (IRTI, IDB, 2008) and over thirty research papers in the field of Islamic Finance,Financial Markets, and Development Finance.

Mr Umar Oseni is a Solicitor and Advocate of the Supreme Court of Nigeria. He completedthe Bachelor of Laws programme in 2005 and proceeded to the Nigerian Law School. Hesuccessfully completed the Bar Part II programme in 2007 and was called to the NigerianBar on 11 May 2007. He had a one-year stint in legal practice as an attorney and was alsoinvolved in corporate practice before he proceeded to postgraduate studies in Malaysia. He is amember of the following professional bodies: Peace and Collaborative Development Networksince 2009; Young International Arbitration Group (YIAG), London Court of InternationalArbitration, since 2008; Nigerian Bar Association, since 2007; and Association of ProfessionalNegotiators and Mediators since 2007. Mr Umar Oseni has written up to 15 academic papers, 10of which have been published in academic journals and books. He has also presented papersin international conferences on Islamic banking and finance. In December 2009, he was aresource person on Islamic microfinance at the UN-Habitat Workshop on Land Developmentin Islam organized by the United Nations, International Islamic University Malaysia (IIUM)and the University of East London. Mr Umar Oseni was also invited as a resource person ata Pre-Conference workshop organized by the Asia Business Forum on 22 March 2010 wherehe spoke on “Islamic Microfinance and Waqf in Land Development” at JW Marriott Hotel,Kuala Lumpur, Malaysia. The young scholar won the Best Student Award for Masters ofComparative Laws, during the 25th Convocation Ceremony of IIUM in 2009. He is currentlya PhD research scholar and part-time lecturer at the Faculty of Law, IIUM. His areas ofresearch include Islamic banking and finance, Alternative Dispute Resolution, ContemporaryApplication of Islamic Law, and International Trade Law.

P1: TIX


xxii About the Contributors

Nicolas Schmidt works as business consultant and project manager within the EuropeanCorporate Development of a large global asset management firm. Before that, he workedfor a management strategy consultancy and in several positions for different asset managersand private banks. He holds a graduate degree as “Diplom-Kaufmann” from the Universityof Frankfurt, majoring in Finance and Politics. In his diploma thesis, he critically analysedthe development of Dubai as an international financial centre. Nicolas Schmidt is currentlyenrolled as an external doctoral candidate at the WHU – Otto Beisheim School of Management,Vallendar. His research focuses on investment preferences and characteristics of private clientsand implications for the retail asset management industry in Germany.

Rafi-uddin Shikoh, Managing Partner/Founder, DinarStandardTM, is leading the developmentof DinarStandardTM – a growth strategy and market intelligence consultancy, focused on theOIC markets (The Organization of the Islamic Conference) and the global Muslim LifestyleMarketTM. DinarStandard’s vision is to empower businesses in Muslim markets to becomeglobal leaders with recognized brands and services while leveraging their unique identity.Rafi-uddin has led the research, analysis, and writing of the DS100TM ranking of Top 100Businesses in the Muslim World, Leading Brands of the Muslim World, Top 10 OpportunityTrends, and various Muslim Lifestyle MarketTM reports and features.

As an emerging expert on Muslim markets, he is regularly quoted in media such as TheEconomist, Forbes, LA Times, BrandChannel, Arab News (Saudi Arabia), Khaleej Times, Sabah(Turkey), The Star (Malaysia), Geo TV (Pakistan), and many more. Rafi-uddin has 12+ yearsof marketing strategy, e-business strategy consulting and technology management experiencewith small to Fortune 500 sized companies in the US such as Marsh & McLennan, Hartford,Sun Microsystems, Acxiom and Thomson Reuters. He has an MBA from UNC-Charlotte,North Carolina, USA, and a BSc in Marketing from Southwest State University, Minnesota,USA. He was born in Pakistan and spent 14 years of his early schooling in the Sultanateof Oman.

Shahzad Siddiqui is a Toronto-based lawyer. A graduate of the University of Toronto andOsgoode Hall Law School, he worked at the Bay Street law firm of Fraser Milner CasgrainLLP before teaching the law of international business transactions at Southwest Universityin China. He subsequently spearheaded the entry of a Chinese conglomerate into the IslamicRepublic of Pakistan. He currently advises organizations as diverse as the Islamic Foundationof Toronto, which is one of the largest mosque and school facilities in Canada; the ChineseMuslim Association of Canada; and Islamic wealth management teams at HSBC Securitiesand Macquarie Capital Advisors, a top-tier investment bank. He is the author of Shari’a-Compliant Private Equity: A Primer for the Executive, forthcoming for Euromoney Booksand a co-author with Mufti Talha Ahmad Azami of BMB Islamic on several works including“Fruits” of the Orchard: Endowments for Mosques and Islamic Charitable Organizations inWestern and Muslim Lands, also published by Euromoney.

Priya Uberoi is the Director of Islamic Derivatives and Islamic Structured Products at Clif-ford Chance. Over the past 12 years Priya has advised on a number of complex structuredfinance and OTC derivative transactions mainly in Emerging Markets (Middle East, Russia,Kazakhstan, and North Africa) that blend conventional debt and derivative instruments withlocal law particularities. Priya’s practice specializes in developing OTC derivatives technol-ogy in the world of Islamic finance using halal Islamic products (e.g. murabaha, wa’ad,salam and arbun) to generate similar economic profiles to conventional derivatives, but in a

P1: TIX


About the Contributors xxiii

Shariah-compliant manner. Priya has advised a number of major banks on establishing cutting-edge OTC Shariah-compliant derivative platforms that trade cross-currency swaps, profit rateswaps, and wa’ad-based products. She has also advised a number of banks on Islamic Struc-tured Note Programmes. Priya has worked extensively in helping to develop the ISDA/IIFMTahawwut Master Agreement and is a regular speaker at industry events on this subject. Shehas also been involved in a number of discussion fora with respect to the establishment ofShariah-compliant long funds and Shariah-compliant hedge funds with emphasis being placedon Shariah-compliant shorting techniques, repos, custodian arrangements, and issues relatingto rehypothecation and synthetic CLO structures. Priya has a BA Hons in Jurisprudence fromOxford and is the author of a number of publications and articles.

Murat Unal studied Business Administration and graduated from the University of Ade-laide/Australia with a BCom degree. He worked for an international management consultingfirm after his studies and joined the investment industry in 1998 acting as a ManagementCommittee member for a local asset manager where he was mainly responsible for inte-grated marketing, sales and PR. As Head of Investment Marketing and Sales within CitibankNorthern Europe (focusing on Belgium and France) in Brussels he managed the third partyfund business (CitiChoice) and brokerage activities. Before Murat founded Funds@Work AG,which he now represents as the responsible board member, he took over the bank marketingbusiness at Fidelity Investments for a short period of time. Murat has an MBA degree fromthe Kellogg School of Management/USA in joint cooperation with WHU/Germany and itsnetwork programmes at Tel Aviv University/Israel and Hong Kong University of Science andTechnology/China). Murat also holds an LLM degree from the School of Law at NorthwesternUniversity (NLaw) in Chicago. Murat is also a doctoral candidate and about to complete hisDoctorate at IE Business School (Instituto de Empresa, www.ie.edu). He has published andcontributed to more than 1000 articles in leading international dailies and practitioner maga-zines. The leading German economic daily Handelsblatt recently positioned him as one sixinternationally acknowledged masterminds within the investment industry and the FT AssetManagement’s DPN publication singled out his work (a network analysis he carried out amonginstitutional investors and their links to the SRI industry) as ingenious. At Funds@Work AGhe has been involved in more than 150 projects in 14 countries. In this context he has developednew solutions and organizations and has been involved in numerous market entry as well asexpansion projects but has also assisted in take-over activities within the investment industry.

Laurent Weill is Full Professor of Economics at EM Strasbourg Business School, Universityof Strasbourg. He has been visiting researcher at Bank of Finland and at Universite Libre deBruxelles. His research focuses on banking in emerging markets. His current fields of interestare Islamic finance and banking in Russia. He has published 50 papers in journals and books,including World Development, European Financial Management, Economics of Transition,Applied Economics, and European Journal of Political Economy.

P1: TIX


xxiv

P1: TIX


Preface

Islamic finance is the only financial system in the world today that is based on the teachingsof a major religion, and it proves to be increasingly attractive for secular Muslims and non-Muslims as well. While the conventional financial industry has been suffering a tremendousloss of reputation, due to its obvious shortcomings and its harmful impact on economiesworldwide, a Shariah-compliant financial system appears to be profitable, viable, fair, and aclear survivor of the recent global debacle.

Islamic finance represents a fundamental departure from conventional interest-based andspeculative practices, as it relies completely on real economic transactions, such as trade,investment based on profit-sharing, and other solidary ways of doing business. Rather thantreating money as a commodity (as in capitalism), in Islam, money is no more than a measureof value.

Many of the features of Islamic finance are also found in other religions and ethical systems.For instance, the prohibition of interest is present in all Abrahamic faiths: Christianity, Islam,and Judaism. Interest was limited in Hindu law, the Code of Hammurabi, the Magna Carta, andRoman law, as well as in many US States until 1981. The rejection of financial speculation,which is detached from real economies, is shared by many observers and consumers innon-Islamic, Western countries. There is a significant overlap between Islamic principlesand socially responsible investment (SRI), given that Islam preaches social justice, ecology,kindness, and what is called nowadays sustainability. All this makes Islamic finance a topic oftruly global interest and relevance, as there is the potential for introducing a financial systemwhich is both ethical and stable at the same time.

It must however be noted that the reality of Islamic financial systems nowadays is not yetclose enough to those noble ideals. In several cases, the basic rules, such as the prohibition ofriba (interest), have been circumvented, and pseudo-Islamic financial products were created,which were actually mere imitations of conventional financial products. By way of example,in the past there had been some types of sukuk (Islamic bonds), which exactly mimickedconventional interest-based bonds, and even instruments that resembled financial derivativesin an undesirable way. Pseudo-Islamic financial products strike at the foundations of Islamicfinance, and in fact there is a growing standardization of financial instruments and practices,which will avoid such a misuse of traditional Islamic contracts.

Moreover, most existing Islamic financial institutions are Shariah-compliant in form, butfew of them have aimed to achieve the higher objectives of Shariah, i.e. to add explicit “ethical”objectives and features to their financial products. For example, while modern microfinance

xxv

P1: TIX


xxvi Preface

has been devised significantly by Muslims, such as Muhammad Yunus, Islamic microfinancefunds only account for a very small share of Islamic fund products currently. Likewise, socialresponsibility has been integrated so far by very few Islamic fund managers and financial insti-tutions. Other challenges include education and the creation of awareness, the development ofsuitable Islamic benchmarks for pricing of goods and services, the creation of efficient liquiditymanagement tools, and the unification of Shariah-compliant risk management products.

To help bring discussion on the most imminent issues to a higher level, this book focuses onShariah, regulatory, legal issues affecting the evolution of Islamic capital markets, economictheory and policy, as well as on major current market trends. It focuses on imminent real-lifeissues from various perspectives, which should make it a comprehensive reference materialon the subject.

It is structured in four major parts: general concepts and legal issues; global Islamic capitalmarket trends; national and regional experiences; and learning from Islamic finance after theglobal financial crisis.

In Part I, relevant legal aspects of Islamic capital markets are being analysed. MichaelMcMillen provides a cutting-edge and up-to-date analysis of trust laws in Islamic jurisdictionsand explains the concept of Rahn in Saudi Arabia. Ahcene Lahsasna and M. Kabir Hassanfocus on the Shariah process in product development, while Sayd Farook and Rafi-uddinShikoh discuss the need for a broader ethical and social foundation of Islamic finance. Lookingat the highly developed Islamic capital market of Malaysia, Umar A. Oseni and M. KabirHassan provide a discussion of the dispute resolution framework existing there, while MuratUnal focuses on the world of Shariah Boards, and Mufti Talha Ahmad Azami and ShahzadSiddiqui look at the successes and failures of Abrahamic, faith-based funds.

In Part II, current practices of Islamic hedging and derivatives products are discussedfrom a legal perspective by Priya Uberoi and Ali Rod Khadem. Andreas Jobst shows howIslamic structured finance may help overcome some incentive problems in securitization, whileMervyn Lewis gives an overview of Takaful (Islamic insurance), its basic structural types,Shariah issues, and the further evolution of Takaful insurance products. Finally, ValentinoCattelan discusses a new model for options in Islamic law.

Part III contains various chapters that focus on relevant national experiences, situations,and potential with regard to Islamic finance. It is commenced by Antonio Usama DeLorenzowho explains in detail how the Malaysian Islamic capital market was built up. Malaysia isstill the largest single national Shariah-compliant capital market in the world, and it providesa very inspiring example for the development of Islamic capital markets. The situation ofIslamic finance in Germany is then described by Azadeh Farhoush and Nicolas Schmidt,while the case of France is explained in legal detail by Laurent Weill and Ibrahim Cekici.Both countries share several characteristics, which make an analysis of them interesting: theyhave the largest Muslim populations in the European Union, there are both French and Germanglobal banks acting in Islamic banking and capital markets abroad, but there is virtually noIslamic financial industry in place so far. This is in contrast to the USA and Australia, which areboth non-Muslim countries, but with a longer tradition of Islamic financial institutions. BlakeGoud and M. Kabir Hassan give an excellent, detailed, and highly comprehensive overviewof Islamic finance in the USA, while Anne-Sophie Gintzburger takes a closer look at thecomparative study of Malaysia and the GCC. Developments in Islamic finance in Australiaare also described by Abu Umar Faruq Ahmad and M. Kabir Hassan.

Part IV discusses possible learning effects, which can be derived from Islamic finance inthe light of the recent global financial market turbulences. Rasem Kayed, M. Kabir Hassan,

P1: TIX


Preface xxvii

and Michael Mahlknecht search for lessons learned, analyse specific risks of the Islamicfinancial system, and compare its strengths and weaknesses with the prevailing conventionalfinancial system. Sami al-Suwailem and M. Kabir Hassan analyse the specifics of Islamicfinancial engineering, again comparing it to its conventional counterpart. Shehab Marzbanthen studies the most important properties of Shariah-based investment, and again comparesit to the conventional financial industry. Finally, Mohammed Obaidullah takes a closer lookat Islamic microfinance, which still needs to be developed further.

We sincerely hope that this book, and the effort of all our esteemed contributors, will dothe Islamic and ethical financial industry a good service.

19 August 2010M. Kabir Hassan, Philadelphia, USA

Michael Mahlknecht, Hamburg, Germany

P1: TIX


xxviii

fm JWBK508-Hassan February 2, 2011 19:23 Printer: Yet to ......Islamic capital markets : products...

Documents

Transcript of fm JWBK508-Hassan February 2, 2011 19:23 Printer: Yet to ......Islamic capital markets : products...