The Stability of Islamic Finance Creating a Resilient Financial Environment for a Secure Future

by Askari, Hossein; Iqbal, Zamir; Krichenne, Noureddine; Mirakhor, Abbas

• ISBN13: 9780470825198
• ISBN10: 0470825197
• Format: Hardcover
• Copyright: 2010-03-29
• Publisher: Wiley

Summary

This new book by a group of four Western-trained Islamic economists is greatly welcomed. It builds on and extends their earlier work on the topic and will become essential reading for all those with an interest in the economic implications of Islamic finance. The Stability of Islamic Finance develops themes that link Islamic finance to existing traditions in economics; that assess the stability properties of Islamic financial instruments, and that explain some of the key Islamic concepts in economists terms. It will be an invaluable source for those who want to know more about the nature of the financial instruments that go to make up an Islamic financial system, and to understand how an Islamic financial system might work in a twenty-first century context. It is a provocative and insightful assessment of the economic properties of Islamic finance that deserves to be read and reflected on by Islamic and non-Islamic economists alike. Sir Andrew Crockett President, JPMorgan Chase International Former General Manager, The Bank for International Settlements (BIS)In recent years, Islamic finance has evolved from a tiny cottage industry to an increasingly important and respected component of global finance. The industry has developed common standards and practices, and has attracted the interest of issuers and investors outside the Muslim community. Yet, its economics and implications for financial stability are generally not well understood. The authors make an important contribution to our understanding of the industry by linking its foundations not only to the teachings of Islam, but also to classical Western economic thought. The authors also provide a convincing analysis of the structural weaknesses of conventional finance, and of the role of monetary policy in causing misallocation of resources and boom-and-bust cycles. In the process, they make a case for the inherent stability and efficiency of Islamic finance. The book is scholarly, insightful, original in scope and highly readable.Cesare Calari Managing Director, Wolfensohn Capital Partners Former Vice President, Finance, The World BankThe authors have written numerous books and articles on Islamic finance between them, and they bring a wealth of knowledge and experience to the topic. The Stability of Islamic Finance is an important contribution to the discussion of the Islamic finance industry as a whole and its place in broader efforts to reduce the volatility of global financial markets. Ms. Dr. Shamshad Akhtar Vice President, Middle East and North Africa, The World BankThe authors, whose academic credentials and practical experience are enviable, need to be heartily complimented for making another worthwhile contribution to the literature on Islamic economics and finance. They have convincingly shown in this valuable book how Islamic finance can help the international community avoid the severe financial crises of the kind in which it is currently embroiled. The timing of the book is perfect and those who read the book will not fail to realize that they have used their precious time in a highly productive manner. Dr. Umer Chapra Formerly Senior Economic Adviser, Saudi Arabian Monetary Agency Research Adviser, Islamic Research and Training Institute, Islamic Development Bank The Stability of Islamic Finance is not only timely but extremely relevant. At a time the world is asking questions on how we can avoid the next crisis and whether there are alternatives to the current system, which promotes increasingly damaging boom-bust cycles, the book provides answers to these and more. It gives us hope in that things can be better and we need not be held hostage to the present system which promotes greed, inequality, excessive consumption and the rapid deterioration of the environment. I

Author Biography

PROF. HOSSEIN ASKARI received all his university education, including a Ph.D. in economics, at MIT. He has taught at MIT, Tufts University, the University of Texas at Austin and is now the Iran Professor of International Business and International Affairs at the George Washington University. He served for two and a half years on the Executive Board of the IMF and was Special Advisor to the Minister of Finance of Saudi Arabia. In the mid-1980s he was the director of a multinational team that developed the first energy plan and energy planning models for Saudi Arabia. He has written extensively on economic development in the Middle East, international trade and finance, agricultural economics, oil economics, economic sanctions, and on Islamic economics and finance.

DR. ZAMIR IQBAL works as Lead Investment Officer in the Treasury of the World Bank in Washington, D.C. He earned his Ph.D. in International Finance from the George Washington University, where he also serves as adjunct faculty of International Finance. He has extensive experience with capital markets, structured products, risk management, financial sector development, and financial modeling. His research interests include Islamic finance, financial engineering, structured finance and risk management. He is co-author of several books on Islamic banking and finance.

DR. NOUREDDINE KRICHENE received his Ph.D. in economics, University of California, Los Angeles, 1980; joined the International Monetary Fund (IMF) in 1986; and held the position of advisor at the Islamic Development
Bank.

DR. ABBAS MIRAKHOR received his Ph.D. in Economics from Kansas State University in 1969. After teaching at various universities in the USA and in Iran he joined the staff of the Research Department of the IMF in 1984. He became an Executive Director of the IMF from 1990 until his retirement in 2008. He is the author of a number of articles and books on Islamic economics and finance. He is now the first holder of the INCEIF Chair in Islamic Finance.

Table of Contents

Foreword	p. ix
Acknowledgments	p. xiii
Glossary of Arabic Terms	p. xv
Introduction	p. 1
The Nature of Capital and the Rate of return	p. 11
The Origins of Financial Panics and Recessions	p. 23
Monetary Policy and Financial Crises	p. 37
The Internationalization of Financial crises	p. 45
The Role of the Credit Multiplier in Financial Crises	p. 61
The Inherent Stability of Islamic Finance	p. 75
A Theoretical Model of the Inherent Stability of Islamic Finance	p. 83
Asset Pricing and Risk in Islamic Finance	p. 93
Islamic Financial Intermediation and Markets	p. 113
Risk Profile of Islamic Financial Intermediaries	p. 131
Financial Engineering, Derivatives and Financial Stability	p. 141
Corporate Governance and Financial Crises	p. 163
The Performance of Islamic Financial Intermediaries and Products	p. 183
Conclusion	p. 209
Bibliography	p. 217
Index	p. 225
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