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Introduction to Islamic Banking and Finance


Introduction to Islamic Banking and Finance is a succinct guide to the key characteristics of Islamic banking highlighting how these differ from conventional banking. This detailed book illustrates how Islamic banking is consistent with the Sharia'a, a key element of which is the prohibition on collecting and paying interest. This central religious precept appears to rule out most aspects of modern finance but it does allow money to be used for trading tangible assets and business, which can then generate a profit. Brian Kettell's book looks at all aspects of Islamic banking, including chapters on its creation and evolution through to detailed discussions of the issues involved in the Sharia'a contracts of Murabaha, Mudaraba, Musharaka, Ijara, Istisna'a, and Salam. Islamic insurance (Takaful) is also covered. Finally the book takes a look at Sharia'a law and Sharia'a boards, indicating the roles and responsibilities that come with membership.

Islamic banks have been operating in places such as Bahrain, Saudi Arabia, Malaysia and Dubai for some time. Conventional bankers have traditionally viewed the sector as a small, exotic niche but recent years have seen a dramatic surge in popularity. A number of Western investment banks have started working with Muslim clerics to create new ranges of financial products designed for devout Muslims, a large and growing market. Although estimates of the size of the Islamic finance industry vary greatly, everyone agrees that it is expanding rapidly and this is the perfect book for anyone looking to understand the industry.

Brian Kettell has a wealth of practical experience in the area of Islamic banking and finance. He worked for several years as an Advisor for the Central Bank of Bahrain where he had numerous Islamic banking responsibilities.
Subsequently, Brian taught courses on Islamic banking and finance at a range of financial institutions including the World Bank, National Commercial Bank (Saudi Arabia), Global Investment House (Kuwait), Noor Islamic Bank (UAE), the UK Treasury, the Central Bank of Iran, the Central Bank of Syria, the Chartered Institute for Securities and Investment, the Institute for Financial Services and Scotland Yard.
Brian's vast academic expertise in Islamic finance is highlighted by his role as former Joint Editor of the Islamic Finance Qualification Handbook and his past teaching work at a number of top universities worldwide including the London School of Economics, the City University of Hong Kong, the American University of the Middle East in Kuwait and London Metropolitan University Business School.
Brian's impressive list of publications include over 100 articles in journals, business magazines and the financial press including Islamic Business and Finance, Islamic Banking and Finance, the Central Banking Journal, Euromoney, the Securities Journal and the International Currency Review. He has also published 6 books on Islamic banking and financial markets.

About the Author.

1 Muslim Beliefs.

1.1 Five Pillars of Faith.

1.2 Six Islamic Creeds.

1.3 Belief in Allah and His Attributes.

1.4 Belief in Destiny.

1.5 Belief in Angels.

1.6 Belief in Apostles.

1.7 Belief in the Revealed Books.

1.8 Belief in the Hereafter.

2 Sharia'a Law and Sharia'a Boards: Roles, Responsibility and Membership.

2.1 Definition of the Sharia'a.

2.2 Allah is the Law Giver.

2.3 Objectives of the Sharia'a.

2.4 Sources of the Sharia'a.

2.5 Sharia'a Islamic Investment Principles.

2.6 Conditions for Investment in Shares.

2.7 Sharia'a Supervisory Board (SSB).

2.8 Sharia'a Board Scholar Qualifications.

2.9 State Bank of Pakistan (SBP): Proper Criteria for Appointment of Sharia'a Advisors.

3 Definition of Islamic Banking.

3.1 Conventional Bankers and Islamic Banking.

3.2 Six Key Islamic Banking Principles.

3.3 Definition of Asymmetric Information.

3.4 Origins of Asymmetric Risk within Islamic Banking.

3.5 Riba in the Qur'an and Sunnah or Hadith.

3.6 Five Reasons for the Prohibition of Riba.

4 Murabaha as a Mode of Islamic Finance.

4.1 Murabaha Transactions.

4.2 What Makes Murabaha Sharia'a Compliant?

4.3 Islam Treats Money and Commodities Differently.

4.4 Murabaha and the Sharia'a.

4.5 Practicalities of Implementing Murabaha.

4.6 Sharia'a Rules Concerning Murabaha.

4.7 Reasoning Behind Sharia'a Rules.

4.8 Practical Examples of the Application of Murabaha.

4.9 Key Issues Associated with Murabaha.

4.10 Comparison of Murabaha with Interest-Based Finance.

4.11 Murabaha Differences from the other Islamic Financing Techniques.

4.12 Summary.


5 Mudaraba as a Mode of Islamic Finance.

5.1 Definition of Mudaraba.

5.2 What makes Mudaraba Sharia’a Compliant?

5.3 Practicalities of Implementing Mudaraba.

5.4 Sharia'a Rules Concerning Mudaraba.

5.5 Practical Examples of Mudaraba.

5.6 Key Issues Associated with Mudaraba.

5.7 Comparison of Mudaraba with the Conventional Banking Equivalent.

5.8 Mudaraba: Differences from the other Islamic Financing Techniques.

5.9 Summary.


6 Musharaka as a Mode of Islamic Finance.

6.1 Definition of Musharaka.

6.2 What makes Musharaka Sharia'a Compliant?

6.3 Practicalities of Implementing Musharaka.

6.4 Sharia'a Rules Concerning Musharaka.

6.5 Practical Examples of Musharaka.

6.6 Problems Associated with Musharaka.

6.7 Comparison of Musharaka with the Conventional Banking Equivalent.

6.8 Summary.


7 Ijara as a Mode of Islamic Finance.

7.1 Definition of Ijara.

7.2 What makes Ijara Sharia'a Compliant?

7.3 Practicalities of Implementing Ijara.

7.4 Sharia'a Rules Concerning Ijara.

7.5 Basic Rules of Islamic Leasing.

7.6 Practical Examples of Ijara.

7.7 Key Differences between an Ijara Contract and a Conventional Lease.

7.8 Comparison of Ijara with the Conventional Banking Equivalent.

7.9 Ijara: Differences from the other Islamic Financing Techniques.

7.10 Summary.


8 Istisna'a as a Mode of Islamic Finance.

8.1 Definition of Istisna'a.

8.2 What makes Istisna’a Sharia'a Compliant?

8.3 Practicalities of Implementing Istisna'a.

8.4 Sharia'a Rules Concerning Istisna'a.

8.5 Practical Examples of Istisna'a.

8.6 Key Issues Associated with Istisna'a.

8.7 Comparison of Istisna'a with the Conventional Banking Equivalent.

8.8 Istisna'a: Differences from the other Islamic Financing Techniques.

8.9 Summary.


9 Salam as a Mode of Islamic Finance.

9.1 Definition of Salam.

9.2 What makes Salam Sharia'a Compliant?

9.3 Practicalities of Implementing Salam.

9.4 Sharia'a Rules Concerning Salam.

9.5 Sharia'a Rules Concerning Parallel Salam.

9.6 Practical Examples of Salam.

9.7 Benefits of the Salam Contract.

9.8 Problems Associated with Salam.

9.9 Comparison of Salam with the Conventional Banking Equivalent.

9.10 Salam: Differences from the other Islamic Financing Techniques.

9.11 Summary.


10 Takaful: Islamic Insurance.

10.1 Case for Islamic Insurance.

10.2 Islamic Issues with Conventional Insurance.

10.3 Definition and Concept of Takaful.

10.4 Islamic Origins of Takaful.

10.5 Where Insurance Fits within Islam.

10.6 Definition of the Parties to a Takaful.

10.7 Takaful in Practice.

10.8 Takaful and Conventional Insurance.

10.9 Alternative Models of Takaful.

10.10 Sharia'a Law as Applied by Takaful Operators.

10.11 Takaful Operators.

10.12 Definition of ReTakaful (Reinsurance).

10.13 Retakaful.

10.14 Role of the Sharia'a Board in Takaful.

Appendix 1. Comparative Features of Islamic Financing Techniques.

A.1 Nature of the Financing.

A.2 Role of the Finance Provider in the Management/Use of Funds.

A.3 Risk Bearing by the Finance Provider.

A.4 Uncertainty of the Rate of Return on Capital for the Finance Provider.

A.5 Cost of Capital for the Finance User.

A.6 Relationship Between the Cost of Capital and the Rate of Return on Capital.

Appendix 2. Top 500 Islamic Institutions 1–73.