Globalization and Islamic Finance
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This is an extremely valuable book written by three highly qualified scholars whose credentials for writing such a book are difficult to match. The timing of the book is also perfect, having come at a time when the worst financial crisis in living memory has intensified the quest for reform of the international architecture. The proposals made by the authors should go a long way in not only reforming the system but also in accelerating the move towards financial globalization and convergence of the conventional and Islamic financial systems.
Dr. Umer Chapra
Prominent Scholar of Islamic Economics and currently Research Advisor
Islamic Research and Training Institute (IRTI), Islamic Development Bank (IDB)

Globalization and Islamic Finance, by three well-respected authors in Islamic finance, provides a thought-provoking analysis of an important and topical issue, particularly, given the global impact of the current financial and economic crises. The book is the first attempt to make a compelling case of convergence between globalization and Islamic finance. Askari, Iqbal and Mirakhor should be praised for this serious effort, which is a must-read for academics and practitioners interested in Islamic finance.
Professor Rifaat Ahmed Abdel Karim
Secretary General
Islamic Financial Services Board (IFSB)

This book has a robust discussion of the growth and spread of Islamic finance within the umbrella of globalization. The book provides a unique view of Islamic finance, not only from the perspective of how Islamic finance fits within globalization in general, but globalization of finance in particular. This is a must read for anyone interested in the complex and complicated world of Islamic finance.
Scheherazade S. Rehman, Ph.D.
Director, European Union Research Center
Professor of International Finance, School of Business
The George Washington University

I have not come across any literature that has delved so intensely in financial globalization, in particular Islamic finance. Due to this reason, I would encourage all interested in this area to read this book.
Hajah Salma Latiff
Managing Director, Crescent Sdn. Bhd.
Former Director, Centre for Islamic Banking, Finance and Management (CIBFM), Universiti Brunei Darussalam

The recent crisis has evoked wide interest in Islamic finance publications. Globalization and Islamic Finance is both timely and needed.
Sani Hamid
Director, Wealth Management
Financial Alliance (Singapore)


PROF. HOSSEIN ASKARI received a B.S. in Civil Engineering, Ph.D. in Economics and attended the Sloan School of Management at the Massachusetts Institute of Technology (MIT). He was an Instructor of Economics at MIT, Assistant Professor of Economics at Tufts University, Associate Professor of Economics at Wayne State University, Associate Professor and Professor of International Business and Middle Eastern Studies at the University of Texas at Austin and is now the Iran Professor of International Business and Professor of 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 planning models for Saudi Arabia. He has written extensively on economic development in the Middle East, international trade and finance, agricultural economics, oil economics, and on economic sanctions. He has been an advisor to a number of governments, institutions and corporations.

DR. ZAMIR IQBAL works as Lead Investment Officer with the Quantitative Strategies, Risk and Analytics department 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 published numerous articles and presented at international forums on Islamic 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 International Banking. He is co-author of Introduction to Islamic Finance: Theory and Practice (2007), Risk Analysis for Islamic Banks (2007), and New Issues in Islamic Finance and Economics: Progress and Challenges (2009).

DR. ABBAS MIRAKHOR, born in Tehran, Islamic Republic of Iran, attended Kansas State University, where he received his Ph.D. in economics in 1969. From 1969 to 1984, he taught in various universities in the U.S. and Iran. From 1984 until 1990, he served on the staff of the IMF, and from 1990 to 2008, he served as the Executive Director at the IMF. Currently, he is The First Holder of International Center For Education in Islamic Finance (INCEIF) Chair of Islamic Finance. He has received several awards including “Order of Companion of Volta” for service to Ghana, conferred by the President of Ghana in 2005; Islamic Development Bank Annual Prize for Research in Islamic Economics, shared with Moshin Khan in 2003, and “Quaid-e Azam” star for service to Pakistan conferred by the President of Pakistan in 1997. Dr. Mirakhor is the co-author of Essays on Iqtisad: Islamic Approach to Economic Problems (1989), Theoretical Studies in Islamic Banking and Finance (1987), Introduction to Islamic Finance: Theory and Practice (2007), and New Issues in Islamic Finance and Economics: Progress and
Challenges (2009).


Preface vii

CHAPTER 1 A Brief History of Globalization and Islamic Finance 1

1.1 A Brief History of Globalization 2

1.2 How Complete Is Globalization? 7

1.3 A Brief Introduction to Islamic Finance 11

1.4 Islamic Finance and Globalization: Convergence or Divergence? 26

CHAPTER 2 The Consequences of Globalization: Convergence or Divergence with Islam? 29

2.1 Theoretical Consequences of Globalization: Growth, Income Distribution, Poverty Alleviation, and Regulation 29

2.2 Some Empirical Consequences of Globalization 35

2.3 Financial Globalization 41

2.4 Basic Islamic Economic and Financial Doctrines and Globalization 47

2.5 Convergence or Divergence? 53

CHAPTER 3 Islamic Finance, Conventional Finance, and Globalization 59

3.1 The Development of Islamic Finance 59

3.2 The Development of Conventional Finance 68

3.3 Islamic and Conventional Finance: The Impactof Globalization 70

3.4 Financial Stability and the Emerging Relationship between Islamic and Conventional Finance 75

CHAPTER 4 Recent Developments in Conventional Finance, Financial Globalization, and Islamic Finance 79

4.1 Introduction 79

4.2 The Role of Financial Systems and the Stability Characteristics of the Conventional Financial System 80

4.3 A Different Explanation for the Financial Crisis of 2007 94

4.4 Islamic Financial System and Lessons from the Recent Crisis 111

4.5 Summary 119

CHAPTER 5 Empirical Trends in Conventional and Islamic Financial Globalization 121

5.1 Trends in Conventional Financial Globalization 121

5.2 Growth in Islamic Finance 137

5.3 Convergence or Divergence? 147

CHAPTER 6 Key Considerations in Developing an Islamic Financial System 149

6.1 Lessons from the Conventional Financial System 149

6.2 Gaps in the Islamic Financial System and its Practice 157

6.3 Policy Recommendations 163

6.4 Concluding Remarks 171

CHAPTER 7 Conclusions and the Future of Islamic Finance 173

7.1 The Future of Globalization 173

7.2 The Evolution of Financial Globalization 177

7.3 The Expansion of Risk Sharing 179

7.4 The Likelihood of Convergence 180

References 187

Index 211