An Introduction to Islamic Finance
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The first book to offer comprehensive coverage of Islamic finance and banking and its applications to the rest of the world, now fully revised and updated

The ongoing international financial crisis has reignited debate over the development of a risk-sharing financial system, such as that required in Shariah Law. An Introduction to Islamic Finance: Theory and Practice, Second Edition highlights the core principles of risk sharing in Islam, arguing that a risk-sharing financial system is exactly what we need to promote greater financial stability.

Providing comprehensive coverage of the fundamental theory behind Islamic finance and banking, according to the core concepts of Shariah law, authors Zamir Iqbal and Abbas Mirakhor clearly explain the distinct features of an Islamic financial system and how it compares with traditional financial models. Addressing the myriad important developments that have taken place in recent years, this second edition looks to the future, addressing emerging issues sure to influence future developments in Islamic finance.

Explores the unique features of an Islamic financial system, how they compare to more traditional financial systems, and how they could improve themDiscusses all the most recent developments and emerging issues in Islamic financeUpdated with the latest developments, trends, innovations, and statistics, this new edition features additional chapters on the financial crisis, globalization, non-bank financial institutions, and recent developments in Takaful (Islamic insurance)

The first edition of An Introduction to Islamic Finance established the book as the market leader, and this newly revised and updated second edition incorporates the most recent developments in this booming financial sector, including financial stability, globalization, and non-banking financial institutions.


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. 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. He also serves as Professional Faculty at the Johns Hopkins Carey Business School where he teaches graduate level courses on investment and portfolio management and risk of financial institutions.

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.


Glossary ix


Introduction 1

CHAPTER 2 The Economic System 29

CHAPTER 3 Riba vs. Rate of Return 57

CHAPTER 4 Financial Instruments 75

CHAPTER 5 Risk Sharing as an Alternative to Debt 99

CHAPTER 6 The Islamic Financial System 113

CHAPTER 7 The Stability of the Islamic Financial System 137

CHAPTER 8 Islamic Financial Intermediation and Banking 151

CHAPTER 9 Capital Markets 173

CHAPTER 10 Non-bank Financial Intermediation 207

CHAPTER 11 Performance of Islamic Financial Services 225

CHAPTER 12 Financial Engineering 245

CHAPTER 13 Risk Management 275

CHAPTER 14 Regulation of Islamic Financial Institutions 299

CHAPTER 15 Corporate Governance 323

CHAPTER 16 Globalization and its Challenges 351

CHAPTER 17 Issues and Challenges 365

Bibliography 393

Index 399