Although the roots of Islamic finance lie in ancient Islamic principles, the development of Islamic finance as an industry is relatively new. Whilst conventional commercial banks provide financial intermediation services on the basis of interest (charged and paid), the basic premise of Islamic finance is the prohibition of interest. Islamic bankers have developed a number of instruments that can perform financial intermediation functions without the involvement of interest. From a small banking experiment in rural Egypt during the 1960s, Islamic finance is currently expanding at a rate of 10-15% per annum. It now represents a vast global practice and the preferred channel of banking for one fifth of humanity.

Rapid growth is expected for this industry and Islamic finance offers bright prospects for those involved. One of the reasons for this optimism is the huge amount of petro-dollars (estimated to be US$1.3 trillion) currently afloat due to the post Iraq war increase in oil prices. As a result of which, the number of high net worth individuals in the Middle East (of whom the majority are Muslim) has increased by 9.5% over the past few years. Consequently there is tremendous scope for developing and marketing new Islamic financial instruments and Shari'ah compliant money managers are extremely well positioned.

In order to take advantage of this growth, familiarity with basic principles of Islamic finance is essential. The author of this new report, Munawar Iqbal, Dean of the School of Islamic Banking and Finance in International Islamic University, Islamabad does not assume such familiarity. He presents the fundamentals in a way that non-Muslim, non-Arabic speaking professionals may quickly grasp the principles. An extensive glossary of Arabic terms is also included.

By reading this concise report you will quickly get up-to-speed on this booming financial sector. Islamic Finance will help you:

• Become acquainted with the theory, practice and limitations of Islamic banking;

• Understand how to develop products for the Islamic financial industry;

• Grasp the objectives and sources of Islamic law and the basic guidelines for business contracts;

• Evaluate and implement the Islamic banking model and the financial modes presently in use by Islamic financial institutions;

• Learn about Islamic fund management and insurance;

• Consider future prospects and opportunities of the Islamic financial industry.

Due to the success of Islamic banking, many conventional commercial banks are now offering their clients Islamic financial services. Several mega multinational banks such as Citibank, HSBC, Deutsche Bank, are already actively involved in Islamic finance. This is recommended reading for anyone hoping to take advantage of the boom in Islamic finance.

List of Tables and Graphs
Preface
Glossary of Arabic Terms
List of Abbreviations
Introduction

• Objectives and Sources of Islamic Law

Sources of Islamic Law
Revealed Sources
Sources Inferred Through Human Reasoning
Maqasid al-Shari'ah

• Principles of Business Contracts in Islamic Law

Islamic View of Business and Economic Activities
Guidance from the Qur'an on Earning Wealth
What is Allowed in Wealth Creation
'Ten Commandments' with Respect to Business Contracts

• The Islamic Banking Model

What is an Islamic Bank?
Distinguishing Features of Islamic Banking

• Modes of Finance being used by Islamic Banks

Variable Return Modes
Trade Based Modes
Theory versus Practice with Respect to the Use of Various Modes
Secondary Market Instruments

• How to Develop New Islamic Banking Products

Scope for Financial Engineering in Islamic Finance
How New Products can be Developed
Permissibility of Hybrid Contracts
The Five Cs of Islamic Financial Engineering

• The Practice of Islamic Banking

Country Experiences with Islamic Banking
Islamic Banks Working in Competitive Environments
Islamic Banking Windows in Conventional Banks

• Evaluation of Islamic Banking

Growth Analysis
Ratio Analysis

• Islamic Fund Management

Permissibility of Investment Funds
Conditions for Participating in Equity Funds
Scope for Islamic Investment in Equity Markets
Islamic Investment Funds in Practice

• Islamic Insurance

Reasons and Means to Insure
Is Commercial Insurance Permissible in Islam?
Stock Insurance Companies' Business Model
Objection Raised against Stock Insurance Model
Conclusion on Permissibility of Insurance
Islamic Alternative to Commercial Insurance: Takaful

• The Future of Islamic Finance

Need to Broaden the Base
Preparing for Increased Competition
Need to Increase the Size of Islamic Banks
Need to Diversify in the Use of Various Modes
Fulfilling the Long Term Finance Needs
Areas of Potential Growth
The Way Forward
Conclusion
Index

″The great strength of the book is its clarity of exposition, which has obviously benefited from the author's long and distinguished academic career... The book will be useful to corporate executives who are new to Islamic finance and seek a short introduction to the subject that is properly rooted in the religious foundations.″
Mohammed Amin MA FCA AMCT CTA (Fellow) PricewaterhouseCoopers LLP, reviewed in NewHorizon Oct-Dec 2007, Institute of Islamic Banking and Insurance

Munawar Iqbal is Dean of the School of Islamic Banking and Finance, International Islamic University (IIUI), Islamabad, Pakistan. Before joining IIUI, he served as the Chief of Research in Islamic Banking and Finance at the Islamic Research and Training Institute of the Islamic Development Bank, Jeddah, Saudi Arabia (the largest Islamic Financial Institution in the World). Professor Iqbal has also served as Economic Adviser to Al-Rajhi Banking and Investment Corporation, Saudi Arabia (the largest Islamic Commercial Bank in the World). Earlier, he served as the Director, International Institute of Islamic Economics, IIUI, Pakistan. He has taught at the Islamic University, Islamabad, and the McMaster and Simon Fraser universities, both in Canada. He has edited more than ten books and published more than thirty papers in the field of Islamic Banking and Finance. He was the founding Editor of the Review of Islamic Economics, the professional journal of the International Association for Islamic Economics and also founding Editor of the Islamic Economic Studies, the professional journal of the Islamic Development Bank. He has lectured extensively in the field of Islamic Banking and Finance throughout the World.