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The Politics of Islamic Finance

The Politics of Islamic Finance

Copyright Date: 2004
Pages: 312
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  • Book Info
    The Politics of Islamic Finance
    Book Description:

    Valuable reading for anyone who wants to understand Islamic banking and its formal and informal societal and political relationships.

    eISBN: 978-0-7486-7971-3
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Introduction
    (pp. 1-14)
    Clement M. Henry and Rodney Wilson

    In the wake of the 11 September 2001 terrorist attacks on the United States, the UN Security Council passed a resolution targeting transnational sources of terrorist funds. At least one offshore Islamic bank was shut down, and American officials, ignorant about Islamic finance, viewed any ‘Islamic’ bank with heightened suspicion. The Bush Administration targeted Al-Baraka in particular, confusing a Somalian funds-transfer agency with the transnational Islamic banking group that has the same name, a generic Arabic term for ‘blessings’. Most Islamic capital-formation derives from legitimate business activity, however, and many governments in the Middle East and North Africa (MENA) tolerate...

  4. Part I Thematic Essays

    • 1 Islamic Banks: The Rise of a New Power Alliance of Wealth and Shari’a Scholarship
      (pp. 17-36)
      Monzer Kahf

      Islamic banking in the Arab world created a new political alliance that unexpectedly emerged out of working relationships between the rich and wealthy on the one hand and many shari’a scholars on the other hand. These relationships continue to invigorate the shari’a scholars, who influence substantial segments of public opinion in most Muslim countries. One consequence is that the scholars encourage their followers and the wider Muslim public to use Islamic banks.

      This chapter discusses the history of this new alliance, the factors contributing to the need of each of the two sides for this alliance for the help and...

    • 2 Global Politics, Islamic Finance and Islamist Politics Before and After 11 September 2001
      (pp. 37-62)
      Ibrahim Warde

      This chapter discusses the evolution of global politics, Islamic finance and Islamist politics over three periods: the later stages of the cold war (1973–89), during which the first aggiornamento of Islamic finance took place, the ‘New World Order’ that followed the end of the cold war (1990–2001) and the ‘New New World Order’ ushered in by the events of 11 September 2001. Each period was marked by different political alignments and priorities, different forms of Islamic finance and different types of Islamist movements.

      Since its inception in the mid-1970s, Islamic finance was firmly embedded within the US-centred international...

    • 3 The Murabaha Syndrome in Islamic Finance: Laws, Institutions and Politics
      (pp. 63-80)
      Tarik M. Yousef

      The observation half a century ago by Islamic intellectuals that in Muslim societies banking and finance, like other spheres of economic life, should be governed by religious tenets has undergone rapid transformation in the past few decades. Indeed, what began as an intellectual critique of Western-based financial systems by political movements in Muslim societies, and later on emerged as an area of research curiosity by Muslim social scientists, has now evolved into a broad field of academic and policy research across national and religious lines. Whereas early research dealt with the broad philosophical foundations of Islamic finance, recent analyses have...

    • 4 Marketing Commodities Does Not Happen on Commodity Markets: The Egyptian Bursat Al-‘Uqud and Oil Futures Markets
      (pp. 81-103)
      Ellis Goldberg

      Discussions of Islamic finance usually turn, as in many of the papers in this volume, to the question of interest (riba). But charging interest is not the only point of contention between Islamic legal scholars and modern financial practices. Insurance is an additional area. Another, often neglected, aspect of modern financial practice that seems equally problematic from the viewpoint of contemporary exegetes of classical Islamic law is the market in financial paper that we usually refer to as the ‘futures’ market. The futures market (also called the commodities market) is a market in ‘contracts calling for delivery of a standard...

    • 5 Financial Performances of Islamic versus Conventional Banks
      (pp. 104-128)
      Clement M. Henry

      The purpose of this chapter is to gain a better understanding of the competitive advantages and disadvantages of Islamic banks compared to their conventional counterparts operating in Muslim countries. The ‘murabaha syndrome’ described by Tarik Yousef in Chapter 3 suggests that Islamic banks labour under a major disadvantage: long-term financing with mudaraba or musharaka seems far riskier than the medium- or long-term lending of conventional banks. The Islamic financial instruments presuppose a high degree of trust between business partners, whereas conventional banks can maintain hands-off relationships with their clients, subject to minimal monitoring of their businesses. Without the trust, Islamic...

    • 6 Capital Flight through Islamic Managed Funds
      (pp. 129-152)
      Rodney Wilson

      In much of the Islamic World finance is asymmetric, as private wealth is, at least in part, generated locally but then invested in Western markets, a phenomenon which is referred to as capital flight. In contrast, Muslim governments mostly fail to raise sufficient revenue to cover their expenditures, and as a result they become dependent on international borrowing to fund their deficits. There is, in other words, varying degrees of private affluence and this is by no means confined to the oil-exporting states of the Gulf; at the same time there is public squalor and run down and decaying public...

  5. Part II Case Studies

    • 7 Interest Politics: Islamic Finance in the Sudan, 1977–2001
      (pp. 155-167)
      Endre Stiansen

      The Islamization of financial legislation in the Sudan was undertaken in secrecy and haste. But whatever the prelude, from August 1983 no court could enforce interest-based contracts. After only a few months, it became apparent that the legal reform (supplement to the Civil Procedure Act) and subsequent efforts to correct the deficiencies (supplements to the Civil Transaction Act and circulars from the Bank of Sudan) were only moderately successful. Banking continued much as before, and it took more than fifteen years before the Government resolved to enforce the prohibition of riba, defined as all forms of interest.¹ Yet, in the...

    • 8 The Kuwait Finance House and the Islamization of Public Life in Kuwait
      (pp. 168-190)
      Kristin Smith

      In the mid-1970s the Arab countries of the Gulf made a dramatic entrance onto world financial markets. In a single year oil prices quadrupled, precipitating the most rapid transfer of wealth in the twentieth century. As a result of this infusion of petrodollars, many Gulf citizens who previously had no dealings with formal financial institutions had their first introduction to banking.¹ It quickly became apparent, however, that the institutions and norms of Western finance were at odds with the prevailing belief amongst many Gulf citizens that interest is forbidden by Islam. This combination of wealth and piety made the Gulf...

    • 9 Jordan: A Case Study of the Relationship between Islamic Finance and Islamist Politics
      (pp. 191-215)
      Mohammed Malley

      The main contention of political Islamists is that Islam is a complete way of life that encompasses rules and regulations, not only for spiritual and moral uplift, but also for how to establish and maintain political, economic, social and other systems. This was the first of twenty basic principles that Hassan Al-Banna, the founder of the Muslim Brotherhood, stated in a treatise¹ he wrote to explain the understanding of Islam held by his movement, which was the first Islamist organization of the modern era and the largest and most well-known of those groups until the 1990s. Al-Banna believed that the...

    • 10 The Political Economy of Islamic Finance in Turkey: The Role of Fethullah Gülen and Asya Finanss
      (pp. 216-239)
      Filiz Baskan

      The aim of this chapter is to examine the development of Asya Finans as an example of Islamic banking. Asya Finans can be regarded as an Islamic bank in two respects: first, it avoids interest-based transactions and relies instead on profitsharing; and second, it is affiliated to the Islamic Fethullah Gülen Community. It is therefore relevant to ask: what is the difference between Asya Finans and conventional banks? What is the position of Asya Finans in comparison to other special finance houses? What are the aims of Asya Finans? Does Asya Finans benefit from its association with the Fethullah Gülen...

    • 11 Aiyyu Bank Islami? The Marginalization of Tunisia’s BEST Bank
      (pp. 240-264)
      Robert P. Parks

      Tunisia is an unlikely case study in a volume on Islamic banking. Since its 1983 debut, the country’s sole Islamic financial institution, Beit Ettamwil Saoudi Tounsi (BEST Bank) has managed to attract only a fraction more than half a percentage of all commercial banking deposits. In comparison to the development of Islamic banks in a variety of other states during the late 1970s and early 1980s, Tunisia’s experience appears to be a stillborn venture condemned to languish in the financial periphery. Assuming a perfectly functioning market, BEST Bank’s inability to capture a robust market share is counter-intuitive, given its nineteen-year...

    • 12 The Rise and Decline of the Islamic Banking Model in Egypt
      (pp. 265-285)
      Samer Soliman

      The experiences of two decades of Islamic banking in Egypt provide an opportunity to critically examine the results of putting Islam to work in the economy. According to the Islamist version of Islam, religion must apply to all aspects of material as well as spiritual life. Western institutions are doomed to fail in Islamic societies because they are alien to the very value-systems of these societies. As well as providing spiritual salvation to Muslims, Islamic economic institutions are supposed to be more likely to succeed in driving development because they are closer to Muslim citizens than other institutions, and because...

  6. Conclusion
    (pp. 286-295)
    Clement M. Henry and Rodney Wilson

    World politics, notably the United States’ policies concerning Palestine and Iraq, have mobilized many Muslims, albeit ineffectively, against American imperialism and against the governments in the Muslim World which are allied with the United States. Despite the success of the United States in ending the regime of Saddam Hussein in Iraq, America’s ‘war against terrorism’ may in fact become a self-fulfilling prophecy, as the various, supposedly related efforts, notably the attempt to ensure that the clergy play a minimal role in Iraqi politics, produce a counter-reaction and increase support for the transnational terrorist networks associated with Osama Bin Laden.


  7. Notes on the Contributors
    (pp. 296-296)
  8. Index
    (pp. 297-307)