Summary

The prohibition of interest is the feature of Islamic banking which most distinctly sets it apart from conventional banking. To Western eyes, this seems a strange restriction, but Christian countries themselves maintained such a ban for 1,400 years. Islamic Banking asks why Islam has been able to maintain its stand. The book explores the intricacies of Islamic law and the religious and ethical principles underpinning Islamic banking. It then considers the analytical basis of Islamic banking and financing in the light of modern theories of financial intermediation, and identifies the conceptual issues to be overcome.

Following case studies of the operations of Islamic banks in Bahrain, Bangladesh, Egypt, Jordan, Malaysia and Australia, along with Iran, Pakistan and Sudan, the volume concludes that many of the criticisms of their activities seem misplaced. It argues that the factors governing success are the distinctive system of corporate governance and continued product innovation. The book ends by considering four such innovations - Islamic investment banking and project finance, Islamic insurance, Islamic securities and the formation of a pan-Islamic international financial centre.

This pathbreaking volume - the first to consider Islamic banking and finance from a global perspective - will be of great interest to scholars of money and banking, international finance and Middle Eastern studies.

Choice Review

Lewis (Univ. of South Australia) and Algaoud (Ministry of Finance and National Banking, Bahrain) present a comprehensive survey of Islamic banking. Initial chapters provide a brief introduction to Islamic banking; sketch Islamic precepts and laws necessary for understanding Islam in general; and discuss the fundamental difference and, according to some, the Achilles' heel of Islamic banking--riba, the prohibition of interest in any form or shape. Subsequent chapters deal with financial intermediation of Islamic banks; the all-important problem of principal/agent and the moral hazards that could be problematic for any Islamic bank; and the theoretical objectives of Islamic financial systems as subservient to overall Islamic socioeconomic goals and ethics. Also briefly described are banking practices in Iran, Pakistan, and the Sudan. Chapters in the latter part of the book address the creation and functioning of Islamic banks where they exist alongside credit-based banks around the world; discuss banks in Bahrain within the framework of the corporate governance literature; offer a comparative analysis of Islamic and Judaic-Christian attitudes toward usury; and discuss Islamic insurance and the role of Islamic banks as financiers. Glossary of Arabic terms. Recommended for anyone interested in the theory and practice of Islamic banking. Public and academic library collections, upper-division undergraduate through professional. H. Zangeneh Widener University