Islamic Finance and Economic Development

Risk, Regulation, and Corporate Governance

Amr Mohamed El Tiby Ahmed, Wafik Grais

• Publisher: Wiley
• Year: 2014
• ISBN:
  9781118847190
• Edition: 1
• Topic: Business
• Subtopic: Islamic Banking & Finance
• Index: Business

A comprehensive guide to mitigating risk and fostering growth in the Islamic financial sector

Islamic finance, like conventional finance is a business of financial intermediation. Its distinctive features relate to the requirement that it abides by Shari'a rules that promote fairness of contracts and prevention of exploitation, sharing of risks and rewards, prohibition of interests, and tangible economic purpose. Islamic finance should not fund activities considered "haram" or sinful. In Islamic Finance and Economic Development: Risk, Regulation, and Corporate Governance, authors Amr Mohamed El Tiby and Wafik M. Grais expound how these distinctive features bear on the opportunities and challenges facing the Islamic finance industry's development, risk management, regulation and corporate governance.

An experienced banker with various Middle East banking institutions, notably as former Vice President at UAE Union National Bank and Mashreq bank, Dr. El Tiby offers an informed perspective on corporate finance from within the Islamic finance industry. With a long experience in international development and finance, notably as former Director at the World Bank and Founder and Chairman of a Cairo-based Financial Advisors company, Dr. Grais brings global financial experience on the topics of financial systems assessments, corporate governance, Islamic finance, and public policy.

• Covers the history and basics of Islamic finance, and provides insight into current conditions and future landscape
• Explores regulatory framework, including opportunities and challenges for the industry's development and mainstreaming
• Presents an approach to developing a systemic Shari'a governance framework to govern operations in the Islamic finance industry

Part One
Emergence of Modern Islamic Finance

Financial services are core to economic activity. Individuals and institutions need to place excess liquidity and access financial resources for investments or consumption. Also, they need financial services to settle their transactions. The financial intermediation industry has developed over time, responding to these economic needs but also to prevailing societal values. Most regulation governing finance has developed to provide public trust in an industry based essentially on information and confidence. Trust and confidence are essential values that allow societies to remain cohesive and to develop.

Thus, by its very nature, successful financial intermediation corresponds to the values of the societies where it operates. Values evolve and over time codes of conduct of business evolve with them. For example, conventional finance has gradually come to integrate environmental, social, and governance considerations in its business conduct, reflecting modern societies’ evolving values.¹

Islamic finance has emerged in modern times to provide correspondence between the conduct of financial intermediation and the values of communities wanting to abide by Islamic Shari’a principles. Postcolonial identity assertion and natural resource–based financial surpluses in the 1970s combined with the need for value correspondence to create enabling conditions for the development of Shari’a-compliant financial services. Chapter 1 provides a historical overview of the industry’s development and highlights its core principles.

During the same period it has also become increasingly clear that financial development and economic development are significantly correlated. Financial deepening seemed to contribute to raising rates of economic growth. Moreover, financial inclusion allowing large and poor segments of a society to access financial services appeared to foster socioeconomic development.

In this context, it seems legitimate to assume that Islamic finance could be a contributor to development, as it could provide financial services to many who would otherwise refrain from dealing with conventional finance. Chapter 2 takes an initial look at the issue with a focus on the potential impact of Islamic finance on Egypt’s economic development.²

Notes

¹International Finance Corporation, “IFC Performance Standards on Environmental and Social Sustainability,” January 2012 at www.ifc.org/wps/wcm/connect/c8f524004a 73daeca09afdf998895a12/IFC_Performance_Standards.pdf?MOD=AJPERES. ²The issue of the potential contribution of Islamic finance to economic growth, financial inclusion, and development deserves analytical investigation.

Chapter 1
History and Core Principles of Islamic Finance

An often-raised question is: What actually is Islamic finance and in what way does it differ from conventional finance? Islamic financial services pledge to conduct financial intermediation in accord wit...

Table of contents

• Cover
• Series
• Titlepage
• Copyright
• Dedication
• Preface
• Acknowledgments
• Acronyms
• About the Authors
• Part One: Emergence of Modern Islamic Finance
• Part Two: Managing Systemic Risks
• Part Three: Regulatory Challenges
• Part Four: Corporate Governance
• Appendix: Islamic Finance: The International Landscape
• References
• Index
• End User License Agreement