Islamic Finance: Why It Makes Sense (For You)―Understanding its Principles and Practices

by Vicary Daud Abdullah, Keon Chee

Islamic finance has been growing faster than conventional finance for most of the past decade. It has done this on a model of finance that rejects interest and promotes profit sharing. How is this possible? Yet the wealth potential of Islamic finance is far from being its most attractive feature. What is most compelling about Islamic finance are its ethical principles and strong corporate governance based on Shariah law.

This SECOND EDITION explains and updates how conventional financial products work — from mortgages and leases to trade finance and insurance — before delving into their Islamic versions and contains three new topics on microfinance, the ethical company and wealth succession

Genres: Islam, Economics

344 pages, Paperback

First published March 7, 2014

Reviews

[Valerie Koh · Rating 4 out of 5]

Easy read. Good way of learning about conventional finance and Islamic variants but it really only scratches the surface.

- Learnt that Islamic Finance has great potential to go good because

1) rejects riba (interest) because ppl should not be rewarded just by having money. You should only be rewarded if you’re willing to share the risk or put in labour. Makes sense.

2) rejects major gharar (uncertainty). So that means investing in real assets (reduce excessive debt and leverage), increase transparency and stipulation of who gets what when. Makes sense esp after the 2008/9 crisis.

3) rejects haram investment. Alcohol, tobacco, even opioid for that matter...

4) promotes charity (formal, voluntary etc) and focus on community- waqf, sadaqah, zakat.

- but there are challenges

1) IF products still need to compete w conventional products and some rules may make them less competitive (big Islamic banks are more risky than small and argue commercial banks)

2) plus some products are dressed as Shariah-complaint when they are really not. (Common criticism that some banks actually charge interest without calling it interest)

3) this may be because the fund managers are eager to justify some assets as Shariah complaint when they are not so that they can earn ROI comparable to the conventional products. And they do/can buy over scholars to justify why the investment is in accordance to Shariah (Back again to religion is not the problem, ppl are).

But again it’s always good to have faith because

1) having these rules and some infrastructure provides a good starting point. The intentions are right.

2) Some (real) Islamic investments have been paying off (see Amana growth fund)

Will have to see how things pan out :)

[Bimly Shafara · Rating 5 out of 5]

This book gives a basic understanding of how Islamic finance work in the modern economy. For me, it does make sense. This book covers economic as general, how conventional economy and banking system works then give comparison how if it's done in Islamic ways. If you seek deep explanation with 'dalil' or more on every sharia, you might not found it in here. Because this book covers a lot of economical aspects so this will give a brief and comprehensible explanation. The position to growth for Islamic finance does really big. I believe there is much more work to do to apply and make people understand how Islamic Finance could solve most problems in our conventional economic. You might need more research since this book also state that some rules/sharia complient might be still arguable among Islamic scholars.

[Nadinastiti · Rating 5 out of 5]

This book is very informative, starting with the concept and principles of Islamic finance, then explaining every single Islamic term. I kind of had brain freeze whenever the term like musharakah, mudharabah, unit trust, leasing, etc come up, but worry not--this book has an extensive glossary, both finance and Islamic.

What I also like about this book is how they use graphical information as well as text explanation. Many of the financial flow and terms are unfamiliar for me since Islamic finance not only touch personal lives but also your company life, so the graphics are really helpful. It is also interesting how close Islamic finance to ethical principles. This book also gave us some analysis of how competitive Islamic finance compared to conventional ones.

I will really recommend this book to anyone interested in this topic, even to the beginners (like me).

[John Yafi · Rating 5 out of 5]

I am doing MBA in finance. Besides, I already read the practice of Islamic finance. With growing up in religious country like Yemen. Then, read this book and studying MBA in finance.

I am telling you, this book is explaining from practice perspective and how, why, for what, and then..... It will give you clear picture about the Islamic Finance and how it works.

[Effendy Yahaya · Rating 5 out of 5]

Fruitful and very insightful amongst these people who is very good