IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/66739.html
   My bibliography  Save this paper

The Philosophy of Islamic Banking and Finance

Author

Abstract

Islamic banking and finance can be described as a system through which finance is provided in the form of money in return for either equity or rights to share in future business profits, or in the form of goods and services delivered in return for a commitment to repay their value at a future date. By now, a good deal of intellectual effort has been undertaken by a number of specialists in Islamic economics to explore different aspects of Islamic banking and finance. Even some conventional economists, intentionally or unintentionally, have dealt with the subjects, which may be considered closely akin to it. It is an undeniable fact that Islamic financial institutions have had only a marginal existence during the last 300 years. They did not get the same chance as western financial institutions to gradually evolve their institutional structure, tools and modus operandi to their full potential. Therefore, such evolutionary process of Islamic banking and finance must be done through serious intellectual work by economists rather than observing institutions at work. However, Islamic banking and finance has now been in the arena for more than a quarter of a century. It has taken a contemporary shape. Whether it has sufficiently approached the Islamic paradigm par excellence or not, is a different question. The philosophy of Islamic banking and finance is a set of theories and ideas related to its understanding.1 In this regard, we must first start with the rules of Islamic Shari[ah from which the very idea of Islamic banking has been drawn. Second, monetary and macro theory is required to explain why Islam considers dealing through the rate of interest as totally unacceptable, and the economy-wide consequences of such practice. Third, banking theory itself would be necessary to figure out the behavior of Islamic banking and finance as well as to assess its comparative performance.

Suggested Citation

  • Al-Jarhi, Mabid, 2004. "The Philosophy of Islamic Banking and Finance," MPRA Paper 66739, University Library of Munich, Germany, revised 2007.
    • Handle: RePEc:pra:mprapa:66739
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/66739/1/3.%20Chapter%201%20-%20Islamic%20Banking%20and%20Finance%20Philosophical%20Underpinnings.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Huberto M. Ennis, 2001. "Loanable Funds, Monitoring and Banking," Review of Finance, European Finance Association, vol. 5(1-2), pages 79-114.
    2. Peter Ireland, 2003. "Implementing the Friedman Rule," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 120-134, January.
    3. Isabel Correia & Pedro Teles, 1999. "The Optimal Inflation Tax," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 2(2), pages 325-346, April.
    4. Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(3), pages 663-691.
    5. Uhlig, H.F.H.V.S., 2000. "Should we be Afraid of Friedman's Rule?," Other publications TiSEM 75057545-86e1-4482-b63d-c, Tilburg University, School of Economics and Management.
    6. Green, Jerry R. & Scheinkman, Josè Alexandre (ed.), 1979. "General Equilibrium, Growth, and Trade," Elsevier Monographs, Elsevier, edition 1, number 9780122987502.
    7. Auffret, Philippe, 2001. "An alternative unifying measure of welfare gains from risk-sharing," Policy Research Working Paper Series 2676, The World Bank.
    8. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    9. Al-Jarhi, Mabid, 1980. "A Monetary and Financial Structure for an Interest-Free Economy: Institutions, Mechanism & Policy," MPRA Paper 66741, University Library of Munich, Germany, revised 2004.
    10. James R. Barth & Gerard Caprio Jr. & Ross Levine, 2001. "Banking Systems around the Globe: Do Regulation and Ownership Affect Performance and Stability?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 31-96, National Bureau of Economic Research, Inc.
    11. Caroline Fohlin, 1998. "Banking systems and economic growth: lessons from Britain and Germany in the pre-World War I era," Review, Federal Reserve Bank of St. Louis, issue May, pages 37-48.
    12. Gary Gorton & Frank A. Schmid, 1995. "Universal Banking and the Performance of German Firms Federal Reserve Bank of Chicago," Center for Financial Institutions Working Papers 96-11, Wharton School Center for Financial Institutions, University of Pennsylvania.
    13. Uhlig, Harald, 2000. "Should We Be Afraid of Friedman's Rule?," Journal of the Japanese and International Economies, Elsevier, vol. 14(4), pages 261-303, December.
    14. Harold L. Cole & Narayana R. Kocherlakota, 1998. "Zero nominal interest rates: why they're good and how to get them," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 22(Spr), pages 2-10.
    15. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
    16. Kathryn L. Dewenter & Alan C. Hess, 1998. "An international comparison of banks' equity returns," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 472-499.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Al-Jarhi, Mabid, 2016. "An economic theory of Islamic finance," MPRA Paper 72698, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Al-Jarhi, Mabid Ali, 2005. "The Case For Universal Banking As A Component Of Islamic Banking," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 13, pages 2-65.
    2. Al-Jarhi, Mabid, 2016. "An economic theory of Islamic finance," MPRA Paper 72698, University Library of Munich, Germany.
    3. Peter Ireland, 2005. "EconomicDynamics Interviews Peter Ireland on Money and the Business Cycle," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 7(1), November.
    4. Al-Jarhi, Mabid, 2000. "السياسات النقدية في إطار إسلامي [Monetary Policy in an Islamic Framework]," MPRA Paper 67547, University Library of Munich, Germany, revised 2002.
    5. Alexandre Cunha, 2004. "The Friedman Rule in a Two Sector Small Open Economy," Econometric Society 2004 North American Summer Meetings 530, Econometric Society.
    6. Peter N. Ireland, 2005. "The Liquidity Trap, The Real Balance Effect, And The Friedman Rule ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1271-1301, November.
    7. Alexandre Cunha, 2008. "The optimality of the Friedman rule when some distorting taxes are exogenous," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(2), pages 267-291, May.
    8. Christian Keuschnigg & Evelyn Ribi, 2013. "Profit taxes and financing constraints," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 808-826, October.
    9. B. Scholtens, 1997. "Bank- and market-oriented financial systems: fact or fiction?," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 301-323.
    10. Bo Becker & Victoria Ivashina, 2018. "Financial Repression in the European Sovereign Debt Crisis [Sovereign debt, government myopia and the financial sector]," Review of Finance, European Finance Association, vol. 22(1), pages 83-115.
    11. Peter N. Ireland, 2001. "The Real Balance Effect," NBER Working Papers 8136, National Bureau of Economic Research, Inc.
    12. Robert Dekle & Kenneth Kletzer, 2002. "Domestic Bank Regulation and Financial Crises: Theory and Empirical Evidence from East Asia," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 507-558, National Bureau of Economic Research, Inc.
    13. Agoraki, Maria-Eleni K. & Kouretas, Georgios P., 2021. "Loan growth, ownership, and regulation in the European Banking Sector: Old versus new banking landscape," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    14. Miyake, Atsushi & Nakamura, Tamotsu, 2007. "A dynamic analysis of an economy with banking optimization and capital adequacy regulations," Journal of Economics and Business, Elsevier, vol. 59(1), pages 14-27.
    15. Mabid Ali al-Jarhi, 2016. "The Nature of Money in Modern Economy – Implications and Consequences: Stephen Zarlenga and Robert Poteat طبيعة المال في الاقتصاد الحديث - الآثار والتبعات: ستيفن زارلينجا وروبرت بوتيت," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 29(2), pages 75-79, January.
    16. Robert Dekle & Kenneth M. Kletzer, 2002. "Financial intermediation, agency and collateral and the dynamics of banking crises: theory and evidence for the Japanese banking crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    17. Claudio Morana, 2005. "The Japanese deflation: has it had real effects? Could it have been avoided?," Applied Economics, Taylor & Francis Journals, vol. 37(12), pages 1337-1352.
    18. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    19. repec:zbw:bofrdp:2004_010 is not listed on IDEAS
    20. Peydró, José-Luis & Jiménez, Gabriel & Kenan, Huremovic & Moral-Benito, Enrique & Vega-Redondo, Fernando, 2020. "Production and financial networks in interplay: Crisis evidence from supplier-customer and credit registers," CEPR Discussion Papers 15277, C.E.P.R. Discussion Papers.
    21. Barucci, Emilio & Mattesini, Fabrizio, 2008. "Bank shareholding and lending: Complementarity or substitution? Some evidence from a panel of large Italian firms," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2237-2247, October.

    More about this item

    Keywords

    Islamic banking; Islamic finance; Shari'ah; optimal monetary policies; interest rate; profit-sharing; credit markets; instability; contagion; risk-sharing; equity; banking theory; intermediation; information asymmetry; moral hazard; universal banking;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:66739. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.