Islamic Finance: Law, Economics, And Practice

This page intentionally left blank Islamic Finance Law, Economics, and Practice This book provides an overview of the practice of Islamic finance and the historical roots that define its modes of operation. The focus of the book is analytical and forwardlooking. It shows that Islamic finance exists primarily today as a form of rent-seeking legal arbitrage. An alternative that emphasizes substance rather than form would serve religious and moral objectives better, through mutual and similar financial practices. Mahmoud A. El-Gamal is Professor of Economics and Statistics at Rice University, where he holds the endowed Chair in Islamic Economics, Finance, and Management. Prior to joining Rice in 1998, he had been an associate professor of Economics at the University of Wisconsin at Madison and an assistant professor of Economics at California Institute of Technology and the University of Rochester. He has also served in the Middle East Department of the International Monetary Fund (1995–6) and as the first Scholar in Residence on Islamic Finance at the U.S. Department of the Treasury in 2004. He has published extensively in the areas of econometrics, finance, experimental economics, and Islamic law and finance. Islamic Finance Law, Economics, and Practice Mahmoud A. El-Gamal Rice University cambridge university press Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge cb2 2ru, UK Published in the United States of America by Cambridge University Press, New York www.cambridge.org Information on this title: www.cambridge.org/9780521864145 © Mahmoud A. El-Gamal 2006 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2006 isbn-13 isbn-10 978-0-511-22021-0 eBook (EBL) 0-511-22021-9 eBook (EBL) isbn-13 isbn-10 978-0-521-86414-5 hardback 0-521-86414-3 hardback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. To Father & Mother, who taught me that religious forms should continually serve their central moral substance Contents List of Illustrations page x Preface xi Glossary and Transliteration xv 1 Introduction Finance without Interest? 1.1 Distinguishing Features of Islamic Finance Prohibition-Driven Finance Jurists, Shari‘a