Alamad Financial Innovation and Engineering in Islamic Finance

1. Auflage 2017
ISBN: 978-3-319-52947-9
Verlag: Springer Nature Switzerland
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 240 Seiten

Reihe: Contributions to Management Science

This book provides two important contributions to existing theories in the financial innovation literature. First, it extends the existing literature of innovation orientation to a completely new field and construct that is based on a religious imperative as a framework within which financial innovation is constrained. It explains how an innovation orientation in IFIs can be directed within religious rules, which indicates that innovation orientation in IFIs is a learning philosophy. Second, the book introduces and examines the plasticity of Shariah as a shared boundary object and its dynamic role in managing tension and conflicting values in the financial innovation process. Furthermore, building on the empirical results, the study illustrates the insights that each theoretical lens affords into practices of collaboration and develops a novel analytical framework for understanding religious orientation towards financial innovation. This practical contribution, of the developed framework, could form the basis for a standardised framework for the Islamic finance industry. The book concludes by noting the policy and managerial implications of its findings and provides directions for further research.

Autoren/Hrsg.

Alamad, Samir

Inhaltsverzeichnis

1;Preface;7
2;Acknowledgement;10
3;Contents;11
4;List of Figures;17
5;List of Tables;18
6;List of Common Abbreviations;19
7;Chapter 1: Introduction;20
7.1;1.1 Background;20
7.2;1.2 Importance of Financial Innovation: Realising the Potential;21
7.3;1.3 What Makes a Bank Islamic;23
7.4;1.4 Values Embedded in the Islamic Banking Products;23
7.5;1.5 If All Banks Adopted Islamic Values, Would There Have Been a Banking Collapse?;25
7.6;1.6 Significance of this Book;25
7.7;1.7 Motivation of the Book;26
7.8;1.8 Objectives of this Book;27
7.9;1.9 Contribution of the Book;27
7.10;1.10 Potential Implications of this Book;28
7.11;1.11 Outline of the Book Chapters;28
8;Chapter 2: The Context of Islamic Banking and Finance;33
8.1;2.1 Introduction;33
8.2;2.2 Defining Islamic Finance;33
8.3;2.3 The Prohibition of Riba in Islamic Finance;35
8.4;2.4 The Ethical Basis of Islamic Finance;35
8.5;2.5 The Concept of Growth and Purification in Finance;36
8.6;2.6 Islamic Finance Instruments;36
8.7;2.7 Shariah Compliance and Governance (SCG) of Islamic Financial Institutions (IFI);38
8.8;2.8 Duties and Responsibilities of the SSC;40
8.8.1;2.8.1 Concept and Structure of Financial Products;40
8.8.2;2.8.2 Documentation;40
8.8.3;2.8.3 Shariah Advisory;40
8.8.4;2.8.4 Providing Shariah Legal Opinion;41
8.8.5;2.8.5 Undertaking Shariah Compliance Audit;41
8.9;2.9 Major Differences Between IFIs and Their Conventional Counterpart;41
8.10;2.10 Financial Innovation and Engineering;41
8.10.1;2.10.1 Scope of Financial Innovation and Engineering;43
8.10.2;2.10.2 Innovation and New Product Development in Finance;43
8.11;2.11 Conclusion;44
9;Chapter 3: Analysis of Financial Innovation and Engineering in the Literature;45
9.1;3.1 Introduction;45
9.2;3.2 Differences Between Islamic and Conventional Banking;46
9.3;3.3 The Difference Between Usury (Riba) and Interest;46
9.4;3.4 Emergence of Islamic Banking;47
9.5;3.5 Islamic Banking and Finance: Critics and Defenders;49
9.6;3.6 Innovation;50
9.6.1;3.6.1 Definition of Innovation;50
9.6.2;3.6.2 Nature and Theory of Financial Innovation;51
9.6.3;3.6.3 Three Schumpeterian Schools of Innovation;52
9.6.4;3.6.4 Innovation Orientation;53
9.6.5;3.6.5 The Relation Between Innovation and Financial Crisis;54
9.7;3.7 Product Development;55
9.7.1;3.7.1 Definition of Product Development;55
9.7.2;3.7.2 Importance of Product Development;55
9.7.3;3.7.3 Product Development Process;55
9.7.4;3.7.4 Product Development in Islamic Banking;56
9.7.5;3.7.5 Islamic Ethics and Financial Product Development and Engineering;57
9.8;3.8 Regulatory Challenges;58
9.9;3.9 Risks in Islamic Banking;59
9.9.1;3.9.1 Credit and Market Risks;60
9.9.2;3.9.2 Operational Risk Exposure of Islamic Banks;60
9.9.3;3.9.3 Impacts of Basel III on Islamic Banks;61
9.9.3.1;3.9.3.1 Current Scenario;61
9.9.3.2;3.9.3.2 Capital Impact;61
9.9.3.3;3.9.3.3 Leverage Ratio;62
9.9.4;3.9.4 Liquidity in Islamic Banks;62
9.10;3.10 Corporate Governance;63
9.11;3.11 Islamic Economics and Ethics;64
9.12;3.12 Legal Stratagems (Hiyal) in Islamic Commercial Law;65
9.13;3.13 The Role of Islamic Finance in Tackling Financial Exclusion;66
9.14;3.14 Conclusion;67
10;Chapter 4: A Historical Analysis of Financial Innovation in Islamic Economics and Finance from Inception to the Sixteenth Cent...;69
10.1;4.1 Introduction;69
10.2;4.2 Phases of the History of Islamic Finance and Its Innovation;70
10.2.1;4.2.1 Phase 1: Formation (622-661);70
10.2.1.1;4.2.1.1 Currency Exchange;73
10.2.1.2;4.2.1.2 Credit Sale and Mortgage;73
10.2.1.3;4.2.1.3 Murabaha Sale;74
10.2.1.4;4.2.1.4 Forward Sale (as-salam Contract, Sales in Which a Price Is Paid for Goods to be Delivered Later);74
10.2.1.5;4.2.1.5 Transference of a Debt from One Person to Another (Al-Hawaala);74
10.2.1.6;4.2.1.6 Representation, Authorisation and Business by a Proxy Via Agency (Wakala);74
10.2.1.7;4.2.1.7 Partnership;74
10.2.2;4.2.2 Phase 2: Growth and Stability (Seventh-Tenth Century);75
10.2.3;4.2.3 Phase 3: Decline (Tenth-Thirteenth Century);78
10.2.4;4.2.4 Phase 4: Partial Growth (Thirteenth-Sixteenth Century);78
10.3;4.3 Conclusion;82
11;Chapter 5: A Historical Analysis of Financial Innovation in Islamic Economics and Finance from the Sixteenth Century to Present;83
11.1;5.1 Introduction;83
11.2;5.2 Phase Five: Youthfulness (Sixteenth to Nineteenth Century);83
11.3;5.3 Phase Six: The Decline of the Ottoman State and Subservience to the West (from the Beginning of the Nineteenth Century to ...;86
11.4;5.4 Phase Seven: Islamic Finance Revivalism (1950s-1960s);88
11.5;5.5 Phase Eight: Interest-Free Islamic Banking (1970s-Present);91
11.5.1;5.5.1 Emergence of Islamic Banking;92
11.5.2;5.5.2 An Empirical Account on Islamic Banking in the West;95
11.5.2.1;5.5.2.1 Islamic Banking in Western Europe;95
11.5.2.2;5.5.2.2 Islamic Banking in the United States of America;98
11.5.3;5.5.3 Evolution of Islamic Banking in South East Asia, Pakistan and Iran;99
11.5.3.1;5.5.3.1 Malaysia;99
11.5.3.2;5.5.3.2 Indonesia;100
11.5.3.3;5.5.3.3 Thailand;100
11.5.3.4;5.5.3.4 Brunei;101
11.5.3.5;5.5.3.5 Pakistan;101
11.5.3.6;5.5.3.6 Iran;102
11.5.4;5.5.4 Various Approaches to Shariah Governance;102
11.5.4.1;5.5.4.1 Proactive Approach to Shariah Governance;103
11.5.4.2;5.5.4.2 Reactive Approach to Shariah Governance;103
11.5.4.3;5.5.4.3 A Hybrid Approach of Proactive and Reactive Approaches to Shariah Governance;103
11.6;5.6 Conclusion;104
12;Chapter 6: Traditional Theory of Financial Innovation;108
12.1;6.1 Introduction;108
12.2;6.2 Analysis of the Role Played by Financial Innovation in Creating Financial Crises;109
12.3;6.3 Fundamental Elements Influencing the Financial Market;110
12.4;6.4 The Resilience of the Banking System: A Key Factor in the On-Going Financial Crises;110
12.5;6.5 The Race by Financial Institutions to Develop Sophisticated Financial Products;111
12.6;6.6 The Root Cause of Financial Crises;112
12.7;6.7 What Is Financial Innovation?;113
12.7.1;6.7.1 Financial Innovation in History;114
12.7.2;6.7.2 What Drives Financial Innovation?;115
12.8;6.8 Undesirable Consequences of Innovation;115
12.9;6.9 Pro-Innovation Bias;117
12.10;6.10 Three Schools of Innovation;118
12.10.1;6.10.1 The Corporate Entrepreneurial School: A Social Perspective-Innovation as Grassroots Impetuses;119
12.10.2;6.10.2 The Cultural School: A Cultural Perspective-Nature of Innovation: Deep Craft;120
12.10.3;6.10.3 The Capability School: An Economic Perspective-Innovation as Institutionalised Capability;120
12.11;6.11 Conclusion;122
13;Chapter 7: Financial Innovation Theory from an Islamic Perspective;124
13.1;7.1 Introduction;124
13.2;7.2 Four Schools of Innovation;125
13.3;7.3 Definition of Innovation from an Islamic Perspective;126
13.4;7.4 The Islamic School of Financial Innovation;126
13.5;7.5 The Mechanics of Financial Innovation: The Role of Jurisprudence;127
13.6;7.6 The Application of Normativity Through Social Practices: Bourdieu´s Theory;128
13.7;7.7 Socially Useless Financial Innovation;131
13.8;7.8 Economic Thought in the Qura´an and the Sunnah, Basic Philosophy for Financial Innovation Theory;132
13.8.1;7.8.1 The Concept of Unity, Tawhid;132
13.8.2;7.8.2 The Concept of Vicegerency, al Khilafah;134
13.8.3;7.8.3 The Concept of Free Will and Responsibility, al-Iradah wa al-Masu´wliyyah;135
13.8.3.1;7.8.3.1 Free Will and Trust (Amanah);135
13.8.3.2;7.8.3.2 Responsibility;135
13.8.3.3;7.8.3.3 A System of Reward and Punishment;136
13.9;7.9 Islamic Economic Principles: The Fundamentals for an Islamic Theory of Innovation;136
13.9.1;7.9.1 The Principle of Moderation (I´atidal) in Financial Innovation;136
13.9.2;7.9.2 The Principle of Economic Efficiency in Financial Innovation;137
13.9.3;7.9.3 The Principle of Social Justice (al-A´adalah al-Ijtima´iyyah) in Financial Innovation;139
13.10;7.10 Application of the Basic Islamic Philosophy in Financial Innovation;140
13.11;7.11 The Origins of Shariah Supervision and Governance;140
13.12;7.12 Conclusion;142
14;Chapter 8: Futures Contracts as an Underlying Product of Financial Engineering in Islamic Finance;144
14.1;8.1 Introduction;144
14.2;8.2 Definition of Futures;145
14.3;8.3 Financial Futures;146
14.4;8.4 Hedging Mechanism Through Derivatives;147
14.4.1;8.4.1 Objective of Hedging;147
14.4.2;8.4.2 Hedging Using Options;147
14.4.3;8.4.3 Hedging Interest-Rate Risk with Financial Futures;148
14.5;8.5 Futures from an Islamic Perspective;148
14.6;8.6 Problems Related to Futures Markets from an Islamic Finance Perspective;150
14.7;8.7 Al-Gharar (Uncertainty) in the Futures Market;150
14.8;8.8 Conclusion;151
15;Chapter 9: Options Contracts as an Underlying Product of Financial Engineering in Islamic Finance;152
15.1;9.1 Introduction;152
15.2;9.2 What Is an Option;152
15.3;9.3 A Brief Historical Review of Options;153
15.4;9.4 Types of Options;154
15.4.1;9.4.1 Call Option;154
15.4.2;9.4.2 Put Option;154
15.4.3;9.4.3 Double Options;155
15.5;9.5 Why Options Are Popular;155
15.6;9.6 Useful Economic Purposes Served by Options;155
15.7;9.7 Market Analysis of Options;156
15.8;9.8 An Assessment of Options from an Islamic Finance View;157
15.9;9.9 Options in the Islamic Literature;157
15.10;9.10 Some Possible Shar?´ah Objections to Options;158
15.11;9.11 Khiy?r as a Form of Option;158
15.11.1;9.11.1 Main Typical Types of al-khiy?r?t (Options) as Validated by the Sunnah;159
15.12;9.12 Options and Islamic Jurisprudence;159
15.12.1;9.12.1 Call Option;160
15.12.2;9.12.2 Put Option;161
15.12.3;9.12.3 Index Option;161
15.12.4;9.12.4 Right as an Object of Sale;161
15.13;9.13 The Framework of Khiy?r al-Shart and Dam?n (guarantee);162
15.14;9.14 Similarity Between Options and Bai´ al-`Arbun (Down-Payment Sale);165
15.15;9.15 Conclusion;166
16;Chapter 10: Outlining a Framework for Financial Innovation and Engineering in Islamic Finance;168
16.1;10.1 Introduction;168
16.2;10.2 Affiliated Risk with Options Contracts;169
16.3;10.3 Al-Gharar (Uncertainty) in the Option Market;169
16.4;10.4 The Issue of Riba (Usury) Associated with Options;170
16.5;10.5 The Rationale of Prohibiting Conventional Options;171
16.6;10.6 Muslim Economists Point of View;172
16.7;10.7 Options from usul al-Fiqh (The Sources of Law) Point of View;173
16.7.1;10.7.1 Istihs?n;173
16.7.2;10.7.2 Al-maslaha al-mursala (Common Good);173
16.8;10.8 Financial Contracts with Embedded Khiy?r al-Shart;174
16.9;10.9 Managing Price Risk with khiy?r al-shart;175
16.10;10.10 Istijr?r Sale with Khiy?r al-Shart;176
16.11;10.11 Exclusions from Option Contracts;177
16.12;10.12 Conclusion;178
17;Chapter 11: Case Study: Analysis of Selected Shariah Compliant Financial Products;180
17.1;11.1 Introduction;180
17.2;11.2 Scope of the Documentary Analysis;181
17.3;11.3 Findings of the Case Study Through Documentary Analysis;182
17.3.1;11.3.1 Documentary Analysis of an Investment Product;182
17.3.1.1;11.3.1.1 Shariah Objectives;182
17.3.1.2;11.3.1.2 Social Welfare Impact;183
17.3.1.3;11.3.1.3 Suitability of the Selected Islamic Finance Principle or Structure;183
17.3.1.4;11.3.1.4 Compliance of the Structure with All Requirements of the Islamic Finance Principle Employed;183
17.3.1.5;11.3.1.5 A Shariah Compliant Product or a Shariah Inspired Product in Form and Substance;184
17.3.2;11.3.2 Documentary Analysis of a Home Finance Product;184
17.3.2.1;11.3.2.1 Shariah Objectives;185
17.3.2.2;11.3.2.2 Social Welfare Impact;185
17.3.2.3;11.3.2.3 Suitability of the Selected Islamic Finance Principle or Structure;185
17.3.2.4;11.3.2.4 Compliance of the Structure with All Requirements of the Islamic Finance Principle Employed;186
17.3.2.5;11.3.2.5 A Shariah Compliant Product or a Shariah Inspired Product in Form and Substance;187
17.3.3;11.3.3 Documentary Analysis of a Derivative Product;187
17.3.3.1;11.3.3.1 Shariah Objectives;187
17.3.3.2;11.3.3.2 Social Welfare Impact;188
17.3.3.3;11.3.3.3 Suitability of the Selected Islamic Finance Principle or Structure;188
17.3.3.4;11.3.3.4 Compliance of the Structure with All Requirements of the Islamic Finance Principle Employed;188
17.3.3.5;11.3.3.5 A Shariah Compliant Product or a Shariah Inspired Product in Form and Substance;189
17.3.4;11.3.4 Documentary Analysis of Sukuk (Equity Based Islamic Certificate) Issue;189
17.3.4.1;11.3.4.1 Shariah Objectives;190
17.3.4.2;11.3.4.2 Social Welfare Impact;190
17.3.4.3;11.3.4.3 Suitability of the Selected Islamic Finance Principle or Structure;191
17.3.4.4;11.3.4.4 Compliance of the Structure with All Requirements of the Islamic Finance Principle Employed;191
17.3.4.5;11.3.4.5 Shariah Compliant Product or a Shariah Inspired Product in Form and Substance;192
17.4;11.4 Summary of the Documentary Analysis Findings;192
17.5;11.5 Conclusion;192
18;Chapter 12: Discussion and Conclusion;194
18.1;12.1 Introduction;194
18.2;12.2 Discussion;194
18.3;12.3 Book Contribution;198
18.4;12.4 Policy Implications;199
18.5;12.5 Case Study of a New Shariah Compliant Financial Innovation (Takaful Student Finance);201
18.5.1;12.5.1 Background of the Financial Innovation;201
18.5.2;12.5.2 The Analytical Process That Led to a Solution for the Alternative Student Finance;202
18.5.3;12.5.3 Takaful as a Solution for the Alternative Student Finance;203
18.6;12.6 Conclusion;205
18.7;12.7 Avenues for Future Research;208
19;Glossary;209
20;References;214
21;Index;234