Introduction to Islamic Banking & Finance

Citation

Kettell, B. (2008), "Introduction to Islamic Banking & Finance", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 1 No. 4, pp. 346-348. https://doi.org/10.1108/17538390810919655

A focus on the underlying concepts of Sharia‐compliant finance and banking

A gratifying aspect of the ongoing phase of growth in Islamic finance and banking is the continued output of publications on the subject, whereupon authors share their own experiences and understandings with their readers. Viewed in this light, each writer is seen to bring his/her own understanding of various aspects of Islamic banking/financing to bear on the literary product put forward.

Without a doubt, this volume reflects the immense experience of its author in several Middle Eastern countries, including Bahrain, Saudi Arabia, Iran, and Syria. Coupled with a solid foundation in Economics and many years as an academic at UK higher education institutions, the author is well placed to take a modern and rigorous look at this rising and vital area.

Novel approach

Brian Kettell's book is different from most other books on the subject in several ways. Perhaps a major distinguishing feature is its relative and well authenticated emphasis on what lies beneath outward appearances, as the author devotes the first two chapters to a fairly thorough explanation of Islamic beliefs and sources of Sharia law.

These chapters go into some detail in spelling out important Muslim concepts, especially the five prime pillars of Islam (e.g. prayer, fasting, pilgrimage to Mecca), and definition of Iman (faith). In addition, the second chapter dwells on the sources of Sharia (Islamic Law), namely the holy Quran and the Sunnah, i.e. the practices and teachings of the Prophet and his close followers.

It is clear, therefore, that the author has benefited greatly from his long spell in Middle Eastern countries, working as a trainer and consultant in the field of finance and banking, particularly in areas related to Islamic finance. Also, Mr Kettell has published widely, in both Economics/Finance in general, as well as on topics related to Islamic finance. The author's list of publications include academic papers as well as books and other volumes, all in the fields of Economics, Finance, and Islamic finance and banking.

This rich profile enabled Mr Kettell to include a 7‐page glossary of key terms on Islamic finance/banking. In addition, the book contains two important appendices at the back, one listing the world's 100 largest Islamic banks, along with their country of domicile, value of assets, and size of deposits. The other provides a catalogue of the top 500 Islamic financial institutions, again with details of asset‐value, level of pre‐tax profits and starting year for provision of Islamic financial services.

Theory and practice

After covering relevant fundamental concepts, the book moves to elucidating several major instruments of Islamic banking and financing. Six main chapters are earmarked for expanding some prime Islamic techniques, namely murabaha, mudaraba, musharaka, ijara, istisna'a and salam.

However, prior to dwelling on these techniques, the author devotes a whole chapter (the third) to the definition of Islamic banking, setting it out clearly from conventional interest‐based banking. The author puts forward six key principles of Islamic banking, thus:

1. 1.

   prohibition of pre‐determined payments;

2. 2.

   allowing sharing of profit and loss;

3. 3.

   making money out of money is not permitted;

4. 4.

   uncertainty is forbidden;

5. 5.

   only Sharia‐compliant contracts are acceptable; and

6. 6.

   sanctity of contract.

The book contains some interesting insights and comparisons, particularly for those who are not well heeled in Islamic banking. The author rightly points out that usury was banned by the Christian church between the 12th and 15th centuries.

In addition, the book goes on to point out that the structure of an Islamic bank is radically different from its conventional counterpart. A conventional bank is “primarily a borrower of funds on the one hand and a lender on the other. An Islamic bank is rather a partner with its depositors, as well as with entrepreneurs, sharing profit or loss on both sides of the balance sheet” (p. 5).

Another distinction, according to Kettell, is that a conventional bank “would not stop charging interest even if the deployment of its capital fails to bear profit for the entrepreneur, whereas an Islamic bank cannot claim profit if the outcome is a genuine loss” (p. 5).

All in all, this volume is composed of eleven chapters. The first three furnish the fundamentals, while the next six look at a variety of instruments in Islamic finance/banking. The tenth chapter probes Islamic insurance (takaful), while the final one considers the role, membership and responsibilities of Sharia boards, which play a critical function in guiding Islamic financial institutions.

The two final chapters contain several special features. One such feature is a brief profile of several prominent Islamic scholars who are members of several Sharia boards; another is a set of criteria developed by the State Bank of Pakistan for the appointment of Sharia advisors.

Also, the chapter on Islamic insurance (takaful) provides some insights, with adequate comparisons with the world of conventional insurance. Among other things, the chapter expounds the ten principles of takaful, in addition to alternative models of takaful.

Finally, it is probably only fair to conclude with re‐iterating the distinguishing feature of this book, namely thrashing out the basic ideas underlying Islamic finance and banking. As a further instance of this is the five reasons set out for the prohibition of usury in Islam, namely that fixed interest is unjust, possible corruption of society, unlawful appropriation of property, possibility of resulting in negative growth, and demeaning human nature (pp. 49‐53).

Kadom Shubber

Westminster Business School,

London, UK